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Solow and Heterogeneous Labor: A Neoclassical Explanation of Wage Inequality

  • Meckl, Jürgen

    ()

    (Justus Liebig University, Giessen)

  • Zink, Stefan

    ()

    (University of Konstanz)

The paper analyzes the effect of human-capital investments of heterogeneous individuals on the dynamics of the wage structure within a neoclassical growth model. The accumulation of physical capital changes relative factor prices and thus incentives to acquire skills, thereby altering the composition of the labor force. Without relying on exogenous shocks, our framework generates dynamics that resembles several important observations on wage inequality (e.g., the non-monotone evolution of the skill premium). Additional incorporation of wage rigidities emphasizes the trade off between residual wage inequality and employment opportunities for unskilled labor that is consistent with country-specific evidence.

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File URL: http://ftp.iza.org/dp668.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 668.

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Length: 31 pages
Date of creation: Dec 2002
Date of revision:
Publication status: published in: Economic Journal, 2004, 114 (498), 835-854
Handle: RePEc:iza:izadps:dp668
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  1. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium wage dispersion with worker and employer heterogeneity," Sciences Po publications info:hdl:2441/dc0ckec3fcb, Sciences Po.
  2. Jacob Mincer, 1991. "Human Capital, Technology, and the Wage Structure: What Do Time Series Show?," NBER Working Papers 3581, National Bureau of Economic Research, Inc.
  3. Katz, L.F. & Murphy, K.M., 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," Harvard Institute of Economic Research Working Papers 1580, Harvard - Institute of Economic Research.
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  5. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1055-1089.
  6. Galor, Oded & Tsiddon, Daniel, 1996. "Technological Progress, Mobility, and Economic Growth," CEPR Discussion Papers 1413, C.E.P.R. Discussion Papers.
  7. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
  8. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed the Labor Market?," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1169-1213.
  9. Dinopoulos, Elias & Segerstrom, Paul, 1996. "A Schumpeterian Model of Protection and Relative Wages," Working Paper Series 471, Research Institute of Industrial Economics.
  10. 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.).
  11. Meckl, Jürgen & Zink, Stefan, 2000. "Human-capital investment and the wage gap," Discussion Papers, Series I 307, University of Konstanz, Department of Economics.
  12. Ann P. Bartel & Nachum Sicherman, 1997. "Technological Change and Wages: An Inter-Industry Analysis," NBER Working Papers 5941, National Bureau of Economic Research, Inc.
  13. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  14. Daron Acemoglu, 1998. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," NBER Working Papers 6658, National Bureau of Economic Research, Inc.
  15. Galor, Oded & Moav, Omer, 1998. "Ability Biased Technological Transition, Wage Inequality and Growth," CEPR Discussion Papers 1972, C.E.P.R. Discussion Papers.
  16. Christopher R. Taber, 2001. "The Rising College Premium in the Eighties: Return to College or Return to Unobserved Ability?," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 665-691.
  17. Richard B. Freeman, 1996. "Labor market institutions and earnings inequality," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 157-172.
  18. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, vol. 64(4), pages 957-79, July.
  19. Jose V. Rodriguez Mora & John Hassler, 2000. "Intelligence, Social Mobility, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 888-908, September.
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