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Wage inequality and overeducation in a model with efficiency wages

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  • Peter Skott

    ()
    (University of Massachusetts Amherst)

Abstract

This paper shows that the existence and persistence of ‘overeducation’ can be explained by an extension of the efficiency wage model. When calibrated to fit the amounts of overeducation found in most empirical studies, the model implies that both the relative wage and the relative employment rate of high-skill workers depend inversely on aggregate economic activity. Keeping aggregate employment constant, furthermore, low-skill unemployment rises following an increase in the relative supply of high-skill labor, and relative wages may be insensitive to changes in relative labor supplies. The model may help explain rising wage inequality in some countries since the early 1970s. JEL Categories: J31

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Bibliographic Info

Paper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2005-06.

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Date of creation: Feb 2005
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Handle: RePEc:ums:papers:2005-06

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Keywords: Wage inequality; overeducation; efficiency wages.;

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  1. Edward N. Wolff, 1995. "Technology and the Demand for Skills," Economics Working Paper Archive wp_153, Levy Economics Institute.
  2. Dolton, Peter & Vignoles, Anna, 2000. "The incidence and effects of overeducation in the U.K. graduate labour market," Economics of Education Review, Elsevier, vol. 19(2), pages 179-198, April.
  3. A Felstead & D Gallie & F Green, 2000. "Computers are even more important than you thought: An Analysis of the changing skill-intensity of jobs," CEP Discussion Papers dp0439, Centre for Economic Performance, LSE.
  4. David Card & Francis Kramarz & Thomas Lemieux, 1995. "Changes in the Relative Structure of Wages and Employment: A Comparison of the United States, Canada, and France," Working Papers 734, Princeton University, Department of Economics, Industrial Relations Section..
  5. Skott, Peter, 2005. "Fairness as a source of hysteresis in employment and relative wages," Journal of Economic Behavior & Organization, Elsevier, vol. 57(3), pages 305-331, July.
  6. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  7. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  8. Carmichael, Lorne, 1985. "Can Unemployment Be Involuntary? Comment [Equilibrium Unemployment as a Worker Discipline Device]," American Economic Review, American Economic Association, vol. 75(5), pages 1213-14, December.
  9. Nachum Sicherman, 1987. "Over-Education in the Labor Market," University of Chicago - George G. Stigler Center for Study of Economy and State 48, Chicago - Center for Study of Economy and State.
  10. P. J. Sloane & H. Battu & P. T. Seaman, 1999. "Overeducation, undereducation and the British labour market," Applied Economics, Taylor & Francis Journals, vol. 31(11), pages 1437-1453.
  11. F Green & Steven McIntosh & Anna Vignoles, 1999. "Overeducation and Skills - Clarifying the Concepts," CEP Discussion Papers dp0435, Centre for Economic Performance, LSE.
  12. Peter Skott & Paul Auerbach, 2004. "Wage inequality and skill asymmetries," UMASS Amherst Economics Working Papers 2004-03, University of Massachusetts Amherst, Department of Economics.
  13. Miles S. Kimball, 1989. "Labor Market Dynamics When Unemployment Is A Worker Discipline Device," NBER Working Papers 2967, National Bureau of Economic Research, Inc.
  14. Bowles, Samuel, 1985. "The Production Process in a Competitive Economy: Walrasian, Neo-Hobbesian, and Marxian Models," American Economic Review, American Economic Association, vol. 75(1), pages 16-36, March.
  15. Hersch, Joni, 1991. "Education Match and Job Match," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 140-44, February.
  16. Marco Manacorda & Peter Robinson, 1997. "Qualifications and the Labour Market in Britain: 1984-1994 Skill Biased Change in the Demand for Labour or Credentialism?," CEP Discussion Papers dp0330, Centre for Economic Performance, LSE.
  17. Daly, Mary C. & Buchel, Felix & Duncan, Greg J., 2000. "Premiums and penalties for surplus and deficit education: Evidence from the United States and Germany," Economics of Education Review, Elsevier, vol. 19(2), pages 169-178, April.
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Citations

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Cited by:
  1. Fabián Slonimczyk & Peter Skott, 2012. "Employment and Distribution Effects of the Minimum Wage," UMASS Amherst Economics Working Papers 2012-05, University of Massachusetts Amherst, Department of Economics.
  2. Schlicht, Ekkehart, 2007. "Wage Dispersion, Over-Qualification, and Reder Competition," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 1(13 (Versi), pages 1-22.
  3. Peter Skott & Frederick Guy, 2005. "Power-Biased Technological Change and the Rise in Earnings Inequality," UMASS Amherst Economics Working Papers 2005-17, University of Massachusetts Amherst, Department of Economics.
  4. Baert, Stijn & Cockx, Bart & Verhaest, Dieter, 2012. "Overeducation at the start of the career - stepping stone or trap?," Working Papers 2012/27, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  5. Slonimczyk, Fabian, 2011. "Earnings inequality and skill mismatch in the U.S.: 1973-2002," MPRA Paper 35449, University Library of Munich, Germany.
  6. Verhaest, Dieter & Schatteman, Tom, 2010. "Overeducation in the early career: an analysis using sequence techniques," Working Papers 2010/09, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  7. Skott, Peter & Guy, Frederick, 2007. "A model of power-biased technological change," Economics Letters, Elsevier, vol. 95(1), pages 124-131, April.

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