E ns , Ekkeha d; Lango , F ançois; Me ola, Rossana; T ipie , Fabien
Wo king Pape
Wha is d i ing weal h inequali y in he Uni ed S a es o
Ame ica? The ole o p oduc i i y, axa ion and skills
ILO Wo king Pape , No. 105
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In e na ional Labou O ganiza ion (ILO), Gene a
Sugges ed Ci a ion: E ns , Ekkeha d; Lango , F ançois; Me ola, Rossana; T ipie , Fabien (2024) : Wha
is d i ing weal h inequali y in he Uni ed S a es o Ame ica? The ole o p oduc i i y, axa ion and
skills, ILO Wo king Pape , No. 105, ISBN 978-92-2-040491-1, In e na ional Labou O ganiza ion
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XWha Is D i ing Weal h Inequali y in
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The Role o P oduc i i y, Taxa ion and Skills
Au ho s / Ekkeha d E ns , F ançois Lango , Rossana Me ola, Fabien T ipie
Feb ua y / 2024
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01 ILO Wo king Pape 105
Abs ac
Ou o ou majo s uc u al changes a ec ing he US economy – namely a ising sha e o skilled
wo ke s, skill-biased echnological change, dec easing p og essi eness o axa ion and p oduc i -
i y slowdown – we show ha he decline in p oduc i i y g ow h no only is he main d i e o he
widening weal h dispa i ies obse ed in he Uni ed S a es o Ame ica o e he pas ew decades,
bu is also he only mechanism ha can explain inequali ies bo h wi hin and be ween skill g oups.
Abou he Au ho s
Ekkeha d E ns : ILO, Resea ch Depa men . E-mail: [email p o ec ed]g
F ançois Lango : Le Mans Uni e si y; Ins i u Uni e si ai e de F ance; Pa is School o Economics;
CEPREMAP. E-mail: [email p o ec ed]
Rossana Me ola: ILO, Resea ch Depa men . E-mail: me [email p o ec ed]
Fabien T ipie : Uni e si é Pa is Dauphine-PSL, Labo a oi e d’ Économie de Dauphine (LEDa);
CEPREMAP. E-mail:[email p o ec ed]
02 ILO Wo king Pape 105
Abs ac 01
Abou he Au ho s 01
X1 In oduc ion 05
X2 S ylized Fac s 08
2.1. Inequali y be ween skill g oups 08
2.2. Inequali y wi hin skill g oups 09
2.3. Is he e a "weal h pola iza ion"? 11
X3 Model 13
3.1. Households 13
3.2. P oduc ion 15
3.3. Agg ega ion 16
X4 Calib a ion 17
4.1. Calib a ion o he cons an pa ame e s 17
4.2. Calib a ion o he s uc u al changes in he US economy 18
X5 Iden i ying he sou ces o ising in weal h inequali ies 20
X6 Ex ending he analysis: Changes in income isk 23
X7 Conclusions and policy implica ions 25
X8 Appendix: De ailed s a is ics om he Su ey o Consume Finances 26
Re e ences 34
Table o con en s
03 ILO Wo king Pape 105
Lis o Figu es
Figu e 1: Weal h and wage inequali y be ween skills in he Uni ed S a es 10
Figu e 2: Weal h inequali y ac oss and wi hin skill g oups in he Uni ed S a es, 1989–2016 11
Figu e 3: Weal h inequali y be ween skills in he Uni ed S a es, 1989-2016 12
Figu e 4: S uc u al changes in he US economy 19
Figu e 5: Changes in income isk in he US economy, skilled e sus unskilled wo ke s, 1968–
2010 23
04 ILO Wo king Pape 105
Lis o Tables
