Working Paper: NBER ID: w21965
Authors: Stijn Broecke; Glenda Quintini; Marieke Vandeweyer
Abstract: 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 very minor role, demand and supply analysis indicates that the relative net supply of skills could explain 29% of the higher top-end wage inequality in the United States. Our analysis also suggests that skills could explain a substantial portion of the racial wage gap, as well as between individuals from different socio-economic backgrounds. Finally, we find little support for the argument that higher wage inequality in the United States may be compensated for by better relative employment outcomes of the low-skilled.
Keywords: Wage Inequality; Cognitive Skills; Labor Market; Socioeconomic Backgrounds
JEL Codes: I24; J24; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| relative net supply of skills (J24) | higher p90p50 wage ratio (J39) |
| 1% increase in relative net supply of high-skilled workers (J24) | reduce top-half wage inequality (J31) |
| skills (J24) | gender wage gap (J31) |
| skills (J24) | wage gap between individuals with differing parental education levels (J31) |
| skills (J24) | racial wage gap between white and black or Hispanic individuals (J79) |
| higher wage inequality (J31) | better employment outcomes for low-skilled workers (J68) |