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Schooling, Inequality and Government Policy

Author

Listed:
  • Oleksiy Kryvtsov
  • Alexander Ueberfeldt

Abstract

This paper asks: What is the effect of government policy on output and inequality in an environment with education and labor-supply decisions? The answer is given in a general equilibrium model, consistent with the post 1960s facts on male wage inequality and labor supply in the U.S. In the model, education and labor-supply decisions depend on progressive income taxation, the education system, the social security system, and technology-driven wage differentials. Government policies affect output and inequality through two channels. First, a policy change leads to an asymmetric adjustment of working hours and savings of schooled and unschooled individuals. Second, there is a redistribution of the workforce between schooled and unschooled workers. Using a battery of proposed government policies, we demonstrate that skill redistribution dampens the response of wage inequality to a policy change and amplifies the response of output by an additional 1 to 2 percent.

Suggested Citation

  • Oleksiy Kryvtsov & Alexander Ueberfeldt, 2007. "Schooling, Inequality and Government Policy," Staff Working Papers 07-12, Bank of Canada.
  • Handle: RePEc:bca:bocawp:07-12
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    References listed on IDEAS

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    Cited by:

    1. Cociuba, Simona E. & Ueberfeldt, Alexander, 2015. "Heterogeneity and long-run changes in aggregate hours and the labor wedge," Journal of Economic Dynamics and Control, Elsevier, vol. 52(C), pages 75-95.
    2. Nirav Mehta, 2012. "Competition in Public School Districts: Charter School Entry, Student Sorting, and School Input Determination," 2012 Meeting Papers 42, Society for Economic Dynamics.

    More about this item

    Keywords

    Labour markets; Potential output; Productivity;

    JEL classification:

    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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