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The Effect of Product Demand on Inequality: Evidence from the US and the UK

  • Leonardi, Marco

    ()

    (University of Milan)

This paper examines the relationship between product demand and the pattern of rising skill premia and rising employment of skilled workers in the US and the UK since the 1980s. If more skilled workers demand more skill-intensive goods, then an increase in relative skill supply will also induce a shift in relative skill demand. This channel reduces the need to rely on technology and trade to explain the patterns in the data. This paper shows that in the US more educated and richer workers demand more low skill-intensive services (such as cleaning and personal services) but also more skill-intensive services (such as education and professional services). The parametrization of a simple model suggests that this induced demand shift can explain around 7% of the total relative demand shift in the US between 1984 and 2002. Similar results are provided for the UK.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5011.

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Length: 48 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5011
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  1. E Berman & J Bound & Stephen Machin, 1997. "Implications of Skill-Biased Technological Change: International Evidence," CEP Discussion Papers dp0367, Centre for Economic Performance, LSE.
  2. Autor, David & Dorn, David, 2009. "Inequality and Specialization: The Growth of Low-Skill Service Jobs in the United States," IZA Discussion Papers 4290, Institute for the Study of Labor (IZA).
  3. Ngai, L. Rachel & Pissarides, Christopher A., 2005. "Structural Change in a Multi-Sector Model of Growth," IZA Discussion Papers 1800, Institute for the Study of Labor (IZA).
  4. Dustmann, Christian & Ludsteck, Johannes & Schönberg, Uta, 2007. "Revisiting the German Wage Structure," IZA Discussion Papers 2685, Institute for the Study of Labor (IZA).
  5. Thomas Lemieux, 2006. "Postsecondary Education and Increasing Wage Inequality," American Economic Review, American Economic Association, vol. 96(2), pages 195-199, May.
  6. Alan Manning, 2004. "We can work it out: the impact of technological change on the demand for low skill workers," LSE Research Online Documents on Economics 19948, London School of Economics and Political Science, LSE Library.
  7. repec:cup:cbooks:9780521812832 is not listed on IDEAS
  8. David H. Autor & David Dorn, 2009. "The Growth of Low Skill Service Jobs and the Polarization of the U.S. Labor Market," NBER Working Papers 15150, National Bureau of Economic Research, Inc.
  9. 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.
  10. Dew-Becker, Ian & Gordon, Robert J, 2008. "Controversies about the Rise in American Inequality: A Survey," CEPR Discussion Papers 6817, C.E.P.R. Discussion Papers.
  11. Enrico Moretti, 2008. "Real Wage Inequality," Working Paper Series 34-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
  12. Acemoglu, D., 1997. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," Working papers 97-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Michael T. Kiley, 1997. "The supply of skilled labor and skill-based technological progress," Finance and Economics Discussion Series 1997-45, Board of Governors of the Federal Reserve System (U.S.).
  14. Francisco J. Buera & Joseph P. Kaboski, 2006. "The Rise of the Service Economy," 2006 Meeting Papers 496, Society for Economic Dynamics.
  15. Richard Blundell & Alan Duncan & Krishna Pendakur, 1998. "Semiparametric estimation and consumer demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(5), pages 435-461.
  16. Mazzolari, Francesca & Ragusa, Giuseppe, 2007. "Spillovers from High-Skill Consumption to Low-Skill Labor Markets," IZA Discussion Papers 3048, Institute for the Study of Labor (IZA).
  17. Maarten Goos & Alan Manning, 2003. "Lousy and lovely jobs: the rising polarization of work in Britain," LSE Research Online Documents on Economics 20002, London School of Economics and Political Science, LSE Library.
  18. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 1997. "Beyond Balanced Growth," NBER Working Papers 6159, National Bureau of Economic Research, Inc.
  19. Alexandra Spitz-Oener, 2006. "Technical Change, Job Tasks, and Rising Educational Demands: Looking outside the Wage Structure," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 235-270, April.
  20. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2006. "The Polarization of the U.S. Labor Market," American Economic Review, American Economic Association, vol. 96(2), pages 189-194, May.
  21. Maarten Goos & Alan Manning & Anna Salomons, 2010. "Explaining Job Polarization in Europe: The Roles of Technology, Globalization and Institutions," CEP Discussion Papers dp1026, Centre for Economic Performance, LSE.
  22. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  23. Leonardi, Marco, 2003. "Product Demand Shifts and Wage Inequality," IZA Discussion Papers 908, Institute for the Study of Labor (IZA).
  24. 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.
  25. Acemoglu, Daron & Autor, David, 2011. "Skills, Tasks and Technologies: Implications for Employment and Earnings," Handbook of Labor Economics, Elsevier.
  26. Maarten Goos & Alan Manning, 2003. "Lousy and Lovely Jobs: the Rising Polarization of Work in Britain," CEP Discussion Papers dp0604, Centre for Economic Performance, LSE.
  27. Haskel, Jonathan E. & Slaughter, Matthew J., 2002. "Does the sector bias of skill-biased technical change explain changing skill premia?," European Economic Review, Elsevier, vol. 46(10), pages 1757-1783, December.
  28. Tommaso Frattini, 2012. "Immigrazione," Rivista di Politica Economica, SIPI Spa, issue 3, pages 363-407, July-Sept.
  29. repec:cup:cbooks:9780521012263 is not listed on IDEAS
  30. Richard Blundell & Ben Etheridge, 2010. "Consumption, Income and Earnings Inequality in Britain," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 76-102, January.
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