Table 1: Weal h inequali y ac oss skill g oups in he Uni ed S a es: Sha e o unskilled house-
holds in he o al popula ion and in he ou qua iles o he weal h dis ibu ion, 1989–
2016 (pe cen age) 08
Table 2: Weal h inequali y ac oss skill g oups in he Uni ed S a es: Mean alue o weal h
held by households, skilled e sus unskilled, 1989–2016 ( housands o 2016 US dolla s) 08
Table 3: Weal h inequali y wi hin skill g oups in he Uni ed S a es, 1989–2016 09
Table 4: Weal h inequali y be ween skill g oups in he Uni ed S a es, 1989–2016 12
Table 5: Calib a ed pa ame e s 17
Table 6: Calib a ion o shocks 19
Table 7: Compa ison be ween empi ical da a and model esul s 20
Table 8: Calib a ion o shocks 24
Table 9: Compa ison be ween empi ical da a and modelling esul s (wi h income isk) 24
Table A1: A e age ea nings, income and weal h o US households, 1989 27
Table A2: A e age ea nings, income and weal h o US households, 1995 27
Table A3: A e age ea nings, income and weal h o US households, 2001 27
Table A4: A e age ea nings, income and weal h o US households, 2004 28
Table A5: A e age ea nings, income and weal h o US households, 2007 28
Table A6: A e age ea nings, income and weal h o US households, 2010 28
Table A7: A e age ea nings, income and weal h o US households, 2013 29
Table A8: A e age ea nings, income and weal h o US households, 2016 29
Table A9: Measu es o inequali y among US households, o al and by skill g oup, 1989 31
Table A10: Measu es o inequali y among US households, o al and by skill g oup, 1995 31
Table A11: Measu es o inequali y among US households, o al and by skill g oup, 2001 31
Table A12: Measu es o inequali y among US households, o al and by skill g oup, 2004 31
Table A13: Measu es o inequali y among US households, o al and by skill g oup, 2007 32
Table A14: Measu es o inequali y among US households, o al and by skill g oup, 2010 32
Table A15: Measu es o inequali y among US households, o al and by skill g oup, 2013 32
Table A16: Measu es o inequali y among US households, o al and by skill g oup, 2016 33
05 ILO Wo king Pape 105
X1 In oduc ion
O e he pas wo decades, income inequali y has inc eased in a la ge majo i y o membe coun-
ies o he O ganiza ion o Economic Co-ope a ion and De elopmen . The a e age income gap
be ween he op 10 pe cen and he bo om 50 pe cen o indi iduals wi hin coun ies has al-
mos doubled. I we look a weal h inequali y, he weal h gap be ween uppe -income amilies
and middle- and lowe -income amilies is wide han he income gap and is g owing mo e ap-
idly (Chancel e al. 2022). Acco ding o a s udy conduc ed by he Pew Resea ch Cen e in 2020,
"[ ]he iches amilies in he U.S. ha e expe ienced g ea e gains in weal h han o he amilies in
ecen decades, a end ha ein o ces he g owing concen a ion o inancial esou ces a he
op" (Ho owi z, Igielnik, and A di i 2020). Iden i ying he d i ing o ces o inequali y is a key chal-
lenge in designing e ec i e policies o achie e inclusi e and equi able g ow h and de elopmen .
