Education, Wage Dynamics, and Wealth Inequality

Heejeong Kim

Review of Economic Dynamics, 2022, vol. 43, 217-240

Abstract: To what extent does heterogeneity in education contribute to wealth inequality and life-cycle savings, and through which pathways? Using the Panel Study Income Dynamics (PSID) data, I estimate skill-specific wage processes, allowing for both deterministic between-group wage dispersion and stochastic within-group wage dispersion. I evaluate the quantitative implications of these wage processes using an incomplete-markets overlapping-generations general equilibrium model in which households choose their education and labor supply. I find that allowing wage processes to vary by skill levels is crucial to understanding wealth inequality and life-cycle savings of skilled and unskilled households. Importantly, stochastic within-group wage dispersion plays a key role in explaining the concentration of wealth at the top and the large difference in the life-cycle savings between the two skill groups. (Copyright: Elsevier)

Keywords: Education; wage differentials; wealth inequality; life-cycle savings (search for similar items in EconPapers)
JEL-codes: E21 I24 J31 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1016/j.red.2021.02.006

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