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The Effect of Product Demand on Inequality: Evidence from the United States and the United Kingdom

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  • Marco Leonardi

Abstract

Using Consumer Expenditure Survey data this paper shows that more educated workers demand more high-skill-intensive services and, to a lesser extent, more very low-skill-intensive services (such as personal services). Additional evidence at the Metropolitan Statistical Area (MSA) level shows that this "education elasticity of demand" mechanism can explain part of the correlation between the share of college-educated workers in a city and the employment share of service industries. The parametrization of a simple model suggests that this induced demand shift can explain around 6.5 percent of the relative demand shift in the United States between 1984 and 2002. Similar results are provided for the United Kingdom. (JEL D12, J24, J31, L84)

Suggested Citation

  • Marco Leonardi, 2015. "The Effect of Product Demand on Inequality: Evidence from the United States and the United Kingdom," American Economic Journal: Applied Economics, American Economic Association, vol. 7(3), pages 221-247, July.
    • Handle: RePEc:aea:aejapp:v:7:y:2015:i:3:p:221-47
    Note: DOI: 10.1257/app.20130359
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    Citations

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    Cited by:

    1. Fabio Cerina & Elisa Dienesch & Alessio Moro & Michelle Rendall, 2023. "Spatial Polarisation," The Economic Journal, Royal Economic Society, vol. 133(649), pages 30-69.
    2. Shim, Myungkyu & Yang, Hee-Seung, 2018. "Interindustry wage differentials, technology adoption, and job polarization," Journal of Economic Behavior & Organization, Elsevier, vol. 146(C), pages 141-160.
    3. Roupakias, Stelios, 2023. "Employment polarization: evidence from regions in Greece," MPRA Paper 118696, University Library of Munich, Germany.
    4. Murphy, Daniel, 2016. "Welfare consequences of asymmetric growth," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 1-17.
    5. Morten Olsen & Joshua Gottlieb & David Hemous & Jeffrey Clemens, 2017. "The Spill-over Effects of Top Income Inequality," 2017 Meeting Papers 332, Society for Economic Dynamics.
    6. David Autor & Caroline Chin & Anna Salomons & Bryan Seegmiller, 2024. "New Frontiers: The Origins and Content of New Work, 1940–2018," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 139(3), pages 1399-1465.
    7. Lee, Jongkwan & Shim, Myungkyu & Yang, Hee-Seung, 2022. "The rise of low-skill service employment: The role of dual-earner households," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 255-273.
    8. Diego Comin & Ana Danieli & Marti Mestieri, 2019. "Demand-Driven Labor-Market Polarization," 2019 Meeting Papers 1398, Society for Economic Dynamics.
    9. Garcia-Louzao, Jose & Tarasonis, Linas, 2023. "Wage and Employment Impact of Minimum Wage: Evidence from Lithuania," Journal of Comparative Economics, Elsevier, vol. 51(2), pages 592-609.
    10. Mario Reinhold, 2016. "On the Link between Job Polarisation and Wage Inequality - A regional approach for Germany," ERSA conference papers ersa16p361, European Regional Science Association.
    11. Diego Comin & Ana Danieli & Martí Mestieri, 2020. "Income-Driven Labor-Market Polarization," Working Paper Series WP-2020-22, Federal Reserve Bank of Chicago.
    12. Rotunno, Lorenzo & Wood, Adrian, 2020. "Wage inequality and skill supplies in a globalised world," Journal of Comparative Economics, Elsevier, vol. 48(3), pages 529-547.
    13. Reinhold, Mario, 2016. "On the Link between Job Polarisation and Wage Inequality in Germany," VfS Annual Conference 2016 (Augsburg): Demographic Change 145802, Verein für Socialpolitik / German Economic Association.
    14. Charles M. Beach, 2016. "Changing income inequality: A distributional paradigm for Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(4), pages 1229-1292, November.
    15. Michael Chletsos & Stelios Roupakias, 2020. "Education and wage inequality before and during the fiscal crisis: A quantile regression analysis for Greece 2006–2016," Review of Development Economics, Wiley Blackwell, vol. 24(4), pages 1333-1364, November.
    16. Anthony Eisenbarth & Zhuo Fu Chen, 2022. "The evolution of wage inequality within local U.S. labor markets," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 56(1), pages 1-25, December.
    17. Lorenzo Rotunno & Adrian Wood, 2015. "Wages and endowments in a globalised world," Economics Papers 2015-W11, Economics Group, Nuffield College, University of Oxford.
    18. Youngsoon Kwon & Myungkyu Shim & Hee-Seung Yang, 2024. "Effects of Initial Labor Market Conditions on Job Polarization: Evidence from South Korea," Korean Economic Review, Korean Economic Association, vol. 40, pages 219-253.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. The Effect of Product Demand on Inequality: Evidence from the United States and the United Kingdom (American Economic Journal: Applied Economics 2015) in ReplicationWiki

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