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VAM-Velferd, arbeid og migrasjon

Causes and consequences of labor market inequality

Alternative title: Årsaker til og konsekvenser av ulikhet i arbeidsmarkedet

Awarded: NOK 11.9 mill.

Project Number:

314283

Application Type:

Project Period:

2021 - 2026

Funding received from:

Location:

Public debate is increasingly focused on a subject that economists have been analyzing for several decades: causes and consequences of labor market inequality. Much popular discussion concerns the "top 1 percent". While relevant, the top 1 percent covers only a small fraction of the population. This project focuses on the "other 99 percent". The primary goal of the project is to provide novel empirical evidence on both the causes and consequences of labor market inequality, and how economic inequalities among households are attenuated by government policies such as a progressive tax-transfer system. Using data from Norway, the United States, and several European countries, we will carry out three separate but related projects. The goal of the first project is to offer an empirical characterization of the wage structure and the inequality in wages across workers. The second project investigates the underlying economic and social causes of labor market inequality, by examining the empirical importance of three hypotheses for why observationally equivalent workers are paid differently: unobserved productivity differences across workers, imperfect competition in the labor market, and compensating differentials due to non-wage attributes of jobs. The goal of the third project is to examine how public policy, such as the tax-transfer system, may attenuate the economic consequences of inequality in the labor market. To this end, we will synthesize the empirical evidence on how economic decisions and outcomes are affected by the Nordic labor market regulations and government policies. We also aim to develop an empirical framework to identify, estimate, and interpret how shocks to worker productivity and changes in local labor market conditions affect household income and consumption, and to explore the degree of insurance against adverse income shocks provided by the progressive Norwegian tax-transfer system.

The goal of this project is to provide novel empirical evidence on both the causes and consequences of labor market inequality, and how economic inequalities among households are attenuated by government policies such as a progressive tax-transfer system. Using data from Norway, the United States, and several European countries, we will carry out three separate but related projects, each of which includes specific paper proposals that are descripted in the application. The goal of the first project is to address several bias and misspecification issues with the AKM model, a commonly used statistical model of wage determination, in order to accurately characterize the empirical determinants of wages in several countries, including Norway and the U.S. The second project investigates the underlying economic and social causes of labor market inequality, by examining the empirical importance of three hypotheses for why observationally equivalent workers are paid differently: unobserved productivity differences across workers, imperfect competition in the labor market, and compensating differentials due to non-wage attributes of jobs. The goal of the third project is to examine how public policy, such as the tax-transfer system, may attenuate the economic consequences of inequality in the labor market. To this end, we will synthesize the empirical evidence on how economic decisions and outcomes are affected by the Nordic labor market regulations and government policies. We also aim to develop an empirical framework to identify, estimate, and interpret how shocks to worker productivity and changes in local labor market conditions affect household income and consumption, and to explore the degree of insurance against adverse income shocks provided by the progressive Norwegian tax-transfer system. In each project, the analyses will combine theory and credible identification strategies with large administrative datasets that can be linked to supplementary data sources.

Activity:

VAM-Velferd, arbeid og migrasjon