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Changes in Wage Inequality

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  • Stephen Machin
  • John Van Reenen

Abstract

We examine trends in wage inequality in the US and other countries over the past four decades. We show that there has been a secular increase in the 90-50 wage differential in the US and the UK since the late 1970s. By contrast the 50-10 differential rose mainly in the 1980s and flattened or fell in the 1990s and 2000s. We analyze the reasons for these trends and conclude that a version of the skill biased technical change hypothesis combined with institutional changes (the decline in the minimum wage and trade unions) continues to offer the best explanation for the observed patterns of change.

Suggested Citation

  • Stephen Machin & John Van Reenen, 2007. "Changes in Wage Inequality," CEP Reports 18, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepsps:18
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    More about this item

    Keywords

    Wage inequality; institutions; technology; trade;
    All these keywords.

    JEL classification:

    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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