If you’re so smart, why aren't you rich? wage inequality with heterogeneous workers
Booth, A.L. and Zoega, Gylfi (2002) If you’re so smart, why aren't you rich? wage inequality with heterogeneous workers. Working Paper. Elsevier.
Abstract
This Paper provides microfoundations for wage compression by modelling wage-setting in a world of heterogeneous workers and firms. Workers are differentiated by observable innate ability. A high-ability worker confers on a firm an externality, since their ability raises the average level of talent within that firm and increases the range of tasks that can be performed. This gives some firms monopsony power in the market for labour trained to do more advanced tasks. Firms will assign their better workers to the more advanced tasks performed within their ranks, and wages are compressed within firms, so that low-ability workers are paid more, relative to their talent, than high-ability workers. The model also offers an explanation for why wage inequality has recently increased in some countries: exogenous changes that increase labour market competition can disproportionately benefit higher ability workers and widen the wages distribution.
Metadata
| Item Type: | Monograph (Working Paper) |
|---|---|
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Depositing User: | Sarah Hall |
| Date Deposited: | 08 Dec 2020 15:04 |
| Last Modified: | 02 Aug 2023 18:06 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/42027 |
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