Industry Contribution to U.S. Wage Inequality

Valerio Dionisi

No 558, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: Industry dimension is increasingly dominant to investigate the upward trend of inequality. This paper examines the key drivers of U.S. wage inequality through a general equilibrium model, emphasising the role of heterogeneous capital-labour substitution elasticities across industries in shaping wage dispersion. Key is the distinction of a quantity effect (changes in the composition of capital and labour inputs) and a structural effect (reflecting technological transformations in inputs substitutability) from Skill-Biased Technological Change (SBTC). Findings suggest that industry-level transformations on the labour side − differentials in job tasks substitutability and workforce composition − constitute the principal drivers of real wage inequality, overshadowing the contribution of capital-side adjustments. A structural estimation of the model reveals that trend-asymmetries in the elasticities of substitution between ICT capital, routine and non-routine workers account for 94% of observed wage variance, while stronger sorting and segregation effects further exacerbate such dispersion. Upon neutralising structural differences between industries, SBTC reckons merely 6-15% of the observed wage inequality.

Keywords: wage inequality; structural transformations; industry; tasks; labour force composition; elasticity of substitution (search for similar items in EconPapers)
JEL-codes: E24 J31 J82 L16 O33 (search for similar items in EconPapers)
Pages: 96
Date: 2025-10
New Economics Papers: this item is included in nep-dge, nep-lma and nep-tid
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