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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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    References listed on IDEAS

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    1. Timothy Dunne & Lucia Foster & John Haltiwanger & Kenneth R. Troske, 2004. "Wage and Productivity Dispersion in United States Manufacturing: The Role of Computer Investment," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 397-430, April.
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    3. Guy Michaels & Ashwini Natraj & John Van Reenen, 2010. "Has ICT Polarized Skill Demand? Evidence from Eleven Countries over 25 years," NBER Working Papers 16138, National Bureau of Economic Research, Inc.
    4. Kiminori Matsuyama, 2009. "Structural Change in an Interdependent World: A Global View of Manufacturing Decline," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 478-486, 04-05.
    5. Florian Hoffmann & David S. Lee & Thomas Lemieux, 2020. "Growing Income Inequality in the United States and Other Advanced Economies," Journal of Economic Perspectives, American Economic Association, vol. 34(4), pages 52-78, Fall.
    6. Filippi, Emilia & Bannò, Mariasole & Trento, Sandro, 2023. "Automation technologies and their impact on employment: A review, synthesis and future research agenda," Technological Forecasting and Social Change, Elsevier, vol. 191(C).
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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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