The macroeconomic implications of rising wage inequality in the United States

Jonathan Heathcote, Kjetil Storesletten, Giovanni L. Violante

Research output: Contribution to journalArticlepeer-review

127 Scopus citations

Abstract

In recent decades, American workers have faced a rising college premium, a narrowing gender gap, and increasing wage volatility. This paper explores the quantitative and welfare implications of these changes. The framework is an incomplete-markets life cycle model in which individuals choose education, intrafamily time allocation, and savings. Given the observed history of the U.S. wage structure, the model replicates key trends in cross-sectional inequality in hours worked, earnings, and consumption. Recent cohorts enjoy welfare gains, on average, as higher relative wages for college graduates and for women translate into higher educational attainment and a more even division of labor within the household.

Original languageEnglish (US)
Pages (from-to)681-722
Number of pages42
JournalJournal of Political Economy
Volume118
Issue number4
DOIs
StatePublished - Aug 2010
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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