IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp4791.html
   My bibliography  Save this paper

Increasing Income Inequality: Productivity, Bargaining and Skill-Upgrading

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp4791.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kevin M. Murphy & Finis Welch, 1992. "The Structure of Wages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 285-326.
    2. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    3. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 35-78.
    4. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
    5. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, 2009. "On‐the‐Job Search in a Matching Model with Heterogeneous Jobs and Workers," Economic Journal, Royal Economic Society, vol. 119(534), pages 200-228, January.
    6. Christopher A. Pissarides, 1994. "Search Unemployment with On-the-job Search," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 457-475.
    7. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555, Elsevier.
    8. Ann P. Bartel & Nachum Sicherman, 1999. "Technological Change and Wages: An Interindustry Analysis," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 285-325, April.
    9. repec:bla:econom:v:69:y:2002:i:273:p:21-40 is not listed on IDEAS
    10. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Rising Wage Inequality: The Role of Composition and Prices," NBER Working Papers 11628, National Bureau of Economic Research, Inc.
    11. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    12. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-1381, September.
    13. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
    14. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    15. 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 410-442, June.
    16. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, vol. 82(3), pages 371-392, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:jle:journl:173 is not listed on IDEAS
    2. Onur Özdemir, 2023. "The determinants of income distribution: the role of progress in human capital," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(5), pages 4193-4227, October.
    3. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anders Frederiksen & Odile Poulsen, 2016. "Income Inequality: The Consequences Of Skill-Upgrading When Firms Have Hierarchical Organizational Structures," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1224-1239, April.
    2. Fabián Slonimczyk, 2013. "Earnings inequality and skill mismatch in the U.S.: 1973–2002," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 11(2), pages 163-194, June.
    3. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Trends in U. S. Wage Inequality: Re-Assessing the Revisionists," Harvard Institute of Economic Research Working Papers 2095, Harvard - Institute of Economic Research.
    4. Anders Frederiksen & Odile Poulsen, 2006. "Rising Wage Inequality: Does the Return to Management Tell the Whole Story?," Discussion Papers 05-007, Stanford Institute for Economic Policy Research.
    5. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
    6. Fatih Guvenen & Burhanettin Kuruscu, 2010. "A Quantitative Analysis of the Evolution of the US Wage Distribution, 1970–2000," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 227-276, National Bureau of Economic Research, Inc.
    7. Monte, Ferdinando, 2011. "Skill bias, trade, and wage dispersion," Journal of International Economics, Elsevier, vol. 83(2), pages 202-218, March.
    8. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2010. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 15-51, January.
    9. Salverda, Wiemer & Checchi, Daniele, 2014. "Labour-Market Institutions and the Dispersion of Wage Earnings," IZA Discussion Papers 8220, Institute of Labor Economics (IZA).
    10. James Spletzer & Elizabeth Weber Handwerker, 2015. "The Role of Establishments and the Concentration of Occupations in Wage Inequality," Working Papers id:7427, eSocialSciences.
    11. Xuejun Liu & Albert Park & Yaohui Zhao, 2010. "Explaining Rising Returns to Education in Urban China in the 1990s," Trade Working Papers 22720, East Asian Bureau of Economic Research.
    12. Fitzenberger, Bernd & Kohn, Karsten, 2006. "Skill Wage Premia, Employment, and Cohort Effects: Are Workers in Germany All of the Same Type?," IZA Discussion Papers 2185, Institute of Labor Economics (IZA).
    13. Michel Lubrano & Abdoul Aziz Junior Ndoye, 2014. "Bayesian Unconditional Quantile Regression: An Analysis of Recent Expansions in Wage Structure and Earnings Inequality in the US 1992–2009," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(2), pages 129-153, May.
    14. Batyra, Anna & Sneessens, Henri R., 2010. "Selective reductions in labor taxation: Labor market adjustments and macroeconomic performance," Journal of Policy Modeling, Elsevier, vol. 32(4), pages 531-543, July.
    15. Jürgen Meckl & Stefan Zink, 2004. "Solow and heterogeneous labour: a neoclassical explanation of wage inequality," Economic Journal, Royal Economic Society, vol. 114(498), pages 825-843, October.
    16. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The Skill Content of Recent Technological Change: An Empirical Exploration," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1279-1333.
    17. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(2), pages 843-881.
    18. Ariell Reshef, 2013. "Is Technological Change Biased Towards the Unskilled in Services? An Empirical Investigation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 312-331, April.
    19. Yip, Chi Man, 2010. "Can't SBTC explain the U.S. wage inequality dynamics?," MPRA Paper 31198, University Library of Munich, Germany.
    20. Azam, Mehtabul, 2012. "Changes in Wage Structure in Urban India, 1983–2004: A Quantile Regression Decomposition," World Development, Elsevier, vol. 40(6), pages 1135-1150.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp4791. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.