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Decompositions of Wage Inequality and Growth in an Advanced Economy open to Trade

  • T. Huw Edwards, Matthias Lücke

We explore the uses of double-calibrated general equilibrium models as a decomposition tool for analysing contributory factors in the growth and increasing wage inequality in an advanced economy (the UK) since 1979. Calibration of a model to start and end years, based upon an assumed functional form and parameter values, produces a consistent set of decompositions for both growth and inequality. Calibrated TFP growth is consistent with the results from nonparametric growth accounting. The calibration procedure also allows us to explore different exogeneity assumptions regarding capital. However, there are more problems to modelling inequality than with growth: in particular, the main models in the literature, which take skill endowments as given, are characteristically unstable. This strongly emphasises the need for a more dynamic modelling technique, particularly regarding the skill acquisition decision and potential labour market mismatch issues

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1749.

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Length: 20 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:kie:kieliw:1749
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  1. Carsten Kowalczyk & Raymond Riezman, 2009. "Trade Agreements," CESifo Working Paper Series 2660, CESifo Group Munich.
  2. Bob Anderton & Paul Brenton, 1998. "Outsourcing and Low-Skilled Workers in the UK," CSGR Working papers series 12/98, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
  3. Damien NEVEN. & Charles WYPLOSZ, 1996. "Relative Prices, Trade and Restructuring in European Industry," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9615, Université de Lausanne, Faculté des HEC, DEEP.
  4. Pavcnik, Nina, 2002. "Trade Liberalization, Exit, and Productivity Improvement: Evidence from Chilean Plants," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 245-76, January.
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