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Risk, Occupational Choice, and Inequality

  • Sandén, Klas


    (Department of Economics, School of Business, Economics and Law, Göteborg University)

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    This essay presents a new theory explaining increased wage inequality. A standard endogenous growth model is augmented with occupational choice of highskill workers. Depending on the occupational choice, high-skill workers earn either a certain or uncertain income. Wage inequality, measured by the average wage of high-skill workers divided by the average wage of low-skill workers, can increase or decrease due to an increased supply of high-skill workers.

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    Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 263.

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    Length: 44 pages
    Date of creation: 10 Sep 2007
    Date of revision:
    Handle: RePEc:hhs:gunwpe:0263
    Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
    Phone: 031-773 10 00
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    1. Kiley, Michael T, 1999. "The Supply of Skilled Labour and Skill-Biased Technological Progress," Economic Journal, Royal Economic Society, vol. 109(458), pages 708-24, October.
    2. Garcia-Penalosa, Cecilia & Aghion, Philippe & Caroli, Eve, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Economics Papers from University Paris Dauphine 123456789/10091, Paris Dauphine University.
    3. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December.
    4. Acemoglu, Daron, 1997. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," CEPR Discussion Papers 1707, C.E.P.R. Discussion Papers.
    5. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
    6. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
    7. Nicole M. Fortin & Thomas Lemieux, 1997. "Institutional Changes and Rising Wage Inequality: Is There a Linkage?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 75-96, Spring.
    8. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
    9. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
    10. Wood, Adrian, 1998. "Globalisation and the Rise in Labour Market Inequalities," Economic Journal, Royal Economic Society, vol. 108(450), pages 1463-82, September.
    11. Machin, Stephen & Manning, Alan, 1997. "Can supply create its own demand? Implications for rising skill differentials," European Economic Review, Elsevier, vol. 41(3-5), pages 507-516, April.
    12. Skott, Peter & Auerbach, Paul, 2003. "Wage inequality and skill asymmetries," Economics Discussion Papers 2003-7, School of Economics, Kingston University London.
    13. John DiNardo & Thomas Lemieux, 1997. "Diverging male wage inequality in the United States and Canada, 1981-1988: Do institutions explain the difference?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 50(4), pages 629-651, July.
    14. Borjas, George J & Ramey, Valerie A, 1995. "Foreign Competition, Market Power, and Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1075-1110, November.
    15. Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
    16. Kanbur, S M, 1979. "Of Risk Taking and the Personal Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 769-97, August.
    17. Peter Gottschalk, 1997. "Inequality, Income Growth, and Mobility: The Basic Facts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 21-40, Spring.
    18. Mendez, Rodrigue, 2002. " Creative Destruction and the Rise of Inequality," Journal of Economic Growth, Springer, vol. 7(3), pages 259-81, September.
    19. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
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