Wage inequality has increased dramatically over the last 30 to 40 years in the US and in the UK (see, for example, Autor and Katz, 1999). Economists have devoted a substantial amount of work to the documentation and interpretation of the evolution of wage inequality and several of its dimensions, such as the skill premium, or racial and gender wage gaps. One variable whose role is often stresse...

Understanding the allocation of skilled labor across industries is necessary to explain inter-industry wage differences and the effect of trade on wages. This paper develops an assignment model with both labor and non-labor inputs in which the assignment of heterogeneous labor across sectors is driven by variation in non-labor input productivity. A scale of operations effect causes high skill a...

The Evolution of Inequality, Heterogeneity and Uncertainty in Labor Earnings in the U.S. Economy A large empirical literature documents a rise in wage inequality in the American economy. It is silent on whether the increase in inequality is due to greater heterogeneity in the components of earnings that are predictable by agents or whether it is due to greater uncertainty faced by agents. Apply...

This paper argues that widening income inequality contributes to the propensity to evade by both reducing the probability of detection and increasing compliance opportunity costs. Lower detection probability occurs as rising inequality gradually alters the composition of income from being employment-based (i.e., matchable) to investment-based (i.e., non-matchable). Greater economic polarization...

Principles from the social thought of the Indian philosopher P.R. Sarkar are employed to show that there exists an optimal level of economic inequality that joins the values of economic justice and efficiency. Sarkar favored establishing a living wage as well as a maximum wage that allows for work incentives. It is argued that the primary justification for inequality is to provide incentives fo...

In a “New Trade”model with endogenous supply of skill, how knowledge difussion through international trade a¤ects growth and skill premium depends on responsiveness of skill supply to technological change. The less responsive is skill supply, the more likely that lower skill-premium accompanies higher growth after opening to trade. 1 Introduction This project deals with the question of what e¤e...

The impact of international trade on wages has received substantial attention in recent decades; but only recently have the specific effects of exporting on wage inequality been investigated in detail. This paper employs the unexpected 1999 Brazilian exchange rate devaluation to identify the effects of exporting on Brazilian manufacturing firm-level wages using employer-employee linked data. We...

The theoretical literature has argued that a centralized wage bargaining system may result in low regional wage differentiation and high regional unemployment differentials. The empirical literature has found that centralized wage bargaining leads to lower wage inequality for different skills, industries and population groups, but the evidence on its impact on regional wage differentiation is s...

In this paper, “innovative intelligence–biased technological change” (IIBTC) is examined as an alternative to the traditional concept of skill-biased technological change (SBTC) as a source of increases in wage inequality. The innovative intelligence of ordinary or average workers is an important element in productivity and can be heterogeneous across workers. Because technologies are heterogen...

The U.K. skill premium fell from the 1950s to the late 1970s and then rose very sharply. This paper examines the contributions to these relative wage movements of international trade and technical change. We first measure trade as changes in product prices and technical change as TFP growth. Then we relate price and TFP changes to a set of underlying factors. Among a number of results, we find ...