Increasing Income Inequality: Productivity, Bargaining and Skill-Upgrading

32 Pages Posted: 8 Mar 2010

See all articles by Anders Frederiksen

Anders Frederiksen

IZA Institute of Labor Economics

Odile M. Poulsen

University of East Anglia (UEA) - School of Economic and Social Studies

Abstract

In recent decades most developed countries have experienced an increase in income inequality. In this paper, we use an equilibrium search framework to shed additional light on what is causing an income distribution to change. The major benefit of the model is that it can accommodate shocks to the skill composition in the market, employee bargaining power and productivity. Further, when our model is subjected to skill-upgrading and changes in employee bargaining power, it is capable of predicting the recent changes observed in the Danish income distribution. In addition, the model emphasizes that shocks to the employeesï¾’ relative productivity, i.e., skill-biased technological change, are unlikely to have caused the increase in income inequality.

Keywords: income inequality, two-sector search model, bargaining power, skill-biased technological change

JEL Classification: J3, J6, M5

Suggested Citation

Frederiksen, Anders and Poulsen, Odile M., Increasing Income Inequality: Productivity, Bargaining and Skill-Upgrading. IZA Discussion Paper No. 4791. Available at SSRN: https://ssrn.com/abstract=1566340

Anders Frederiksen (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Odile M. Poulsen

University of East Anglia (UEA) - School of Economic and Social Studies ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom

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