Unbundling Labor

Chris Edmond and Simon Mongey

No 691, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: Why is there so much wage inequality within occupations? Why has the overall level of within-occupation wage inequality risen? Why is the rise concentrated in cognitive-intensive occupations, while inequality has fallen in manual-intensive ones? To answer these questions we develop a general equilibrium model with heterogeneous workers who supply multiple skills jointly, as an indivisible bundle. This bundling friction allows a given skill to be priced differently in different occupations. We find in US data that differences in skill prices, not worker composition, explain why within-occupation inequality is higher in more cognitively intensive occupations and account for about a third of the rise in within-occupation inequality from 1980 to 2010. We show that a uniform increase in the productivity of cognitive skill can drive inequality up in cognitive-intensive occupations and down in manual ones, just as in the data.

Keywords: Skill-biased technical change; Skill bundles; Roy models; Sorting; Skill prices; Comparative advantage; Within-occupation inequality; Multidimensional skills (search for similar items in EconPapers)
JEL-codes: D31 E24 J21 J24 J31 O33 (search for similar items in EconPapers)
Date: 2026-10-01
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:103984

DOI: 10.21034/sr.691

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