Solow and Heterogeneous Labor: A Neoclassical Explanation of Wage Inequality

Jürgen Meckl () and Stefan Zink ()
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Stefan Zink: University of Konstanz

No 668, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The paper analyzes the effect of human-capital investments of heterogeneous individuals on the dynamics of the wage structure within a neoclassical growth model. The accumulation of physical capital changes relative factor prices and thus incentives to acquire skills, thereby altering the composition of the labor force. Without relying on exogenous shocks, our framework generates dynamics that resembles several important observations on wage inequality (e.g., the non-monotone evolution of the skill premium). Additional incorporation of wage rigidities emphasizes the trade off between residual wage inequality and employment opportunities for unskilled labor that is consistent with country-specific evidence.

Keywords: wage inequality; human capital investment; transitional adjustment dynamics; skill-specific unemployment (search for similar items in EconPapers)
JEL-codes: I21 J31 O15 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2002-12
New Economics Papers: this item is included in nep-lab and nep-mic
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Published - published in: Economic Journal, 2004, 114 (498), 835-854

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Related works:
Journal Article: Solow and heterogeneous labour: a neoclassical explanation of wage inequality (2004)
Working Paper: Solow and heterogeneous labor: A neoclassical explanation of wage inequality (2001)
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