Why is Wage Inequality so High in the United States? Pitching Cognitive Skills Against Institutions (Once Again)

32 Pages Posted: 4 Sep 2015

See all articles by Stijn Broecke

Stijn Broecke

Organization for Economic Co-Operation and Development (OECD)

Glenda Quintini

Organization for Economic Co-Operation and Development (OECD)

Marieke Vandeweyer

KU Leuven. Faculty of Business and Economics (FBE)

Date Written: August 3, 2015

Abstract

We revisit the relationship between cognitive skills and wage inequality and, contrary to most previous research, find that skills do play an important role in explaining differences in wage inequality between the United States and other OECD countries. We argue that previous research suffered from a number of methodological shortcomings, and we offer a single and unified analytical framework for analysing the contribution of skills (including demand and supply conditions) and labour market institutions to wage inequality. Our results suggest that higher skills inequality in the United States accounts for 15% of the difference in wage inequality with other countries, while differences in the demand for and supply of skills can explain just over a quarter. In comparison, higher minimum wages in other countries explain only 7% of the difference in wage inequality with the United States, while higher union coverage can explain 40%.

Suggested Citation

Broecke, Stijn and Quintini, Glenda and Vandeweyer, Marieke, Why is Wage Inequality so High in the United States? Pitching Cognitive Skills Against Institutions (Once Again) (August 3, 2015). Available at SSRN: https://ssrn.com/abstract=2655613 or http://dx.doi.org/10.2139/ssrn.2655613

Stijn Broecke (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Glenda Quintini

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Marieke Vandeweyer

KU Leuven. Faculty of Business and Economics (FBE) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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