Understanding the dynamics of wage inequality is a complex issue that has received significant attention in the literature, particularly in the United States. In this study, we develop an overlapping generation model based on Ben-Porath's framework to investigate the dynamics of wage inequality driven by the Tinbergen Race, i.e. the race between education and technology. Our model also explains the differences in the wage profile over a career between cohorts (flattening versus steepening). To analyze these structural changes, we estimate the transitional dynamics of the model. This allows us to identify neutral and skill-biased technological changes that drive wage inequality over a long period, spanning from the 1940s to 2020. Our model captures the non-linear changes in the college premium, including the decline in overall wage inequality and the college premium from the 1940s to the 1960s, as well as the recent rise in the college premium driven by wage inequality among college graduates and changes in the supply of skilled workers. By conducting counterfactual analyses, we can decompose the sources of the dynamics of wage inequalities. Our findings highlight the importance of early wage differences in determining lifetime inequality and the significant impact of skill-biased technological change.
Raquel Fonseca (ESG-Université du Québec à Montréal and CIRANO
Etienne Lalé (ESG-Université du Québec à Montréal and CIRANO)
François Langot (Le Mans University (GAINS-TEPP and IRA), IUF, Paris School of Economics, Cepremap and IZA )
Thepthida Sopraseuth (CY Cergy-Paris University, THEMA)