Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/301192 
Year of Publication: 
2024
Series/Report no.: 
Economics Working Paper Series No. 24/393
Publisher: 
ETH Zurich, CER-ETH - Center of Economic Research, Zurich
Abstract: 
This study investigates the dynamics of between-group and within-group wage inequality in a model with heterogeneous learning abilities putting a key emphasis on the shape of the ability distribution. In our model, intergenerational human capital externalities incentivize individuals to invest in skills, consequently reshaping the composition of the labor force by expanding the proportion of skilled workers from the lower end of ability distribution. We show that if, in the process of human capital accumulation, the skill premium increases, then wage inequality among skilled workers, as measured by the Gini coefficient, also increases. For several common distributions of abilities, the composition effect contributes to an upward shift in the between-group inequality and inequality among skilled workers. We also demonstrate that the composition effect contributes to an increase in wage inequality when ability distributions are represented by empirical distributions of students' assessment scores.
Subjects: 
human capital
wage inequality
skill premium
composition effect
JEL: 
I24
J24
J31
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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