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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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Gross Earning Inequalities in OECD Countries and Major Non-member Economies
Determinants and Future Scenarios
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- Henrik Braconier1, Jenifer Ruiz-Valenzuela1
- Author Affiliations
- 1: OECD, France
- 15 July 2014
- Bibliographic information
Income and earning inequality has been on the rise in most of the OECD and in many emerging economies since the 1980s. This paper estimates a model of earnings inequality across OECD countries that incorporates determinants of relative demand and supply of more and less-skilled labour. Drawing on OECD data we find that skill-biased technological change – measured as a common cross-country time trend and the level of multi factor productivity – has been the key driver in increasing earning differentials. The analysis also shows that educational attainment has mitigated the impact of skill-biased technological change on earning differentials, but has in most countries been unable to fully compensate. In line with previous OECD analysis, changes in structural policies and labour market institutions, such as deregulation of product and labour markets have exerted upward pressure on inequality. The estimated model is used to decompose historical changes in earning differentials and to construct forward looking scenarios up to 2060. If the common cross-country trend of skill-biased technological change observed during the last 25 years prevails, earning differentials will on average increase by almost 30% in the OECD by 2060. Finally, the model is used to simulate the consequences of alternative policy scenarios over the coming 50 years.
- product market regulation, labour market institutions, skill-biased technological change, earning inequalities, globalisation, education
- JEL Classification:
- D31: Microeconomics / Distribution / Personal Income, Wealth, and Their Distributions
- F68: International Economics / Economic Impacts of Globalization / Policy
- I24: Health, Education, and Welfare / Education and Research Institutions / Education and Inequality
- 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
- J38: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Public Policy
- J58: Labor and Demographic Economics / Labor–Management Relations, Trade Unions, and Collective Bargaining / Public Policy
- O33: Economic Development, Innovation, Technological Change, and Growth / Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights / Technological Change: Choices and Consequences ; Diffusion Processes
- O38: Economic Development, Innovation, Technological Change, and Growth / Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights / Government Policy