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Wage Inequality and Cognitive Skills: Re-Opening the Debate

In: Education, Skills, and Technical Change: Implications for Future US GDP Growth

Author

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  • Stijn Broecke
  • Glenda Quintini
  • Marieke Vandeweyer

Abstract

Inequality in the United States is high by international standards, and keeps rising. This is likely to bring significant social as well as economic costs, including lower growth. In this paper, we use the Survey of Adult Skills (PIAAC) to revisit the debate on the relative importance of skills in explaining international differences in wage inequality. While simple decomposition exercises suggest that skills only play a very minor role, demand and supply analysis indicates that the relative net supply of skills could explain 29% of the higher top-end wage inequality in the United States. Our analysis also suggests that skills could explain a substantial portion of the racial wage gap, as well as between individuals from different socio-economic backgrounds. Finally, we find little support for the argument that higher wage inequality in the United States may be compensated for by better relative employment outcomes of the low-skilled.
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Suggested Citation

  • Stijn Broecke & Glenda Quintini & Marieke Vandeweyer, 2018. "Wage Inequality and Cognitive Skills: Re-Opening the Debate," NBER Chapters,in: Education, Skills, and Technical Change: Implications for Future US GDP Growth National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:13703
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    Cited by:

    1. Sonja Jovicic, 2016. "Wage inequality, skill inequality, and employment: evidence and policy lessons from PIAAC," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-26, December.
    2. repec:oup:cesifo:v:63:y:2017:i:3:p:255-269. is not listed on IDEAS
    3. Franziska Hampf & Ludger Woessmann, 2017. "Vocational vs. General Education and Employment over the Life Cycle: New Evidence from PIAAC," CESifo Economic Studies, CESifo, vol. 63(3), pages 255-269.
    4. repec:cep:cverdp:003 is not listed on IDEAS
    5. repec:eee:ecoedu:v:60:y:2017:i:c:p:112-124 is not listed on IDEAS
    6. Martin, John P., 2018. "Skills for the 21st Century: Findings and Policy Lessons from the OECD Survey of Adult Skills," IZA Policy Papers 138, Institute for the Study of Labor (IZA).
    7. Charles R. Hulten, 2017. "The Importance of Education and Skill Development for Economic Growth in the Information Era," NBER Working Papers 24141, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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