Working Paper: CEPR ID: DP2493
Authors: Alan M. Barrett; John Fitzgerald; Brian Nolan
Abstract: Increasing earnings inequality has been an important feature of the US and UK labour markets in recent years. The increase appears to be related to an increased demand for skilled labour and an increase in the returns to education. In this paper we examine what has happened to earnings inequality and the returns to education in Ireland between 1987 and 1997. We find that while both increased between 1987 and 1994, the increases slowed dramatically between 1994 and 1997. This is somewhat surprising as the exceptional growth in the Irish economy occurred from 1994 on. We look to immigration as being a contributing factor to this pattern because a large group of skilled workers flowed into the Irish labour market between 1994 and 1997. We develop a model of the Irish labour market and use it to simulate the impact of an increase in skilled labour. The simulation suggests that immigration did indeed reduce earnings inequality. This result is an interesting corollary to work from the US that shows the immigration of unskilled workers increasing earnings inequality.
Keywords: earnings inequality; returns to education; immigration; Ireland
JEL Codes: J31; J61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| immigration of skilled workers (J61) | reduction in earnings inequality (F62) |
| increase in skilled labor force of 32% (J24) | reduction in wages for skilled workers (F66) |
| influx of skilled immigrants (J61) | wage stability (J31) |
| increase in skilled labor supply (J24) | stabilization of returns to education (I26) |
| earnings inequality increased (1987-1994) (D31) | slowed trend in earnings inequality (1994-1997) (J70) |