The Labor Wedge: New Facts Based on US Microdata

David Coble

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: I document a new set of facts about the labor wedge in the United States. First, while the labor wedge is counter-cyclical, its cross-sectional variation is pro-cyclical. Second, this finding holds regardless of gender, marital status, age, race, education and income rank. In order to show these facts, I develop a simple heterogeneous-agent model, in which productivities are different across individuals. In addition, I show evidence that the variation in the aggregate labor wedge is explained partially (between 16 and 45 percent) by the variation in the aggregate heterogeneous productivities across individuals. Finally, I discuss implications for future related research.

Date: 2015-02
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