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Wage and Earnings Inequality Between and Within Occupations: The Role of Labor Supply

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  • Andrés Erosa
  • Luisa Fuster
  • Gueorgui Kambourov
  • Richard Rogerson

Abstract

We document systematic differences in wage and earnings inequality between and within occupations and show that these differences are intimately related to systematic differences in labor supply across occupations. We then develop a variant of a Roy model in which earnings are a non-linear function of hours, with the extent of this non-linearity differing across occupations. In our theory, the interplay between heterogeneity in tastes for leisure and occupational differences in non-linearities affects the sorting of workers. Moreover, this interplay is crucial to account for the facts on the distributions of hours, wages, and earnings within and across occupations.

Suggested Citation

  • Andrés Erosa & Luisa Fuster & Gueorgui Kambourov & Richard Rogerson, 2023. "Wage and Earnings Inequality Between and Within Occupations: The Role of Labor Supply," NBER Working Papers 31665, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31665
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    References listed on IDEAS

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    1. Eric French, 2005. "The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(2), pages 395-427.
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    5. Andrés Erosa & Luisa Fuster & Gueorgui Kambourov & Richard Rogerson, 2022. "Hours, Occupations, and Gender Differences in Labor Market Outcomes," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(3), pages 543-590, July.
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    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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