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This paper analyzes the effect of recent technical change on the labor market and explains the observed differences in wage inequality among advanced countries. In particular, we focus on the difference between the inequality in the U.S. and in continental Europe. Many studies have indicated a rise in wage inequality in the U.S. over the past three decades. On the other hand, there has been little change in wage inequality in continental Europe. By introducing human capital investment into the model by Acemoglu (Am Econ Rev 89:1259-1278, ), we show that ex ante homogeneous economies would have distinct ex post wage distribution. The strategic complementarity between human capital investment and firms' hiring strategies yields the possibility that multiple equilibria exist, which explains the difference in wage distribution between the U.S. and Europe. In addition, we show that differences in tax or education systems can explain the difference in wage distribution between the U.S. and Europe. [ABSTRACT FROM AUTHOR]

There is much work on the relationships between crime, unemployment and inequality. At the turn of the millennium, 2.1 million people in the U.S. were in prison or jail, rising to 6.3 million if we include those on probation or parole. A key finding is that introducing criminal activity into otherwise standard models of the labor market can significantly affect the predictions of these models. The first section of this paper presents the worker's problem taking wages as given. This provides a natural extension to the textbook job search model to incorporate crime. Section II analyzes wage setting. This shows how various types of equilibria with different crime rates can arise for different parameter values, and how sometimes multiple equilibria coexist, with different amounts of crime, inequality and unemployment. This paper has developed a search equilibrium framework that can be used to analyze the interrelations between crime, unemployment and inequality. The model is essential to analyze feedbacks that can lead to multiplicity.

The majority of mainstream economists believe that globalization and trade liberalization have had a minor role in increasing U.S. wage inequality. A minority argues that capital mobility and outsourcing indicate a larger effect. This paper first surveys these views, and then argues that how we understand the policy consequences of trade liberalization helps determine the character our analysis of the issue itself. Thus, a shift in policy perspective, to consider the "equity costs" of trade liberalization in terms of eroded U.S. labor market institutions, produces a larger framework for analyzing the consequences of globalization and trade liberalization than is available in traditional comparative advantage efficiency reasoning. From this wider perspective, trade liberalization has likely had a greater impact on U.S. wage inequality than even the minority mainstream position allows. [ABSTRACT FROM AUTHOR]

This paper presents a semiparametric procedure to analyze the effects of institutional and labor market factors on recent changes in the U.S. distribution of wages. The effects of these factors are estimated by applying kernel density methods to appropriately weighted samples. The procedure provides a visually clear representation of where in the density of wages these various factors exert the greatest impact. Using data from the Current Population Survey, we find, as in previous research, that de-unionization and supply and demand shocks were important factors in explaining the rise in wage inequality from 1979 to 1988. We find also compelling visual and quantitative evidence that the decline in the real value of the minimum wage explains a substantial proportion of this increase in wage inequality, particularly for women. We conclude that labor market institutions are as important as supply and demand considerations in explaining changes in the U.S. distribution of wages from 1979 to 1988. [ABSTRACT FROM AUTHOR]

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From 1973 to 2007, private sector union membership in the United States declined from 34 to 8 percent for men and from 16 to 6 percent for women. During this period, inequality in hourly wages increased by over 40 percent. We report a decomposition, relating rising inequality to the union wage distribution’s shrinking weight. We argue that unions helped institutionalize norms of equity, reducing the dispersion of nonunion wages in highly unionized regions and industries. Accounting for unions’ effect on union and nonunion wages suggests that the decline of organized labor explains a fifth to a third of the growth in inequality—an effect comparable to the growing stratification of wages by education. [ABSTRACT FROM PUBLISHER]

Most research on earnings inequality has focused on the growing gap between workers of different races and at different education, age, and income levels, but a large portion of the increasing inequality has actually occurred within these groups. This article focuses on the extent and sources of "within-group" wage inequality in more than 500 labor markets in the United States in 1990. In addition to documenting that within-group wage inequality across regions varies more widely today than over the past several decades, the analysis reveals that two frequently cited explanations of rising wage inequality over time have little impact on within-group wage inequality when measured at the local labor market level: (1) industrial shifts and (2) increased technology and trade. By contrast, flexible and insecure employment conditions (e.g., unemployment, contingent work, and immigration) are associated strongly with high local levels of within-group wage inequality, especially among women. [ABSTRACT FROM AUTHOR]