Wage Inequality and Cognitive Skills: Re-Opening the Debate

29 Pages Posted: 8 Feb 2016 Last revised: 9 Jul 2021

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: February 2016

Abstract

Inequality in the United States is high by international standards, and keeps rising. This is likely to bring significant social as well as economic costs, including lower growth. In this paper, we use the Survey of Adult Skills (PIAAC) to revisit the debate on the relative importance of skills in explaining international differences in wage inequality. While simple decomposition exercises suggest that skills only play a very minor role, demand and supply analysis indicates that the relative net supply of skills could explain 29% of the higher top-end wage inequality in the United States. Our analysis also suggests that skills could explain a substantial portion of the racial wage gap, as well as between individuals from different socio-economic backgrounds. Finally, we find little support for the argument that higher wage inequality in the United States may be compensated for by better relative employment outcomes of the low-skilled.

Suggested Citation

Broecke, Stijn and Quintini, Glenda and Vandeweyer, Marieke, Wage Inequality and Cognitive Skills: Re-Opening the Debate (February 2016). Available at SSRN: https://ssrn.com/abstract=2729065

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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