Exis ing s udies ha e poin ed o se e al s uc u al changes ha may be leading o g ea e in-
equali y. We conside ou o hem in his pape : declining p oduc i i y, he g owing sha e o
skilled wo ke s in he economy, skill-based echnological change, and a end whe eby axa ion
is becoming less p og essi e. Wi h ega d o he i s o hese p ocesses, ha is, he slowdown
in p oduc i i y g ow h, he e is clea ly a disc epancy be ween he le el o in es men in he in-
o ma ion echnology sec o and na ional p oduc i i y le els. Back in 1993, E ik B ynjol sson e-
e ed o his si ua ion as he “p oduc i i y pa adox”, which is encapsula ed in he ollowing quip:
“You can see he compu e age e e ywhe e bu in he p oduc i i y s a is ics” (Solow 1987).1 In
he Uni ed S a es o Ame ica, he g ow h in labou p oduc i i y – eal ou pu pe hou wo ked
– slowed down ma kedly a ound 2004. O e he p e ious en yea s, labou p oduc i i y in he
business sec o had isen a an annual a e age a e o mo e han 3 pe cen . I slowed o abou
2 pe cen a yea du ing 2004–10 be o e d opping o a pal y 0.5 pe cen du ing 2010–16. Mo e
p ecisely, using da a om Fe nald (2014), we es ima e ha he g ow h a e o o al ac o p o-
duc i i y dec eased signi ican ly om 2.1 pe cen be o e 1989 o 0.89 pe cen in 2010. I he
a e o e u n on capi al, , is much la ge han he a e o g ow h, g, hen exis ing capi al g ows
as e han new capi al c ea ed ou o accumula ed income and al eady ich owne s o capi al will
become e en iche . In con as , a highe g ow h a e g implies highe income g ow h and ena-
bles hose a he bo om o he dis ibu ion o accumula e new weal h, he eby educing weal h
concen a ion. As a gued by Pike y (2014) and Pike y and Zucman (2015), a a e o e u n ha
exceeds economic g ow h ( he > g mechanism) is a key ac o d i ing economic inequali y. A
second ac o is ela ed o he e olu ion o supply o , and demand o , skills. A ising sha e o
skilled wo ke s can lead o a educ ion in inequali ies as he ela i e sca ci y o such wo ke s de-
c eases.2 A hi d d i e is skill-biased echnological change, which pushes he skill p emium up,
ul ima ely inc easing inequali ies be ween skill g oups (Goldin and Ka z 2009). The ac ha he
skill p emium is ising sugges s ha he skills equi ed o handle new echnologies a e in sca ce
supply (Acemoglu and Au o 2011). Mo eo e , i is gene ally ag eed ha skill-biased echnologi-
cal change led o a hollowing-ou o he wage dis ibu ion in he 2000s, when many middle-wage
cogni i e ou ine occupa ions we e au oma ed (Goos, Manning, and Salomons 2014). The ou h
d i e o ising inequali y has o do wi h he deg ee o p og essi eness o he ax sys em. O e
he pas decade, se e al coun ies ha e implemen ed ax e o ms making hei ax s uc u es
much la e (see Duncan and Sabi iano a Pe e 2012). The shi o la axes, o o a ax s uc-
u e wi h lowe le els o p og essi eness, is consis en wi h a decline in he op income ax a es
and has been associa ed wi h high le els o inequali y. Ge be e al. (2018) ind qui e s ong e -
idence o ax p og essi eness ha ing an impac on inequali y.
1The lack o di usion o new echnologies can be iewed as a majo ac o behind he p oduc i i y pa adox (E ns 2022).
2I is wo h no ing ha his e ec may be ambiguous. Aziz and Co es (2021) a gue ha , in socie ies whe e he sha e o skilled wo k-
e s is below 50 pe cen , a ise in educa ional a ainmen inc eases inequali y be ween skill g oups. Con e sely, in socie ies whe e
ha sha e is abo e 50 pe cen , an inc ease in educa ional a ainmen pu s downwa d p essu e on he skill p emium and ul ima ely
educes inequali y be ween skill g oups.
12 ILO Wo king Pape 105
XTable 4: Weal h inequali y be ween skill g oups in he Uni ed S a es, 1989–2016
All Skilled Medium Unskilled Ra io skilled o
medium-skilled
Ra io skilled o un-
skilled
1989 353.33 765.69 344.84 186.50 2.22 4.11
2016 689.51 1504.17 340.09 219.21 4.42 6.86
Annual g ow h a e 2.51 2.53 -0.05 0.60 2.59 1.92
No e: Sou ce: Au ho s’ calcula ions based on da a om Su ey o Consume Finances.
XFigu e 3: Weal h inequali y be ween skills in he Uni ed S a es, 1989-2016
No e: Unskilled people a e de ined as hose ha ing a bes a high-school diploma; medium-skilled people a e hose ha ing a
bes a bachelo ’s deg ee; skilled people a e hose ha ing highe han a bachelo ’s deg ee. Sou ce: Au ho s’ calcula ions based
on da a om he Su ey o Consume Finances.
