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Creative Destruction and the Rise of Inequality

Listed author(s):
  • Mendez, Rodrigue

Common wisdom interprets the rise in inequality of the last two decades as the result of a skill-biased labor demand shift. This explanation does not account for two important observations: (i) within-group inequality has also markedly risen, and (ii) the rise of inequality has been accompanied by a rise of the volatility of earnings. This paper argues that a dual labor market structure, where some workers are paid efficiency-wages can account for the empirical regularities, in the absence of skilled biased technological change. The analysis demonstrates that an unbiased innovation, as well as North-South trade, can contribute to the efficiency wage premium, and thus to wage inequality, by increasing labor turnover. Copyright 2002 by Kluwer Academic Publishers

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Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 7 (2002)
Issue (Month): 3 (September)
Pages: 259-281

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Handle: RePEc:kap:jecgro:v:7:y:2002:i:3:p:259-81
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