NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Understanding the Evolution of the U.S. Wage Distribution: A Theoretical Analysis

Fatih Guvenen, Burhanettin Kuruscu

NBER Working Paper No. 13096
Issued in May 2007
NBER Program(s):   EFG   LS

In this paper we present an analytically tractable overlapping generations model of human capital accumulation, and study its implications for the evolution of the U.S. wage distribution from 1970 to 2000. The key feature of the model, and the only source of heterogeneity, is that individuals differ in their ability to accumulate human capital. Therefore, wage inequality results only from differences in human capital accumulation. We examine the response of this model to skill-biased technical change (SBTC) theoretically. We show that in response to SBTC, the model generates behavior consistent with several features of the U.S. data including (i) a rise in overall wage inequality both in the short run and long run, (ii) an initial fall in the education premium followed by a strong recovery, leading to a higher premium in the long run, (iii) the fact that most of this fall and rise takes place among younger workers, (iv) a rise in within-group inequality, (v) stagnation in median wage growth (and a slowdown in aggregate labor productivity), and (vi) a rise in consumption inequality that is much smaller than the rise in wage inequality. These results suggest that the heterogeneity in the ability to accumulate human capital is an important feature for understanding the effects of SBTC, and interpreting the transformation that the U.S. economy has gone through since the 1970's.

download in pdf format
   (421 K)

email paper

This paper is available as PDF (421 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published: Journal of the European Economic Association Volume 10, Issue 3, pages 482–517, June 2012

Users who downloaded this paper also downloaded these:
Guvenen and Kuruscu w13095 A Quantitative Analysis of the Evolution of the U.S. Wage Distribution: 1970-2000
Guvenen, Kuruscu, and Ozkan w15526 Taxation of Human Capital and Wage Inequality: A Cross-Country Analysis
Acemoglu w7800 Technical Change, Inequality, and the Labor Market
Autor, Katz, and Kearney w11627 Trends in U.S. Wage Inequality: Re-Assessing the Revisionists
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us