13 ILO Wo king Pape 105
X3 Model
We de elop a gene al equilib ium model wi h incomple e inancial ma ke s and idiosync a ic
p oduc i i y shocks à la Achdou e al. (2021). The model is ex ended o include labou supply as
in Chang and Kim (2006), he e ogeneous agen s (skilled and unskilled wo ke s, as in Ahn e al.
2018), he non-linea iscal sys em à la Hea hco e, S o esle en, and Violan e (2017) and skill-bi-
ased echnological change. Va iables wi h a do on op deno e g ow h a es, while a iables wi h
a ilde on op a e in le el.
3.1. Households
Agen s can be skilled (s) o unskilled (u) wo ke s, q є {u, s}. Wi hin each skill g oup, he e exis
pa ien (p) and impa ien (i) agen s cha ac e ized by hei discoun ac o , ω є {p, i}. We deno e
he s a e ec o ς = (q, ω).
The u ili y unc ion o he household wi h skill le el q is
whe e
c
~
, and
h,
deno e espec i ely consump ion and hou s wo ked and hey bo h depend
on he household’s skills and pa ience and his/he labou ma ke his o y. The pa ame e χ
measu es labou supply elas ici y,
γ
is he isk a e sion pa ame e and
ρ
is he discoun ac o
o each ype o household.
The budge cons ain o his household is
whe e
a
, is he inancial asse s accumula ed by households on which hey ecei e he in e -
es a e
a ime . Financial ma ke s a e impe ec : he e is a bo owing cons ain which limi s
household deb o
a
−
. A each ime , when hey supply wo k
h
,, households q ecei e wage
wq
,
, depending on his/he skill le el, which is subjec o a labou income shock
zq
,.
The unc ion desc ibing axes T (·) is gi en by
whe e
τ
is he ax a e on inancial income, λ measu es he p og essi eness o he axa ion
scheme and g is he long- un echnological p og ess. A all in λ makes he iscal sys em less p o-
g essi e. Fo λ = 0 (no p og essi eness), he budge cons ain becomes
14 ILO Wo king Pape 105
The p ocess o labou income shock
z Z∈
q q,, wi h
z
−=1
q, is
whe e
θ
q go e ns he pe sis ence o he labou income shock. We will la e in e p e an inc ease
in
σ
q as a mo e isky labou ma ke o wo ke s. The join dis ibu ions o
z
q and weal h
aq
a e
deno ed
()
ga ,
qq, o
q
su
={ ,}
.
Following Achdou e al. (2021), he Hamil on-Jacobi-Bellman equa ion in s a iona y a iables
xex
=
~
g is:
whe e
ρρ γg
=−
(1− ). The long- un echnological p og ess g modi ies he s a iona y discoun
ac o ( o
γ≠1
) and he law o mo ion o he s a iona y weal h
a
, because
aaegae
˙=˙
g
g
,,
,
. The wo e ms
z
and
zz ep esen espec i ely he i s de i a i e and he second de i a i e o
he alue unc ions wi h espec o he labou income shocks
zq
,.
Fi s -o de condi ions wi h espec o consump ion
c
and labou supply
l
a e espec i ely
The labou supply sol es
Pike y e ec ( –g) in he model. We conside he case wi hou inancial cons ain s o highligh
how he ( –g) e ec in e enes in he model. We omi indices o he sake o simplici y. The op-
imiza ion p oblem yields:
15 ILO Wo king Pape 105
whe e he ma ginal e u n o an asse R(a) in he s a iona y economy is
I declines wi h weal h and labou ma ke ea nings when
λ>0
, wi h he le el o axa ion
τ
and
wi h he long- un end o he economy g. The e o e, a all in long- un g ow h s imula es sa ing
in he economy
whe e γ de e mines he magni ude o he e ec . Hence, weal h inequali y will be high when in-
di iduals accumula e weal h apidly. I we assume o simplici y ha
λ=0
, which implies ha
R(a) =(1−τ) −g∀a
, a s ong capi aliza ion e ec (la ge − g) magni ies inequali ies by acili a -
ing weal h accumula ion. The decline o he g ow h a e g obse ed since he 1990s can hen ise
weal h inequali ies. Con e sely, a decline in he in e es a e, consis en wi h he wage p emium
inc ease, educes weal h inequali y wi hin skill g oups. I should also be no ed ha an inc ease
in he ax a e on inancial income
τ
will dec ease
(1−τ)
, and hus R(a) when
λ=0
and ul ima ely
will educe weal h inequali ies (weakening o he capi aliza ion e ec ). This a gumen is he basis
o Pike y’s p oposal o le y axes on capi al income o educe inequali ies (see Pike y 2014). On
he o he hand, an objec ion o using capi al income axes o ackle widening inequali ies is ha
highe axa ion on capi al will simply lead o capi al ou lows since capi al is in e na ionally mobile.
