Advanced Search
MyIDEAS: Login

Understanding Wage Inequality: Ben-Porath Meets Skill-Biased Technical Change

Contents:

Author Info

  • Fatih Guvenen
  • Burhanettin Kuruscu

    ()
    (Economics University of Texas at Austin)

Abstract

This paper introduces a tractable general equilibrium overlapping-generations model of human capital accumulation, and shows that it provides a consistent explanation of several key features of the evolution of the U.S. wage distribution from 1970 to 2000. The framework is based on the Ben-Porath (1967) model. The key feature of the model, and the only source of heterogeneity, is that individuals differ in their ability to accumulate human capital. To highlight the working of the model, we abstract from all kinds of idiosyncratic uncertainty that has been the focus of recent research. Thus, wage inequality only results from differences in human capital accumulation. The main thought experiment is the following. We calibrate the model to be consistent with the features of the wage distribution in 1970, and then consider the effect of skill-biased technical change, modeled as an increase in the returns to human capital after 1970. The model is both qualitatively and quantitatively consistent with: (i) a large increase in wage inequality but a much smaller rise in consumption inequality, which happens at the aggregate level as well as within each cohort (Krueger and Perri 2004; Blundell and Preston, 1998), (ii) a falling college-high school premium in the 70's followed by a strong rise starting in early 80's (Katz and Murphy 1992), (iii) stagnating median wages (and a slow-down in labor productivity) from mid-70's until mid-90's, (iv) the fact that the wage growth of a worker between 1965 and 1990 was almost linearly related to his position in the wage percentile distribution in 1965 (Juhn, Murphy and Pierce 1993), (v) the evolution of the 90-50 and 50-10 percentile differentials. We also show theoretically that several of these results are robust features of this model, as long as the heterogeneity in ability is sufficiently large.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://repec.org/sed2006/up.28842.1140064444.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 881.

as in new window
Length:
Date of creation: 03 Dec 2006
Date of revision:
Handle: RePEc:red:sed006:881

Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Email:
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC

Related research

Keywords: Wage and Consumption Inequality; Wage Structure; Skill-Biased Technical Change;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  2. Burhanettin Kuruscu, 2006. "Training and Lifetime Income," American Economic Review, American Economic Association, vol. 96(3), pages 832-846, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Hui He, 2009. "What Drives the Skill Premium: Technological Change or Demographic Variation?," Working Papers 200911, University of Hawaii at Manoa, Department of Economics.
  2. Areendam Chanda, 2005. "The Rise in Returns to Education and the Decline in Household Savings," Macroeconomics 0502034, EconWPA.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:red:sed006:881. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.