Increasing Income Inequality: Productivity, Bargaining and Skill-Upgrading

Anders Frederiksen (afr@btech.au.dk) and Odile Poulsen

No 4791, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In recent decades most developed countries have experienced an increase in income inequality. In this paper, we use an equilibrium search framework to shed additional light on what is causing an income distribution to change. The major benefit of the model is that it can accommodate shocks to the skill composition in the market, employee bargaining power and productivity. Further, when our model is subjected to skill-upgrading and changes in employee bargaining power, it is capable of predicting the recent changes observed in the Danish income distribution. In addition, the model emphasizes that shocks to the employees’ relative productivity, i.e., skill-biased technological change, are unlikely to have caused the increase in income inequality.

Keywords: bargaining power; two-sector search model; income inequality; skill-biased technological change (search for similar items in EconPapers)
JEL-codes: J3 J6 M5 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2010-02
New Economics Papers: this item is included in nep-dge and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published as 'Income Inequality: The Consequences of Skill-Upgrading - When Firms Have Hierarchical Organizational Structures' in Economic Inquiry, 2016, 54 (2), 1224-1239

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Working Paper: Increasing Income Inequality: Productivity, Bargaining and Skill-Upgrading (2010)
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