3.2. P oduc ion
The domes ic p oduc ion echnology is based on K usell e al. (2000)
whe e
y
~
deno es he inal ou pu ,
s
, and
u
, he skilled and unskilled labou inpu s,
k
~
he physical
capi al inpu . The pa ame e s µζ
{,}
de e mine he income sha es o p oduc ion ac o s. The pa-
ame e
σl
is he elas ici y o subs i u ion be ween unskilled labou and capi al o skilled labou
16 ILO Wo king Pape 105
and
σh
is he elas ici y o subs i u ion be ween skilled labou and capi al. As shown by K usell e
al. (2000), capi al-skill complemen a i ies assumes ha
σ σ>
lh
.
We conside wo sou ces o echnological change. The i s one is he echnological p og ess
e
X
≡
g , which is common o skilled and unskilled wo ke s (a d op in g, which can be in e p e -
ed as a global p oduc i i y slowdown). The second sou ce is he skill-biased biased echnological
p og ess, s, de ined such ha a ise in s inc eases he demand o skilled wo ke s and dec eases
he demand o unskilled wo ke s.
3.3. Agg ega ion
In he inancial ma ke , he in e es a e adjus s un il asse s held by households equal he amoun
o physical capi al used in he p oduc ion sec o
In he wo labou ma ke s, skilled and unskilled q ∈ {u, s}, agg ega e supply o labou equal ag-
g ega e demand o labou :
Since he size o he o al popula ion is no malized o one (in he absence o demog aphic g ow h),
we impose
NN+=1
us
and in e p e an inc ease in
N
s as he ou come o highe educa ion policy.
The le el o axa ion τ is adjus ed o inance public spending G.
17 ILO Wo king Pape 105
X4 Calib a ion
To s udy he d i e s o weal h inequali y in he US economy, we p oceed in h ee s eps. Fi s , he
model is calib a ed o he yea 1989, which is he i s wa e o he SCF. We compu e indica o s
o weal h inequali y be ween and wi hin skill g oups. Second, we use ex e nal sou ces (e.g. ob-
se ed da a be ween 1989 and 2010) as well as he li e a u e o calib a e he size o he shocks
ha may widen weal h inequali ies. Thi d, we compu e he new pos -shock s eady s a e and
compa e i wi h obse ed da a o 2010.
4.1. Calib a ion o he cons an pa ame e s
XTable 5: Calib a ed pa ame e s
Ca ego y Symbol Values Sou ces and a ge s ( o 1989)
Popula ion
N
s
0.24 Da a (SCF 1989)
P e e ences
γ
2A anasio and Low (2004)
χ
3Ta ge : hs/hu = 1.4
Θ
1No maliza ion
ρsp
,
0.0180 Ta ge : p[25; 50]p = 0.045
ρsi
,
0.0535 Ta ge : p[75; 100]p = 0.823
ρup
,
0.0245 Ta ge : p[25; 50]i = 0.032
ρui
,
0.0484 Ta ge : p[75; 100]i = 0.830
Sha e sp
,
1/4 Ta ge : Capi al-Ou pu Ra io = 2.3
Sha e up
,
1/5 Ta ge : Weal hs/Weal hu = 3.35
18 ILO Wo king Pape 105
Ca ego y Symbol Values Sou ces and a ge s ( o 1989)
Technology μ0.52 K usell e al. (2000)
ζ0.86 "
σi1.67 "
σp0.67 "
s3Ta ge : ws/wu = 2.42
g0.021 Fe nald (2014)
δ0.08 P esco (2004)
A1No maliza ion
Ea ning shocks θi− log (0.9859) Hong, Seok, and You (2019)
θp− log (0.9834) "
σ
i
2
0.0086 "
σ
p
2
0.0171 "
Fiscal sys em λ0.16 Fe iè e and Na a o (2018)
Table 5 epo s he calib a ed pa ame e alues o he ini ial s eady s a e. The calib a ion elies
on ex e nal sou ces and a ge s which a e based on da a a ailable o 1989.
