Abstract

http://ssrn.com/abstract=1300192
 
 

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Citations (52)



 


 



The Cross-Sectional Implications of Rising Wage Inequality in the United States


Jonathan Heathcote


Minneapolis Fed; Georgetown University - Department of Economics

Kjetil Storeslettenand


affiliation not provided to SSRN

Giovanni Violante


New York University, Leonard N. Stern School of Business, Department of Economics; Centre for Economic Policy Research (CEPR)

January 2004

NYU Working Paper No. S-MF-04-01

Abstract:     
This paper explores the implications of the recent sharp rise in US wage inequality for welfare and the cross-sectional distributions of hours worked, consumption and earnings. From 1967 to 1996 cross-sectional dispersion of earnings increased more than wage dispersion, due to a rise in the correlation between wages and hours worked. Over the same period, inequality in hours worked remained roughly constant, and the dispersion in consumption and wealth increased only modestly. Using data from the PSID, we decompose the observed rise in wage inequality into changes in the variance of permanent, persistent and transitory shocks. With this changing wage process as the only primitive, we show that a calibrated overlapping-generations model with incomplete markets can account for these trends in cross-sectional US data. We also investigate the welfare costs of the rise in wage inequality: the ex-ante loss is equivalent to a five percent decline in lifetime income for the worst-affected cohorts.

Number of Pages in PDF File: 52

Keywords: Consumption inequality, Labor supply, Wage inequality, Welfare

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Date posted: November 12, 2008  

Suggested Citation

Heathcote, Jonathan and Storeslettenand, Kjetil and Violante, Giovanni, The Cross-Sectional Implications of Rising Wage Inequality in the United States (January 2004). NYU Working Paper No. S-MF-04-01. Available at SSRN: http://ssrn.com/abstract=1300192

Contact Information

Jonathan Heathcote (Contact Author)
Minneapolis Fed ( email )
90 Hennepin Avenue
Minneapolis, MN 55480
United States
HOME PAGE: http://www.jonathanheathcote.com
Georgetown University - Department of Economics ( email )
5th Floor, Intercultural Center
Washington, DC 20057
United States
202-687-5582 (Phone)
Kjetil Storeslettenand
affiliation not provided to SSRN
No Address Available
Giovanni Violante
New York University, Leonard N. Stern School of Business, Department of Economics ( email )
269 Mercer Street
New York, NY 10003
United States
212-992-9771 (Phone)
212-995-4186 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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References:  56
Citations:  52

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