Income inequality between skilled individuals

It is widely agreed that income inequality has increased in OECD countries over the past two decades. Most of the debate has focused on the distinction between skilled and unskilled workers. However inequality increased not only among those with different observable traits but also within groups of workers with the same characteristics such as gender, race, education and experience. This poses a challenge for theories that try to explain the rise in overall earnings inequality. Indeed, is income inequality within groups explained by the same reasons that have led to income inequality between groups? It appears that some reasons are specific to inequality within groups. For instance, greater access to education has led to some confusion about the standard associated with the same educational level. Consequently, innate ability plays an increasing part in the determination of workers' rewards. Similarly, the reduction of the size of the public sector may have contributed to the rise of the variability of the demand for skills. However, the central reason – innovation, notably the introduction of new technologies – is common to both types of inequality but it acts on within-group income inequality through specific channels. Among the latter are the role of innate ability, the shift toward a decentralised wage determination system, and the changes of the demand for skills. Therefore, the explanations of within-group inequality are complementary to the ones associated with between-group inequality and thus help to explain the rise in overall earnings inequality.