Solow and Heterogeneous Labor: A Neoclassical Explanation of Wage Inequality

30 Pages Posted: 1 Feb 2003

See all articles by Jürgen Meckl

Jürgen Meckl

University of Konstanz; IZA Institute of Labor Economics

Stefan Zink

University of Konstanz

Date Written: December 2002

Abstract

The paper analyzes the effect of human-capital investments of heterogeneous individuals on the dynamics of the wage structure within a neoclassical growth model. The accumulation of physical capital changes relative factor prices and thus incentives to acquire skills, thereby altering the composition of the labor force. Without relying on exogenous shocks, our framework generates dynamics that resembles several important observations on wage inequality (e.g., the non-monotone evolution of the skill premium). Additional incorporation of wage rigidities emphasizes the trade off between residual wage inequality and employment opportunities for unskilled labor that is consistent with country-specific evidence.

Keywords: Wage Inequality, Human Capital Investment, Transitional Adjustment Dynamics, Skill-specific Unemployment

JEL Classification: I21, J31, O15

Suggested Citation

Meckl, Jürgen and Zink, Stefan, Solow and Heterogeneous Labor: A Neoclassical Explanation of Wage Inequality (December 2002). Available at SSRN: https://ssrn.com/abstract=372472

Jürgen Meckl (Contact Author)

University of Konstanz ( email )

Fach D-144
Universitätsstraße 10
Konstanz, D-78457
Germany

IZA Institute of Labor Economics

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

Stefan Zink

University of Konstanz ( email )

Fach D-144
Universitätsstraße 10
Konstanz, D-78457
Germany

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