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Increasing Income Inequality: Productivity, Bargaining and Skill-Upgrading

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  • Frederiksen, Anders

    (Aarhus University)

  • Poulsen, Odile

    (University of East Anglia)

Abstract

In recent decades most developed countries have experienced an increase in income inequality. In this paper, we use an equilibrium search framework to shed additional light on what is causing an income distribution to change. The major benefit of the model is that it can accommodate shocks to the skill composition in the market, employee bargaining power and productivity. Further, when our model is subjected to skill-upgrading and changes in employee bargaining power, it is capable of predicting the recent changes observed in the Danish income distribution. In addition, the model emphasizes that shocks to the employees’ relative productivity, i.e., skill-biased technological change, are unlikely to have caused the increase in income inequality.

Suggested Citation

  • Frederiksen, Anders & Poulsen, Odile, 2010. "Increasing Income Inequality: Productivity, Bargaining and Skill-Upgrading," IZA Discussion Papers 4791, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp4791
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    2. Hossein Sabzian & Alireza Aliahmadi & Adel Azar & Madjid Mirzaee, 2018. "Economic inequality and Islamic Charity: An exploratory agent-based modeling approach," Papers 1804.09284, arXiv.org.

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    More about this item

    Keywords

    bargaining power; two-sector search model; income inequality; skill-biased technological change;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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