American Economic Review: Vol. 103 No. 3 (May 2013)


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Sources of Wage Inequality

Article Citation

Akerman, Anders, Elhanan Helpman, Oleg Itskhoki, Marc-Andreas Muendler, and Stephen Redding. 2013. "Sources of Wage Inequality." American Economic Review, 103(3): 214-19.

DOI: 10.1257/aer.103.3.214


Recent theories of firm heterogeneity emphasize between-firm wage differences as a new mechanism through which trade can affect wage inequality. Using linked employer-employee data for Sweden, we show that many of the stylized facts about wage inequality found in Helpman et al. (2012) for Brazil also hold for Sweden. Much of overall wage inequality arises within sector-occupations and for workers with similar observable characteristics. One notable difference is a smaller contribution from between-firm differences in wages in Sweden, which could reflect the influence of Swedish labor market institutions in dampening the scope for variation in wages between firms through collective wage agreements.

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Akerman, Anders (Stockholm U)
Helpman, Elhanan (Harvard U and CIFAR, Toronto)
Itskhoki, Oleg (Princeton U)
Muendler, Marc-Andreas (U CA, San Diego)
Redding, Stephen (Princeton U)

JEL Classifications

F13: Trade Policy; International Trade Organizations
F16: Trade and Labor Market Interactions
J24: Human Capital; Skills; Occupational Choice; Labor Productivity
J31: Wage Level and Structure; Wage Differentials

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