IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/8140.html
   My bibliography  Save this paper

Does Inequality in Skills Explain Inequality in Earnings Across Advanced Countries?

Author

Listed:
  • Dan Devroye
  • Richard B. Freeman

Abstract

The distribution of earnings and the distribution of skills vary widely among advanced countries, with the major English-speaking countries, the US, UK, and Canada, having much greater inequality in both earnings and skills than continental European Union countries. This raises the possibility that cross-country differences in the distribution of skills determine cross-country differences in earnings inequality. Using the International Adult Literacy Survey, we find that skill inequality explains only about 7% of the cross-country difference in inequality. Most striking, the dispersion of earnings in the US is larger in narrowly defined skill groups than is the dispersion of earnings for European workers overall. The bulk of cross-country differences in earnings inequality occur within skill groups, not between them.

Suggested Citation

  • Dan Devroye & Richard B. Freeman, 2001. "Does Inequality in Skills Explain Inequality in Earnings Across Advanced Countries?," NBER Working Papers 8140, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8140
    Note: LS
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w8140.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. -, 1997. "Economic survey of Canada, 1996," Oficina de la CEPAL en Washington (Estudios e Investigaciones) 28967, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    2. Griliches, Zvi & Mason, William M, 1972. "Education, Income, and Ability," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages 74-103, Part II, .
    3. Francine D. Blau & Lawrence M. Kahn, 2005. "Do Cognitive Test Scores Explain Higher U.S. Wage Inequality?," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 184-193, February.
    4. Nickell, Stephen & Redding, Stephen & Swaffield, Joanna K, 2001. "Educational Attainment, Labour Market Institutions and the Structure of Production," CEPR Discussion Papers 3068, C.E.P.R. Discussion Papers.
    5. Guadalupe, Maria, 2003. "The hidden costs of fixed term contracts: the impact on work accidents," Labour Economics, Elsevier, vol. 10(3), pages 339-357, June.
    6. Duranton, Gilles, 2002. "City size distributions as a consequence of the growth process," LSE Research Online Documents on Economics 20065, London School of Economics and Political Science, LSE Library.
    7. Edwin Leuven & Hessel Oosterbeek & Hans van Ophem, 2004. "Explaining international differences in male skill wage differentials by differences in demand and supply of skill," Economic Journal, Royal Economic Society, vol. 114(495), pages 466-486, April.
    8. -, 1998. "Economic survey of Canada, 1997," Oficina de la CEPAL en Washington (Estudios e Investigaciones) 28979, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    9. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 791-836, August.
    10. Richard B. Freeman, 1994. "Working Under Different Rules," NBER Books, National Bureau of Economic Research, Inc, number free94-1.
    11. Murnane, Richard J & Willett, John B & Levy, Frank, 1995. "The Growing Importance of Cognitive Skills in Wage Determination," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 251-266, May.
    12. Richard V. Burkhauser & John G. Poupore, 1997. "A Cross-National Comparison Of Permanent Inequality In The United States And Germany," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 10-17, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stijn Broecke & Glenda Quintini & Marieke Vandeweyer, 2018. "Wage Inequality and Cognitive Skills: Reopening the Debate," NBER Chapters, in: Education, Skills, and Technical Change: Implications for Future US GDP Growth, pages 251-286, National Bureau of Economic Research, Inc.
    2. Simone Bertoli & Francesco Farina, 2007. "The functional distribution of income: a review of the theoretical literature and of the empirical evidence around its recent pattern in European countries," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 005, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
    3. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2010. "Are Risk Aversion and Impatience Related to Cognitive Ability?," American Economic Review, American Economic Association, vol. 100(3), pages 1238-1260, June.
    4. Jeff Borland, 2000. "Economic Explanations of Earnings Distribution Trends in the International Literature and Application to New Zealand," Treasury Working Paper Series 00/16, New Zealand Treasury.
    5. Lorenzo Cappellari & Paolo Castelnovo & Daniele Checchi & Marco Leonardi, 2016. "Skilled or educated? Educational reforms, human capital and earnings," DISCE - Working Papers del Dipartimento di Economia e Finanza def053, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    6. Jo Blanden & Stephen Machin, 2003. "Cross‐Generation Correlations of Union Status for Young People in Britain," British Journal of Industrial Relations, London School of Economics, vol. 41(3), pages 391-415, September.
    7. Stephen Machin, 2004. "Factors of Convergence and Divergence in Union Membership," British Journal of Industrial Relations, London School of Economics, vol. 42(3), pages 423-438, September.
    8. Hipólito Simón, 2010. "International Differences in Wage Inequality: A New Glance with European Matched Employer–Employee Data," British Journal of Industrial Relations, London School of Economics, vol. 48(2), pages 310-346, June.
    9. Arnaud Dupuy & Lex Borghans, 2005. "Supply and demand, allocation and wage inequality: an international comparison," Applied Economics, Taylor & Francis Journals, vol. 37(9), pages 1073-1088.
    10. Francine D. Blau & Lawrence M. Kahn, 2005. "Do Cognitive Test Scores Explain Higher U.S. Wage Inequality?," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 184-193, February.
    11. Jim Foreman & Howard Gospel, 2002. "The Provision of Training in Britain: Case Studies of Inter-Firm Coordination," CEP Discussion Papers dp0555, Centre for Economic Performance, LSE.
    12. Winfried Koeniger & Marco Leonardi & Luca Nunziata, 2007. "Labor Market Institutions and Wage Inequality," ILR Review, Cornell University, ILR School, vol. 60(3), pages 340-356, April.
    13. Salverda, Wiemer & Checchi, Daniele, 2014. "Labour-Market Institutions and the Dispersion of Wage Earnings," IZA Discussion Papers 8220, Institute of Labor Economics (IZA).
    14. Sonja Jovicic, 2016. "Wage inequality, skill inequality, and employment: evidence and policy lessons from PIAAC," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-26, December.
    15. Broecke, Stijn & Quintini, Glenda & Vandeweyer, Marieke, 2017. "Explaining international differences in wage inequality: Skills matter," Economics of Education Review, Elsevier, vol. 60(C), pages 112-124.
    16. Claudio Lucifora, 1999. "Wage Inequalities and Low Pay: The Role of Labour Market Institutions," Working Papers 1999.13, Fondazione Eni Enrico Mattei.
    17. Lin, Dajun & Lutter, Randall & Ruhm, Christopher J., 2018. "Cognitive performance and labour market outcomes," Labour Economics, Elsevier, vol. 51(C), pages 121-135.
    18. Cristiano Perugini & Gaetano Martino, 2008. "Income Inequality Within European Regions: Determinants And Effects On Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(3), pages 373-406, September.
    19. John Dinardo & Thomas Lemieux, 1997. "Diverging Male Wage Inequality in the United States and Ganada, 1981–1988: Do Institutions Explain the Difference?," ILR Review, Cornell University, ILR School, vol. 50(4), pages 629-651, July.
    20. Pedro Telhado Pereira & Pedro Silva Martins, 2000. "Does education reduce wage inequality? Quantile regressions evidence from fifteen European countries," Nova SBE Working Paper Series wp379, Universidade Nova de Lisboa, Nova School of Business and Economics.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8140. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.