Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273121 
Year of Publication: 
2022
Series/Report no.: 
NBB Working Paper No. 417
Publisher: 
National Bank of Belgium, Brussels
Abstract: 
We develop a quantitative framework in which income inequality arises endogenously in response to productivity shocks. The framework accommodates sectoral inputoutput linkages, arbitrary elasticities of factors and intermediates, and heterogeneous workers that endogenously choose to supply their labor across sectors. Workers are imperfectly mobile across sectors, parameterized by a Roy-Frechet setup. We characterize the impact of Harrod-neutral shocks and changes in labor mobility on income inequality and welfare up to first- and second order. Inequality arises in equilibrium due to a combination of changes in income share and labor use across all sectors due to their dependencies in the input-output network. We calibrate the model using Belgian data and provide quantitative results, confirming strong non-linearities. These results suggest that labor market-improving policies can have strong effects on both welfare and inequality, but the impact is both quantitatively and qualitatively dependent on the structure of the economy and its initial equilibrium.
Subjects: 
Income inequality
production networks
disaggregated macro models
wage gaps
mobility of workers
heterogeneous factors of production
JEL: 
D24
D33
D50
D57
D63
E24
J31
Document Type: 
Working Paper

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