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Wage inequality and overeducation in a model with efficiency wages

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  • Peter Skott

    (University of Massachusetts Amherst)

Abstract

This paper shows that the existence and persistence of ‘overeducation’ can be explained by an extension of the efficiency wage model. When calibrated to fit the amounts of overeducation found in most empirical studies, the model implies that both the relative wage and the relative employment rate of high-skill workers depend inversely on aggregate economic activity. Keeping aggregate employment constant, furthermore, low-skill unemployment rises following an increase in the relative supply of high-skill labor, and relative wages may be insensitive to changes in relative labor supplies. The model may help explain rising wage inequality in some countries since the early 1970s. JEL Categories: J31

Suggested Citation

  • Peter Skott, 2005. "Wage inequality and overeducation in a model with efficiency wages," UMASS Amherst Economics Working Papers 2005-06, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2005-06
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    References listed on IDEAS

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    Cited by:

    1. Naqvi, Asjad & Stockhammer, Engelbert, 2018. "Directed Technological Change in a Post-Keynesian Ecological Macromodel," Ecological Economics, Elsevier, vol. 154(C), pages 168-188.
    2. Schlicht, Ekkehart, 2008. "Wage Dispersion, Over-Qualification, and Reder Competition," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 1, pages 1-22.
    3. Fabián Slonimczyk, 2013. "Earnings inequality and skill mismatch in the U.S.: 1973–2002," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 11(2), pages 163-194, June.
    4. Wu Joseph S. K. & Ho Chi Pui, 2017. "The Shapiro-Stiglitz Model with Non-constant Marginal Utility," Open Economics, De Gruyter, vol. 1(1), pages 36-48, August.
    5. Gustavo Pereira Serra, 2024. "(Trying to) Catch Up with the Higher-Skilled Joneses: Student loans in a segmented educational market from a Post-Keynesian perspective," Working Papers 2412, New School for Social Research, Department of Economics.
    6. Baert, Stijn & Cockx, Bart & Verhaest, Dieter, 2013. "Overeducation at the start of the career: Stepping stone or trap?," Labour Economics, Elsevier, vol. 25(C), pages 123-140.
    7. Skott, Peter & Guy, Frederick, 2007. "A model of power-biased technological change," Economics Letters, Elsevier, vol. 95(1), pages 124-131, April.
    8. Verhaest, Dieter & Schatteman, Tom, 2010. "Overeducation in the early career: an analysis using sequence techniques," Working Papers 2010/09, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    9. Gustavo Pereira Serra, 2021. "The First Harrod Problem and Human Capital Formation," Working Papers 2113, New School for Social Research, Department of Economics.
    10. Slonimczyk, Fabián & Skott, Peter, 2012. "Employment and distribution effects of the minimum wage," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 245-264.
    11. Gilberto Tadeu Lima & Laura Carvalho, Gustavo Pereira Serra, 2018. "Human Capital Accumulation, Income Distribution and Economic Growth: A Neo-Kaleckian Analytical Framework," Working Papers, Department of Economics 2018_19, University of São Paulo (FEA-USP).
    12. Peter Skott & Frederick Guy, 2005. "Power-Biased Technological Change and the Rise in Earnings Inequality," UMASS Amherst Economics Working Papers 2005-17, University of Massachusetts Amherst, Department of Economics.
    13. Mary A. Silles, 2007. "Adult Education And Earnings: Evidence From Britain," Bulletin of Economic Research, Wiley Blackwell, vol. 59(4), pages 313-326, October.

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    More about this item

    Keywords

    Wage inequality; overeducation; efficiency wages.;
    All these keywords.

    JEL classification:

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

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