The sha e o skilled wo ke s Ns is calib a ed so as o ma ch he sha e o his popula ion g oup
in he SCF da a in 1989. As o he pa ame e s in he u ili y unc ion, he pa ame e measu ing
agen s’ isk a e sion (
γ
) akes he alues es ima ed by A anasio and Low (2004), while he elas-
ici y o hou s wo ked o wages (χ) is calib a ed so ha he model ep oduces he a e age di -
e ence in hou s wo ked be ween skilled and unskilled wo ke s obse ed in he SFC o 1989.
Rega ding he discoun ac o s, (ρq,w, o q=s, u and ω = p, i), hei alues and hei dis ibu ion in
he popula ion o skilled and unskilled wo ke s a e calib a ed so as o ep oduce he alues ob-
se ed in he SFC o he capi al a io and o he s a is ics summa izing he cha ac e is ics o he
dis ibu ion o weal h in he Uni ed S a es. The pa ame e s o he cons an -elas ici y-o -subs i u-
ion (CES) p oduc ion unc ion ake he alues es ima ed by K usell e al. (2000). The g ow h a e
o he economy and he dep ecia ion a e a e se ollowing Fe nald (2014) and P esco (2004).
The ea ning shocks a e calib a ed ollowing he es ima ions o Hong, Seok, and You (2019). Finally,
he pa ame e measu ing he p og essi eness o he US ax sys em, λ, is calib a ed in acco d-
ance wi h Fe iè e and Na a o (2018).
4.2. Calib a ion o he s uc u al changes in he US economy
Panel A o igu e 4 shows he inc ease in he sha e o skilled wo ke s in he Uni ed S a es be-
ween 1989 o 2016, based on SCF da a. This sha e ises om 24 pe cen o 31 pe cen be ween
1989 and 2010 (see Table 6).
19 ILO Wo king Pape 105
XFigu e 4: S uc u al changes in he US economy
Panel B in igu e 4 shows he his o ical pa h o he g ow h a e o he US economy using da a
om Fe nald (2014). On a e age, he g ow h a e has d opped signi ican ly om 2.1 pe cen
be o e 1989 o 0.89 pe cen in 2010 (see able 6).
Based on Fe iè e and Na a o (2018), he pa ame e λ has d opped signi ican ly om 0.18 o
0.13 a e 1989, e lec ing a ax sys em which is becoming less p og essi e (see able 6).
XTable 6: Calib a ion o shocks
Ca ego y Symbol Values (1989) Values (2010) Sou ce
SBTC s3.2 8.5 SCF (wage p emium)
G ow h a e g0.021 0.0089 Fe nald (2014)
Tax λ0.18 0.13 Fe iè e and Na a o (2018)
Skills Ns0.24 0.31 SCF (sha e o skilled households)
No e: SBTC = skill-biased echnological change; SCF = Su ey o Consume Finances.
20 ILO Wo king Pape 105
X5 Iden i ying he sou ces o ising in weal h
inequali ies
To sol e and simula e he model, we employ he me hodology p oposed by Achdou e al. (2021).
Resul s a e epo ed in able 7. The uppe pa o able 7 compa es empi ical da a wi h he mod-
el simula ions based on he combina ion o he ou shocks.
