Understanding between and within-group wage inequality through the lens of the 2007 financial crisis
In this paper, we first document several stylized facts on the U.S labour market before and after the financial crisis, specifically: (i) The overall wage inequality takes the form of a U-shaped curve; (ii) The wage dispersion amongst low-skill jobs increased during the financial crisis, but decreas...
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| Main Authors: | , , |
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| Other Authors: | |
| Format: | Final Year Project |
| Language: | English |
| Published: |
2015
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| Subjects: | |
| Online Access: | http://hdl.handle.net/10356/62506 |
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| Institution: | Nanyang Technological University |
| Language: | English |
| Summary: | In this paper, we first document several stylized facts on the U.S labour market before and after the financial crisis, specifically: (i) The overall wage inequality takes the form of a U-shaped curve; (ii) The wage dispersion amongst low-skill jobs increased during the financial crisis, but decreased after the crisis; (iii) Conversely, the wage dispersion amongst high skilled jobs decreased during the financial crisis but subsequently increased after the crisis; (iv) There is an increasing employment share of high-skill jobs from 2003-2011. These motivate the following questions: Why is there a U-shaped trend before and after the financial crisis? Why does wage dispersion respond asymmetrically to the financial crisis between high and low skill jobs? We then develop a theoretical framework to study the underlying mechanism that can potentially account for those facts. Taken altogether, our model predicts that changes in relative productivity of high-skill and low-skill jobs have shaped between and within-group wage inequality trends between 2003 and 2011. This has also been empirically tested by regressing relative wages/ productivity (A_H/A_L ) against income inequality (90/10 ratio), where the results are found to be statistically significant. |
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