Matching, Heterogeneity and the Evolution of Income Distribution
This paper presents a model in which firms and workers must engage in costly search to find a production partner. In this setting the skill, job and wage distributions and their evolutions are endogenized. The presence of search frictions implies that there are two redistributive forces in the labour market. The first is mismatch relative to the Walrasian economy; skilled workers tend to work with lower physical to human capital ratios, thus the gap between skilled and unskilled workers is compressed. The second is the opportunity cost effect; because the opportunity cost of accepting an unskilled worker is higher for firms, unskilled wages are pushed down. These forces lead to a non-ergodic equilibrium process for wage and income inequality. The model also predicts that increasing wage inequality is more likely to arise in economies with less frictional labour markets, less redistributive taxation and less public schooling. These predictions are in line with the diverse cross-country patterns that we observe. Finally, the paper predicts that, as is largely the case in the US data, between-group and within-group wage inequality should move in the same direction.
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- repec:hrv:faseco:30703979 is not listed on IDEAS
- Galor, Oded & Tsiddon, Daniel, 1997.
"Technological Progress, Mobility, and Economic Growth,"
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- Galor, Oded & Tsiddon, Daniel, 1996. "Technological Progress, Mobility, and Economic Growth," CEPR Discussion Papers 1413, C.E.P.R. Discussion Papers.
- Galor, O. & Tsiddon, D., 1996. "Technological Progress, Mobility and Economic Growth," Papers 13-96, Tel Aviv.
- Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
- Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
- Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
- Acemoglu, Daron, 1997. "Matching, Heterogeneity, and the Evolution of Income Distribution," Journal of Economic Growth, Springer, vol. 2(1), pages 61-92, March.
- Daron Acemoglu, 1995. "Matching, Heterogeneity and the Evolution of Income Distribution," Working papers 95-25, Massachusetts Institute of Technology (MIT), Department of Economics.
- Acemoglu, Daron, 1996. "Matching, Heterogeneity and the Evolution of Income Distribution," CEPR Discussion Papers 1345, C.E.P.R. Discussion Papers.
- Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-880, June.
- Durlauf, Steven N, 1996. "A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
- Steven N. Durlauf, 1992. "A Theory of Persistent Income Inequality," NBER Working Papers 4056, National Bureau of Economic Research, Inc.
- Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
- Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May. Full references (including those not matched with items on IDEAS)
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