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Increasing Income Inequality: Productivity, Bargaining and Skill-Upgrading

  • Anders Frederiksen

    (Aarhus University)

  • Odile Poulsen

    (School of Economics, University of East Anglia)

In recent decades most developed countries have experienced an increase in income inequality. In this paper, we use an equilibrium search framework to shed additional light on what is causing income distribution to change. The major benefit of the model is that it is can accommodate shocks to the skill composition in the market, employee bargaining power and productivity. Further, when our model is subjected to skill-upgrading and changes in employee bargaining power, it is capable of predicting the recent changes observed in the Danish income distribution. The model emphasizes that shocks to the employees' relative productivity, i.e., skill-biased technological change, are unlikely to have caused the increase in income inequality.

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Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series University of East Anglia School of Economics Working Paper Series with number 006.

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Date of creation: 21 Apr 2010
Date of revision:
Handle: RePEc:uea:aepppr:2010_6
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  8. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
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  12. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Rising Wage Inequality: The Role of Composition and Prices," NBER Working Papers 11628, National Bureau of Economic Research, Inc.
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  15. Ann P. Bartel & Nachum Sicherman, 1997. "Technological Change and Wages: An Inter-Industry Analysis," NBER Working Papers 5941, National Bureau of Economic Research, Inc.
  16. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 1-39, February.
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