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Superstars and Renaissance Men: Specialization, Market Size and the Income Distribution

  • Richard Walker
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    A general equilibrium model of individual specialization is presented in which agents trade off the productivity and price implications of producing a narrower range of goods. Agents with highly specific skills turn out to benefit most from large markets. The model is able to replicate features of the long-term evolution of the US income distribution, with specialization-biased technical change and the increase in employed population playing key roles. Among the results is that, at least along one dimension of ability, the skill premium is increasing in the relative supply of skills.

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    Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0707.

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    Date of creation: Nov 2005
    Date of revision:
    Handle: RePEc:cep:cepdps:dp0707
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    1. Baumgardner, James R, 1988. "The Division of Labor, Local Markets, and Worker Organization," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 509-27, June.
    2. Thomas J. Holmes & Matthew F. Mitchell, 2008. "A theory of factor allocation and plant size," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 329-351.
    3. Dunne, Timothy & Foster, Lucia & Haltiwanger, John C. & Troske, Kenneth, 2002. "Wage and Productivity Dispersion in U.S. Manufacturing: The Role of Computer Investment," IZA Discussion Papers 563, Institute for the Study of Labor (IZA).
    4. Bryan L. Boulier & Jack W. Wilson, 1982. "The Division of Labor is Limited to the Extent of the Market: A Test of the Hypothesis," Eastern Economic Journal, Eastern Economic Association, vol. 8(4), pages 301-307, Oct-Dec.
    5. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-42, April.
    6. Kim, Sunwoong, 1989. "Labor Specialization and the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 692-705, June.
    7. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
    8. Stokey, Nancy L, 1996. " Free Trade, Factor Returns, and Factor Accumulation," Journal of Economic Growth, Springer, vol. 1(4), pages 421-47, December.
    9. Gary S. Becker & Kevin M. Murphy, 1994. "The Division of Labor, Coordination Costs, and Knowledge," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 299-322 National Bureau of Economic Research, Inc.
    10. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-58, December.
    11. repec:oup:qjecon:v:103:y:1988:i:3:p:441-63 is not listed on IDEAS
    12. Matthew F. Mitchell, 2001. "Specialization and the skill premium in the 20th century," Staff Report 290, Federal Reserve Bank of Minneapolis.
    13. Anthony C. Atkinson, 2003. "Income Inequality in OECD Countries: Data and Explanations," CESifo Working Paper Series 881, CESifo Group Munich.
    14. Baumgardner, James R, 1988. "Physicians' Services and the Division of Labor across Local Markets," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 948-82, October.
    15. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    16. Yang, Xiaokai & Borland, Jeff, 1991. "A Microeconomic Mechanism for Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 460-82, June.
    17. Finis Welch, 1979. "Effects of Cohort Size on Earnings: The Baby Boom Babies' Financial Bust," UCLA Economics Working Papers 146, UCLA Department of Economics.
    18. repec:oup:restud:v:61:y:1994:i:1:p:45-56 is not listed on IDEAS
    19. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
    20. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
    21. Frank Gollop, 1994. "The Pin Factory Revisited: Diversification and Productivity Growth," Boston College Working Papers in Economics 285., Boston College Department of Economics.
    22. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
    23. Pavcnik, Nina & Blom, Andreas & Goldberg, Pinelopi & Schady, Norbert, 2003. "Trade liberalization and labor market adjustment in Brazil," Policy Research Working Paper Series 2982, The World Bank.
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    25. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March.
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    27. Snower, Dennis J., 1999. "Causes of Changing Earnings Inequality," IZA Discussion Papers 29, Institute for the Study of Labor (IZA).
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    29. Sukkoo Kim, 1999. "Urban Development in the United States, 1690-1990," NBER Working Papers 7120, National Bureau of Economic Research, Inc.
    30. Hakura, D. & Deardorff, A.V., 1993. "Trade and Wages: What Are the Questions?," Working Papers 341, Research Seminar in International Economics, University of Michigan.
    31. Macunovich, Diane J, 1998. "Relative Cohort Size and Inequality in the United States," American Economic Review, American Economic Association, vol. 88(2), pages 259-64, May.
    32. Borland, Jeff & Yang, Xiaokai, 1992. "Specialization and a New Approach to Economic Organization and Growth," American Economic Review, American Economic Association, vol. 82(2), pages 386-91, May.
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