Observed and Unobserved Sources of Wealth Inequality

Heejeong Kim ()
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Heejeong Kim: Concordia University, https://www.concordia.ca/artsci/economics.html

No 19003, Working Papers from Concordia University, Department of Economics

Abstract: This paper studies the implications of observed and unobserved heterogeneity in wages across households with different education levels on wealth inequality and life-cycle savings. Using the PSID, I estimate skill-specific wage processes that allow both observed between-group wage dispersion and unobserved within-group wage dispersion. The implications of these estimated skill-specific wage processes are quantitatively studied in an incomplete-markets overlapping-generations general equilibrium model wherein households choose their education. I show that, in contrast to a model with a common wage process, the model with skill-specific wage processes explains far more wealth inequality and life-cycle wealth accumulation of skilled and unskilled households seen in data.

Keywords: Incomplete markets; wealth inequality; life-cycle savings (search for similar items in EconPapers)
JEL-codes: E21 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2019-02
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:crd:wpaper:19003

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