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Wage Inequality and Cognitive Skills

Wage Inequality and Cognitive Skills

Reopening the Debate

(p.251) 7 Wage Inequality and Cognitive Skills
Education, Skills, and Technical Change
Stijn BroeckeGlenda QuintiniMarieke Vandeweyer
University of Chicago Press

Inequality in the United States is high by international standards, and continues to rise. This is likely to bring significant social as well as economic costs, including lower growth. In this paper, we use new data from the Survey of Adult Skills (PIAAC) to revisit the debate on the relative importance of cognitive skills in explaining international differences in wage inequality. While simple decomposition exercises suggest that skills only play a minor role, demand and supply analysis indicates that the relatively low supply of, but high demand for, high-skilled workers in the United States compared to other countries could explain 29% of the higher top-end wage inequality observed in the United States. However, the net supply of skills explains little of the higher wage inequality at the bottom of the wage distribution.

Keywords:   inequality, skills, labor market institutions

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