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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. 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.
  2. Edward N. Wolff, 1995. "Technology and the Demand for Skills," Economics Working Paper Archive wp_153, Levy Economics Institute.
  3. David Card & Francis Kramarz & Thomas Lemieux, 1996. "Changes in the Relative Structure of Wages and Employment: A Comparison of the United States, Canada, and France," NBER Working Papers 5487, National Bureau of Economic Research, Inc.
  4. 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.
  5. Sicherman, Nachum, 1991. ""Overeducation" in the Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 9(2), pages 101-22, April.
  6. 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.
  7. Peter Skott & Paul Auerbach, 2004. "Wage inequality and skill asymmetries," UMASS Amherst Economics Working Papers 2004-03, University of Massachusetts Amherst, Department of Economics.
  8. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  9. 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.
  10. Kimball, Miles S, 1994. "Labor-Market Dynamics When Unemployment is a Worker Discipline Device," American Economic Review, American Economic Association, vol. 84(4), pages 1045-59, September.
  11. Hersch, Joni, 1991. "Education Match and Job Match," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 140-44, February.
  12. Skott, Peter, . "Fairness as a source of hysteresis in employment and relative wages," Economics Working Papers 2003-6, School of Economics and Management, University of Aarhus.
  13. F Green & Steven McIntosh & Anna Vignoles, 1999. "Overeducation and Skills - Clarifying the Concepts," CEP Discussion Papers dp0435, Centre for Economic Performance, LSE.
  14. 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.
  15. 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.
  16. 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.
  17. 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.
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Cited by:
  1. Stijn BAERT & Bart COCKX & Dieter VERHAEST, 2012. "Overeducation at the start of the career - stepping stone or trap?," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2012012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Schlicht, Ekkehart, 2007. "Wage Dispersion and Overqualification as Entailed by Reder Competition," Economics Discussion Papers 2007-22, Kiel Institute for the World Economy.
  3. Skott, Peter & Guy, Frederick, 2007. "A model of power-biased technological change," Economics Letters, Elsevier, vol. 95(1), pages 124-131, April.
  4. Fabian Slonimczyk & Peter Skott, 2010. "Employment and Distribution Effects of the Minimum Wage," UMASS Amherst Economics Working Papers 2010-03, University of Massachusetts Amherst, Department of Economics.
  5. Fabián Slonimczyk, 2013. "Earnings inequality and skill mismatch in the U.S.: 1973–2002," Journal of Economic Inequality, Springer, vol. 11(2), pages 163-194, June.
  6. 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.
  7. 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.

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