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Industry Contribution to U.S. Wage Inequality

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  • Valerio Dionisi

Abstract

Industry dimension is increasingly dominant to investigate the upward trend of inequality. This paper examines the key drivers of U.S. wage inequality through a general equilibrium model, emphasising the role of heterogeneous capital-labour substitution elasticities across industries in shaping wage dispersion. Key is the distinction of a quantity effect (changes in the composition of capital and labour inputs) and a structural effect (reflecting technological transformations in inputs substitutability) from Skill-Biased Technological Change (SBTC). Findings suggest that industry-level transformations on the labour side − differentials in job tasks substitutability and workforce composition − constitute the principal drivers of real wage inequality, overshadowing the contribution of capital-side adjustments. A structural estimation of the model reveals that trend-asymmetries in the elasticities of substitution between ICT capital, routine and non-routine workers account for 94% of observed wage variance, while stronger sorting and segregation effects further exacerbate such dispersion. Upon neutralising structural differences between industries, SBTC reckons merely 6-15% of the observed wage inequality.

Suggested Citation

  • Valerio Dionisi, 2025. "Industry Contribution to U.S. Wage Inequality," Working Papers 558, University of Milano-Bicocca, Department of Economics.
    • Handle: RePEc:mib:wpaper:558
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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