Income Inequality: The Consequences of Skill‐Upgrading When Firms Have Hierarchical Organizational Structures

16 Pages Posted: 26 Feb 2016

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

Date Written: April 2016

Abstract

During the last three decades, most developed countries have experienced increasing income inequality. Using Danish register data from 1992 to 2007 for all private‐sector employees, we confirm that income inequality has increased in Denmark. We also observe an increase in the relative employment of highly educated individuals, as well as differential income growth rates across employee subgroups where, in particular, managers experienced significant real income progression. We use an equilibrium search framework with on‐the‐job search to study the interplay between skill‐upgrading, management compensation, and income inequality. In this model we can determine the management and education premia. We can also show that when our model is exposed to skill‐upgrading, it is capable of producing income dynamics similar to those observed in the Danish income distribution.

JEL Classification: J3, J6, M5

Suggested Citation

Frederiksen, Anders and Poulsen, Odile M., Income Inequality: The Consequences of Skill‐Upgrading When Firms Have Hierarchical Organizational Structures (April 2016). Economic Inquiry, Vol. 54, Issue 2, pp. 1224-1239, 2016. Available at SSRN: https://ssrn.com/abstract=2738282 or http://dx.doi.org/10.1111/ecin.12295

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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