Macroeconomic Conditions and Wage Inequality: Expanding and Analyzing the Worldwide Dataset

Abstract

This paper creates a unique worldwide dataset that permits the study of wage inequality and returns to education in 40 countries and revisits earlier studies of the effects of economic development (the Kuznets hypothesis), trade openness, and returns to skill on wage inequality. We find that (i) real GDP per capita is negatively related to wage inequality and returns to education, (ii) trade openness is positively related to wage inequality and returns to education, (iii) levels of wage inequality and levels of returns to education are positively related, and (iv) changes in wage inequality and changes in returns to education are negatively related, and it describes an interesting phenomenon that an acceleration of skill-biased technological change drives a deceleration of wage gap widening process.

Keywords: wage inequality, Kuznets curve, trade openness, skill-biased technological change

JEL Classification: C81, C82, F66, I24, I26, J31, O33