XTable 7: Compa ison be ween empi ical da a and model esul s
Wage
p emium
Weal h
p emium
Sha e o o al weal h
held by op 25%
( skilled wo ke s)
Sha e o o al weal h
held by op 25%
(unskilled wo ke s)
Gini index
Da a 1989 2.43 3.35 0.82 0.83 0.79
Model 1989 2.44 3.33 0.80 0.86 0.69
Da a 2010 3.34 5.11 0.86 0.87 0.85
Model 2010 3.28 9.12 0.79 0.86 0.79
Model 2010: only Skills 2.03 3.21 0.81 0.83 0.69
Model 2010: only SBTC 3.29 4.09 0.79 0.86 0.71
Model 2010: only Tax 2.68 4.78 0.79 0.85 0.71
Model 2010: only G ow h 2.82 6.95 0.87 0.88 0.81
We calib a e he model o ep oduce almos pe ec ly he a ge momen s in 1989. The p ojec-
ions o 2010 simul aneously ake in o accoun changes in he composi ion o labou supply,
skill-biased echnical change, p og essi eness o axa ion and he a e o g ow h o he economy
(see able 6). The model p edic s an inc ease in inequali y ela i ely close o he ac ual inc ease
obse ed in he Uni ed S a es be ween 1989 and 2010. The Gini coe icien inc eases by 10 pe -
cen age poin s ( om 0.69 o 0.79), which is e y close o he 6 pe cen age poin inc ease ( om
0.79 o 0.85) in he empi ical da a. Wi h ega d o inequali ies wi hin skill g oups, he sha e o
weal h held by he iches 25 pe cen emains s able in he model bo h o skilled and unskilled
wo ke s, while i inc eases e y sligh ly in he da a ( om 0.82 o 0.86 o skilled wo ke s and
om 0.83 o 0.87 o unskilled wo ke s). As o inequali y be ween skill g oups, he weal h p e-
mium – de ined as he a io o he a e age weal h held by skilled wo ke s o he a e age weal h
held by unskilled ones – inc eases om 3.33 o 9.12 (+5.79) in he model, while in he da a he
inc ease is mo e mode a e, om 3.35 o 5.11 (+1.76). We calib a e ou model so as o ep oduce
e y accu a ely he inc ease in he wage p emium obse ed in he da a. The model p edic s an
inc ease in he wage p emium om 2.44 in 1989 o 3.28 in 2010 (+0.84), while in he da a i in-
c eases om 2.43 o 3.34 (+0.91). The e o e, we may conclude ha he combina ion o he ou
s uc u al changes is able o explain he obse ed e olu ion o inequali ies in he Uni ed S a es
om 1989 o 2010.9 Bo h he da a and he model indica e ha , since 1989, he US economy has
wi nessed a ise in bo h weal h and income inequali y, al hough weal h seems o be mo e un-
equally dis ibu ed han wages and income, as a gued by Pike y (2014). Weal h inequali y has
inc eased o a g ea e ex en be ween skill g oups han wi hin hem.
9Howe e , ou model gene a es a oo high elas ici y o weal h p emium.
21 ILO Wo king Pape 105
In o de o unde s and he impac o each o hese ou s uc u al changes on he e olu ion o
US weal h inequali ies, we simula e he model by a ying only one o he ele an pa ame e s
a a ime. Speci ically, we simula e one by one he e ec o (a) an inc ease in he sha e o skilled
wo ke s; (b) echnological change biased in a ou o skilled wo ke s; (c) a ax e o m educing
he deg ee o ax p og essi eness; and (d) a global p oduc i i y slowdown. These coun e ac ual
simula ions allow o isola e he impac o each ac o (las ou ows in Table 7).
The impac o he labou o ce composi ion The US economy has expe ienced a huge inc ease
in he sha e o educa ed wo ke s. The "only Skill" ow in able 7 shows ha , acco ding o ou
model, he inc ease in he labou supply o skilled wo ke s ela i e o unskilled wo ke s should
educe he skill wage p emium om 2.44 in 1989 o 2.03 in 2010. The model p edic s a all in he
skill weal h p emium as well ( om 3.33 o 3.21) – lea ing weal h inequali y wi hin skill g oups un-
changed. The ace be ween echnological change and educa ion, as a gued by Goldin and Ka z
(2009), is he mos popula explana ion o g owing inequali y despi e ising le els o educa ion.
