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Solow and heterogeneous labour: a neoclassical explanation of wage inequality

  • Jürgen Meckl
  • Stefan Zink

This paper analyses the effect of human-capital investments of heterogeneous individuals on the dynamics of the wage structure within a neoclassical growth model. The accumulation of physical capital changes relative factor prices and thus incentives to acquire skills, thereby altering the composition of the labour force. Without relying on exogenous shocks, our framework generates dynamics that resemble important observations on wage inequality (e.g., the non-monotone evolution of the skill premium). Additional incorporation of wage rigidities emphasises the trade off between residual wage inequality and employment opportunities for unskilled labour that is consistent with country-specific evidence. Copyright 2004 Royal Economic Society.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 114 (2004)
Issue (Month): 498 (October)
Pages: 825-843

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Handle: RePEc:ecj:econjl:v:114:y:2004:i:498:p:825-843
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  1. Galor, Oded & Moav, Omer, 1998. "Ability Biased Technological Transition, Wage Inequality and Growth," CEPR Discussion Papers 1972, C.E.P.R. Discussion Papers.
  2. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
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  5. Acemoglu, Daron, 1996. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," CEPR Discussion Papers 1459, C.E.P.R. Discussion Papers.
  6. David Autor & Lawrence Katz & Alan Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers 756, Princeton University, Department of Economics, Industrial Relations Section..
  7. Taber, Christopher R, 2001. "The Rising College Premium in the Eighties: Return to College or Return to Unobserved Ability?," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 665-91, July.
  8. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
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  11. Kiley, Michael T, 1999. "The Supply of Skilled Labour and Skill-Biased Technological Progress," Economic Journal, Royal Economic Society, vol. 109(458), pages 708-24, October.
  12. Paul Segerstrom & Elias Dinopoulos, 1999. "A Schumpeterian Model of Protection and Relative Wages," American Economic Review, American Economic Association, vol. 89(3), pages 450-472, June.
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  16. Acemoglu, D., 1997. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," Working papers 97-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. repec:inr:wpaper:155908 is not listed on IDEAS
  18. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, vol. 64(4), pages 957-79, July.
  19. Richard B. Freeman, 1996. "Labor market institutions and earnings inequality," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 157-172.
  20. Jacob Mincer, 1991. "Human Capital, Technology, and the Wage Structure: What Do Time Series Show?," NBER Working Papers 3581, National Bureau of Economic Research, Inc.
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