Cross-Country Inequality Trends

Daron Acemoglu

No 8832, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The economics profession has made considerable progress in understanding the increase in wage inequality in the U.S. and the UK over the past several decades, but currently lacks a consensus on why inequality did not increase, or increased much less, in (continental) Europe over the same time period. I review the two most popular explanations for these differential trends: that relative supply of skills increased faster in Europe, and that European labor market institutions prevented inequality from increasing. I argue that these two explanations go some way towards accounting for the differential cross-country inequality trends, but do not provide an entirely satisfactory explanation. In addition, it appears that relative demand for skills increased differentially across countries. Motivated by this reasoning, I develop a simple theory where labor market institutions creating wage compression in Europe also encourage more investment in technologies increasing the productivity of less-skilled workers, thus implying less skill-biased technical change in Europe than in the U.S.

JEL-codes: J30 J31 (search for similar items in EconPapers)
Date: 2002-03
New Economics Papers: this item is included in nep-ltv
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Citations: View citations in EconPapers (61)

Published as Acemoglu, Daron. "Cross-Country Inequality Trends," Economic Journal, 2003, v113(485,Feb), F121-F149.

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