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Rising Wage Inequality: Does the Return to Management Tell the Whole Story?

  • Anders Frederiksen

    ()

    (hoover Institution, Stanford University)

  • Odile Poulsen

    (University of East Anglia School of Economics)

This paper argues that the increased wage inequality observed in recent years is driven by changes in management compensation. The analysis is conducted within the framework of a two-sector search model with heterogeneous employees and heterogenous jobs i.e. employees with different educational levels who work in either management or the non-management sector of a firm. Individuals employed in the non-management sector search for management jobs while employed. This model characterizes the labor market flows, the firm’s structure and the employee composition as well as the wage distribution in the firm. Using the personnel records from a large pharmaceutical company, the parameters of the model are estimated. This allows us to conclude that the increased wage inequality observed is due to amplified within and between group wage inequality which is driven by an increased gap between management and non-management wages.

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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 05-007.

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Date of creation: Feb 2006
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Handle: RePEc:sip:dpaper:05-007
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