Labour market effects of wage inequality and skill-biased technical change

Christian Hutter and Enzo Weber

Applied Economics, 2023, vol. 55, issue 27, 3063-3084

Abstract: This paper analyses the effects of wage inequality on labour market development. Relevant theories are ambiguous, just as public debates. We measure the effects of inequality, skill-biased and skill-neutral technical change on hours, productivity and wages in a novel structural vector error correction framework identified by economically motivated long-run restrictions. The results show that structural inequality shocks have a negative impact on hours, productivity and wages. These effects are particularly pronounced at high inequality levels and for inequality below the median wage. Skill-biased technology shocks reduce – unlike skill-neutral ones – hours but increase inequality, productivity and wages.

Date: 2023
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DOI: 10.1080/00036846.2022.2108751

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