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Wage Inequality and Cognitive Skills: Reopening the Debate

Stijn Broecke, Glenda Quintini, Marieke Vandeweyer

Chapter in NBER book Education, Skills, and Technical Change: Implications for Future U.S. GDP Growth (2019), Charles R. Hulten and Valerie A. Ramey, editors (p. 251 - 286)
Conference held October 16-17, 2015
Published in December 2018 by University of Chicago Press
© 2019 by the National Bureau of Economic Research
in NBER Book Series Studies in Income and Wealth

Inequality in the United States is high by international standards, and keeps rising. This is likely to bring significant social as well as economic costs, including lower growth. In this paper, we use the Survey of Adult Skills (PIAAC) to revisit the debate on the relative importance of skills in explaining international differences in wage inequality. While simple decomposition exercises suggest that skills only play a minor role, demand and supply analysis indicates that the relatively low supply of, but high demand for, high-skilled workers in the United States compared to other countries could explain 29% of the higher top-end wage inequality observed in the United States.

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This chapter first appeared as NBER working paper w21965, Wage Inequality and Cognitive Skills: Re-Opening the Debate, Stijn Broecke, Glenda Quintini, Marieke Vandeweyer
Commentary on this chapter: Comment, Frank Levy
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