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The Evolution of Inequality in Productivity and Wages: Panel Data Evidence

Giulia Faggio (), Kjell G Salvanes () and John van Reenen ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: There has been a remarkable increase in wage inequality in the US, UK and many other countries over the past three decades. A significant part of this appears to be within observable groups (such as age-gender-skill cells). A generally untested implication of many theories rationalizing the growth of within-group inequality is that firm-level productivity dispersion should also have increased. Since the relevant data do not exist in the US we utilize a UK longitudinal panel dataset covering the manufacturing and non-manufacturing sectors since the early 1980s. We find evidence that productivity inequality has increased. Existing studies have underestimated this increased dispersion because they use data from the manufacturing sector which has been in rapid decline. Most of the increase in individual wage inequality has occurred because of an increase in inequality between firms (and within industries). Increased productivity dispersion appears to be linked with new technologies as suggested by models such as Caselli (1999) and is not primarily due to an increase in transitory shocks, greater sorting or entry/exit dynamics.

Keywords: wage inequality; productivity dispersion; technology (search for similar items in EconPapers)
JEL-codes: D24 J24 J31 O31 (search for similar items in EconPapers)
Date: 2007-08
New Economics Papers: this item is included in nep-bec and nep-lab
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Journal Article: The evolution of inequality in productivity and wages: panel data evidence (2010) Downloads
Working Paper: The evolution of inequality in productivity and wages: panel data evidence (2007) Downloads
Working Paper: The Evolution of Inequality in Productivity and Wages: Panel Data Evidence (2007) Downloads
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