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IZA
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Solow and Heterogeneous Labor: A Neoclassical Explanation of Wage Inequality
by
Jürgen Meckl, Stefan Zink
(December 2002)
published in: Economic Journal, 2004, 114 (498), 835-854
Abstract:
The paper analyzes the effect of human-capital investments of heterogeneous individuals on the dynamics of the wage structure within a neoclassical growth model. The accumulation of
physical capital changes relative factor prices and thus incentives to acquire skills, thereby altering the composition of the labor force. Without relying on exogenous shocks, our
framework generates dynamics that resembles several important observations on wage inequality (e.g., the non-monotone evolution of the skill premium). Additional incorporation of
wage rigidities emphasizes the trade off between residual wage inequality and employment opportunities for unskilled labor that is consistent with country-specific evidence.
Text: See Discussion Paper No. 668 
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