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Changes in wage inequality

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  • Machin, Stephen
  • Van Reenen, John

Abstract

We examine trends in wage inequality in the US and other countries over the past four decades. We show that there has been a secular increase in the 90-50 wage differential in the US and the UK since the late 1970s. By contrast the 50-10 differential rose mainly in the 1980s and flattened or fell in the 1990s and 2000s. We analyze the reasons for these trends and conclude that a version of the skill biased technical change hypothesis combined with institutional changes (the decline in the minimum wage and trade unions) continues to offer the best explanation for the observed patterns of change.

Suggested Citation

  • Machin, Stephen & Van Reenen, John, 2007. "Changes in wage inequality," LSE Research Online Documents on Economics 4667, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:4667
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    References listed on IDEAS

    as
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    Cited by:

    1. Nicholas Bloom & Luis Garicano & Raffaella Sadun & John Van Reenen, 2014. "The Distinct Effects of Information Technology and Communication Technology on Firm Organization," Management Science, INFORMS, vol. 60(12), pages 2859-2885, December.
    2. Verdugo, Gregory, 2014. "The great compression of the French wage structure, 1969–2008," Labour Economics, Elsevier, vol. 28(C), pages 131-144.
    3. Michel Dumont, 2008. "Working Paper 22-08 - Wages and employment by level of education and occupation in Belgium," Working Papers 0822, Federal Planning Bureau, Belgium.
    4. Cette, G. & Chouard, V. & Verdugo, G., 2012. "The Effect of the Minimum Wage on the Average Wage in France (in French)," Working papers 366, Banque de France.
    5. Christopoulou, Rebekka & Kosma, Theodora, 2009. "Skills and wage inequality in Greece: evidence from matched employer-employee data, 1995-2002," LSE Research Online Documents on Economics 24198, London School of Economics and Political Science, LSE Library.
    6. Brewer, Mike & Wren-Lewis, Liam, 2012. "Accounting for changes in income inequality: decomposition analyses for Great Britain, 1968-2009," ISER Working Paper Series 2012-17, Institute for Social and Economic Research.
    7. Cazzavillan, Guido & Olszewski, Krzysztof, 2011. "Skill-biased technological change, endogenous labor supply and growth: A model and calibration to Poland and the US," Research in Economics, Elsevier, vol. 65(2), pages 124-136, June.
    8. Francis Green & Stephen Machin & Richard Murphy & Yu Zhu, 2012. "The Changing Economic Advantage from Private Schools," Economica, London School of Economics and Political Science, vol. 79(316), pages 658-679, October.
    9. Hills, John, 2013. "Labour's record on cash transfers, poverty, inequality and the lifecycle 1997 - 2010," LSE Research Online Documents on Economics 58082, London School of Economics and Political Science, LSE Library.
    10. Eric Smith, 2010. "Sector-Specific Human Capital and the Distribution of Earnings," Journal of Human Capital, University of Chicago Press, vol. 4(1), pages 35-61.
    11. Rienzo, Cinzia, 2008. "Residual Wage Inequality and Immigration in the UK and the US," MPRA Paper 30279, University Library of Munich, Germany, revised Mar 2011.
    12. John Hills, 2013. "Labour's Record on Cash Transfers, Poverty, Inequality and the Lifecycle 1997 - 2010," CASE Papers case175, Centre for Analysis of Social Exclusion, LSE.
    13. repec:gam:jecnmx:v:6:y:2018:i:2:p:20-:d:140515 is not listed on IDEAS
    14. Dirk Antonczyk & Thomas DeLeire & Bernd Fitzenberger, 2018. "Polarization and Rising Wage Inequality: Comparing the U.S. and Germany," Econometrics, MDPI, Open Access Journal, vol. 6(2), pages 1-33, April.
    15. Isabel Ortiz & Matthew Cummins, 2011. "Global Inequality: Beyond the Bottom Billion – A Rapid Review of Income Distribution in 141 Countries," Working papers 1102, UNICEF,Division of Policy and Strategy.
    16. Nancy L. Stokey, 2016. "Technology, Skill and the Wage Structure," NBER Working Papers 22176, National Bureau of Economic Research, Inc.
    17. Nancy L Stokey, 2016. "Technology, Skill and the Wage Structure," 2016 Meeting Papers 750, Society for Economic Dynamics.
    18. Pica, Giovanni & Rodríguez Mora, José V., 2011. "Who's afraid of a globalized world? Foreign Direct Investments, local knowledge and allocation of talents," Journal of International Economics, Elsevier, vol. 85(1), pages 86-101, September.
    19. Shaukat Hameed Khan, 2016. "Productivity Growth and Entrepreneurship in Pakistan: The Role of Public Policy in Promoting Technology Management," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 21(Special E), pages 427-446, September.
    20. Joanne Lindley, 2011. "The Gender Dimension of Technical Change and Task Inputs," School of Economics Discussion Papers 0111, School of Economics, University of Surrey.

    More about this item

    Keywords

    Wage inequality; institutions; technology; trade;

    JEL classification:

    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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