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Skill-biased technical change, educational choice, and labor market polarization: the U.S. versus Europe

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  • Ryosuke Okazawa

Abstract

This paper analyzes the effect of recent technical change on the labor market and explains the observed differences in wage inequality among advanced countries. In particular, we focus on the difference between the inequality in the U.S. and in continental Europe. Many studies have indicated a rise in wage inequality in the U.S. over the past three decades. On the other hand, there has been little change in wage inequality in continental Europe. By introducing human capital investment into the model by Acemoglu (Am Econ Rev 89:1259–1278, 1999 ), we show that ex ante homogeneous economies would have distinct ex post wage distribution. The strategic complementarity between human capital investment and firms’ hiring strategies yields the possibility that multiple equilibria exist, which explains the difference in wage distribution between the U.S. and Europe. In addition, we show that differences in tax or education systems can explain the difference in wage distribution between the U.S. and Europe. Copyright Springer Science+Business Media, LLC. 2013

Suggested Citation

  • Ryosuke Okazawa, 2013. "Skill-biased technical change, educational choice, and labor market polarization: the U.S. versus Europe," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 11(3), pages 321-342, September.
    • Handle: RePEc:kap:jecinq:v:11:y:2013:i:3:p:321-342
    DOI: 10.1007/s10888-012-9223-6
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    Cited by:

    1. Agnese, Pablo & Hromcová, Jana, 2019. "Offshoring and Skill-Biased Technical Change in the Context of US Protectionism," IZA Discussion Papers 12593, Institute of Labor Economics (IZA).
    2. Antonelli, Cristiano & Gehringer, Agnieszka, 2017. "Technological change, rent and income inequalities: A Schumpeterian approach," Technological Forecasting and Social Change, Elsevier, vol. 115(C), pages 85-98.
    3. Hromcová, Jana & Agnese, Pablo, 2019. "Globalization, welfare, and the attitudes toward higher education," Economic Modelling, Elsevier, vol. 81(C), pages 503-517.
    4. Agnese, Pablo & Hromcová, Jana, 2016. "Offshoring, Endogenous Skill Decision, and Labor Market Outcomes," IZA Discussion Papers 10299, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Skill-biased technical change; Wage inequality; Human capital investment; Matching; E24; J24; J31; J64;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • 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
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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