Jerzmanowski, Michal and Nabar, Malhar (2008): Financial Development and Wage Inequality: Theory and Evidence.
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We argue that financial market development contributed to the rise in the skill premium and residual wage inequality in the US since the 1980s. We present an endogenous growth model with imperfect credit markets and establish how improving the efficiency of these markets affects modes of production, innovation and wage dispersion between skilled and unskilled workers. The experience of US states following banking deregulation provides empirical support for our hypothesis. We find that wages of college educated workers increased by between 0.5 - 1.2% following deregulation while those of workers with a high school diploma fell by about 2.2%. Similarly, residual (or within-group) inequality increased. The 90-50 percentile ratio of residuals from a Mincerian wage regression and their standard deviation increased by 4.5% and 1.8%, respectively.
|Item Type:||MPRA Paper|
|Original Title:||Financial Development and Wage Inequality: Theory and Evidence|
|Keywords:||Skill Premium, Residual Wage Inequality, Financial Deregulation|
|Subjects:||E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E25 - Aggregate Factor Income Distribution
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials
G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
|Depositing User:||Michal Jerzmanowski|
|Date Deposited:||19. Nov 2008 06:51|
|Last Modified:||12. Feb 2013 17:58|
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