Cross-Country Inequality Trends

By Daron Acemoglu. 2003

447 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/59499cfbbbdc7fa39803cb46f18e177f50d50b2d

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In Economics and Econometrics

Citations in the corpus

Do Cognitive Test Scores Explain Higher U.S. Wage Inequality? (2005, unknown): “On the demand side, Acemoglu (2003) suggests that union-induced wage compression can cause firms to increase their demand for less-skilled workers by making techniques using less skilled labor more profitable.”
Fairness and redistribution (2005, unknown): “φ(τ ; E) ≡ arg min τ t∈[0,1] 1⁄2 1 2 τ t − τ t h (1− τ t) + α(1−τ) 1−α(1−τ) (1− τ) i ∆+ γ (1− τ t) h 1 + α(1−τ) 1−α(1−τ) i2 ση”
The Digital Divide: Current and Future Research Directions (2005, unknown): “Acemoglu (2003) examines the role of skill-biased technical change as a driver of output and wage inequalities among countries in general, and between continental Europe and the United States in particular.”
The Effects of Technical Change on Labor Market Inequalities (2004, unknown): “In Acemoglu (2003c), the direction of technical change is related to international trade.”
Demographic and Education Effects on Unemployment in Europe: Economic Factors and Labour Market Institutions (2005, background): “inequality to the evolution of skilled-unskilled relative unemployment rates (Nickell and Bell, 1996; Acemoglu et al., 2001; Acemoglu, 2003).”
Educational mismatch, wages, and wage growth: Overeducation in Sweden, 1974-2000 (2009, background): “The supposed excess demand for skills is widely used as an explanation for the observed increase in wage dispersion across skill or education categories in several (but not all) countries (Acemoglu 2003).”
Poverty and worklessness in Britain (2004, unknown): “For Acemoglu (2003), the bias is produced by the dramatic increases in the supply of skilled labour in the 1970s, so technology is developed to favour this group.”