Cross country inequality trends
By: Daron Acemoglu
Contributors: Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 02-14; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 02-14.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2002
Place of publication: Cambridge, MA
Language: eng
Number of pages: 42
Description: The economics profession has made considerable progress in understanding the increase in wage inequality in the U.S. and the UK over the past several decades, but currently lacks a consensus on why inequality did not increase, or increased much less, in (continental) Europe over the same time period. I review the two most popular explanations for these differential trends: that relative supply of skills increased faster in Europe, and that European labor market institutions prevented inequality from increasing. I argue that these two explanations go some way towards accounting for the differential cross-country inequality trends, but do not provide an entirely satisfactory explanation. In addition, it appears that relative demand for skills increased differentially across countries. Motivated by this reasoning, I develop a simple theory where labor market institutions creating wage compression in Europe also encourage more investment in technologies increasing the productivity of less-skilled workers, thus implying less skill-biased technical change in Europe than in the U.S. Keywords: Relative Supply of Skills, Returns to Education, Skill-Biased Technical Change, Technology Adoption, Wage Compression, Wage Inequality. JEL Classification: J30, J31.
Notes: "February 2002."; "February 7, 2002"--Abstract.

Includes bibliographical references (p. 31-34).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.