Open AccessCross‐country Inequality Trends*
Author(s) -
Acemoglu Daron
Publication year - 2003
Publication title -
the economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.683
H-Index - 160
eISSN - 1468-0297
pISSN - 0013-0133
DOI - 10.1111/1468-0297.00100
Subject(s) - inequality , volume (thermodynamics) , political science , sociology , economics , mathematics , quantum mechanics , physics , mathematical analysis
I review the two most popular explanations for the differential trends in wage inequality in US/UK and Europe: that relative supply of skills increased faster in Europe, and that European labour market institutions prevented inequality from increasing. Although these explanations go some way towards accounting for the differential cross‐country inequality trends, it also appears that relative demand for skills increased differentially across countries. I develop a simple theory where labour market institutions creating wage compression in Europe also encourage more investment in technologies increasing the productivity of less‐skilled workers, implying less skill‐biased technical change in Europe than the US.