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Entry Costs, Task Variety, and Skill Flexibility: A Simple Theory of (Top) Income Skewness

  • Manoj Atolia
  • Yoshinori Kurokawa

This paper develops a simple model that provides a unified explanation of the increased skewness of wage income distribution based on differences in flexibility of skills--modeled as differences in the setup costs required to combine/perform a given number of tasks. Our numerical experiments in a calibrated model show that, by increasing task variety, a decrease in the fixed costs of entry due to entry deregulation can be a quantitatively important source of both the increase in below-top skewness and the larger increase in within-top skewness. Moreover, the experiments imply that the observed differences in entry deregulation can cause significant differences in the top skewness across countries that have similar technological change. This can provide an answer to Piketty and Saez's (2006) question.

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File URL: http://www.econ.tsukuba.ac.jp/RePEc/2014-001.pdf
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Paper provided by Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba in its series Tsukuba Economics Working Papers with number 2014-001.

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Date of creation: Feb 2014
Date of revision: Apr 2015
Handle: RePEc:tsu:tewpjp:2014-001
Contact details of provider: Postal: 1-1-1 Tennodai, Tsukuba, Ibaraki 305-8571
Web page: http://www.econ.tsukuba.ac.jp/

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  1. Hein, Eckhard, 2011. "Distribution, ‘Financialisation’ and the Financial and Economic Crisis – Implications for Post-crisis Economic Policies," MPRA Paper 31180, University Library of Munich, Germany.
  2. Matthew F. Mitchell, 2005. "Specialization And The Skill Premium In The 20th Century," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 935-955, 08.
  3. Roine, Jesper & Waldenström, Daniel, 2006. "The Evolution of Top Incomes in an Egalitarian Society; Sweden, 1903–2004," Working Paper Series 667, Research Institute of Industrial Economics.
  4. Ian Dew-Becker & Robert J. Gordon, 2005. "Where Did Productivity Growth Go? Inflation Dynamics and the Distribution of Income," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2), pages 67-150.
  5. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  6. Ian Dew-Becker, 2008. "How Much Sunlight Does it Take to Disinfect a Boardroom? A Short History of Executive Compensation Regulation," CESifo Working Paper Series 2379, CESifo Group Munich.
  7. Kurokawa, Yoshinori, 2008. "Fixed Cost, Number of Firms, and Skill Premium: An Alternative Source for Rising Wage Inequality," MPRA Paper 14014, University Library of Munich, Germany.
  8. Maarten Goos & Alan Manning, 2003. "Lousy and Lovely Jobs: the Rising Polarization of Work in Britain," CEP Discussion Papers dp0604, Centre for Economic Performance, LSE.
  9. Dew-Becker, Ian & Gordon, Robert J, 2008. "Controversies about the Rise in American Inequality: A Survey," CEPR Discussion Papers 6817, C.E.P.R. Discussion Papers.
  10. Emily Blanchard & Gerald Willmann, 2013. "Trade, Education, and The Shrinking Middle Class," Kiel Working Papers 1831, Kiel Institute for the World Economy.
  11. Thomas I. Palley, 2007. "Financialization: What It Is and Why It Matters," Economics Working Paper Archive wp_525, Levy Economics Institute.
  12. Maarten Goos & Alan Manning, 2003. "Lousy and lovely jobs: the rising polarization of work in Britain," LSE Research Online Documents on Economics 20002, London School of Economics and Political Science, LSE Library.
  13. William Milberg, Deborah Winkler, 2009. "WP 2009-5 Financialization and the Dynamics of Offshoring in the U.S," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2009-5, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
  14. Edward P. Lazear, 2010. "Leadership: A Personnel Economics Approach," NBER Working Papers 15918, National Bureau of Economic Research, Inc.
  15. Frederiksen, Anders & Kato, Takao, 2011. "Human Capital and Career Success: Evidence from Linked Employer-Employee Data," IZA Discussion Papers 5764, Institute for the Study of Labor (IZA).
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