The change in labou o ce composi ion is no able o explain he ise in inequali y obse ed in he
da a, nei he be ween no wi hin skill g oups. On he con a y, an inc ease in he sha e o skilled
wo ke s seems o mode a e he ise in wage and weal h p emium. This esul is consis en wi h
he obse a ion in Aziz and Co es (2021) ha in socie ies whe e he sha e o skilled wo ke s is
abo e 50 pe cen , an inc ease in educa ional a ainmen pu s downwa d p essu es on he skill
p emium and ul ima ely educes inequali y be ween skill g oups. The US economy c ossed he
50 pe cen h eshold in he 1980s, which explains why an inc ease in he sha e o skilled wo k-
e s has had he e ec o educing be ween skill inequali y.
The impac o skill-biased echnological change Acco ding o a commonly held iew, echno-
logical change ha is biased in a ou o skilled wo ke s explains he ise in he skill wage p emi-
um (see K usell e al. 2000). The "only SBTC" ow in able 7 shows ha his shock can explain he
ise in bo h wage and weal h p emiums be ween skill g oups. Acco ding o he empi ical da a,
be ween 1989 and 2010 he skill weal h p emium inc eased om 3.35 o 5.11 (+1.76), while he
wage p emium inc eased om 2.43 o 3.34 (+0.91). The model wi h an "only SBTC" shock p edic s
a +0.76 poin inc ease in he skill weal h p emium, om 3.33 o 4.09, and a +0.85 poin inc ease
in he skill wage p emium, om 2.44 o 3.29, which means ha i unde es ima es he inc ease
in bo h wage and weal h inequali y be ween skill g oups. Howe e , while he es ima ed inc ease
in wage inequali y is qui e close o he empi ical alue, he es ima ed inc ease in weal h inequal-
i y is less han hal o he alue obse ed in he da a. Mo eo e , wi h an “only SBTC” shock, ou
model p edic s a negligible change in inequali y wi hin skill g oups. The e o e, he "only SBTC"
shock is unable o explain ei he inequali y wi hin skill g oups o he obse ed inc ease in weal h
inequali y be ween skill g oups.
The impac o he ax e o m One o he d i e s o widening inequali y is he dec easing p o-
g essi eness o axa ion, as demons a ed by Pike y and Saez (2007) among o he s. The "only
Tax" ow in able 7 shows ha a iscal e o m educing he p og essi eness o he ax sys em
leads o an inc ease o bo h he wage and weal h skill p emium. On he one hand, he model wi h
he only ax shock is he able o explain bo h wage and weal h inequali y be ween skill g oups,
al hough i sligh ly unde es ima es he inc ease in bo h p emiums: acco ding o he model, he
wage p emium should ha e inc eased by 0.24 poin s, whe eas he empi ically obse ed inc ease
is 0.91 poin s; he model p edic s a 1.45 poin inc ease in he weal h p emium, which is qui e
close o he inc ease obse ed in he da a (1.76). In ha espec , ou esul s a e close o he ind-
ings o Kaymak and Poschke (2016). On he o he hand, a less p og essi e ax sys em is unable
o explain he widening o inequali ies wi hin skill g oups.
The impac o g ow h We inally analyse he e ec o a global p oduc i i y slowdown which has
been disclosed by Pike y (2014) and Pike y and Zucman (2015) as he − g mechanism. The
"only g" ow in able 7 demons a es he a ac i e na u e o his mechanism: i alone is able o
accoun o an inc ease in weal h inequali y bo h be ween and wi hin skill g oups, as obse ed in
he da a. The model wi h an "only G ow h" shock p edic s an inc ease o 0.05 poin s in wi hin-skill
28 ILO Wo king Pape 105
XTable A4: A e age ea nings, income and weal h o US households, 2004
B 0-1 B 1-5 B 5-10 1s Q 2nd Q 3 d Q 4 h Q 5 h Q T 90-95 T 95-99 T 99-100 All 0-100
Skilled E27.16 46.16 31.43 44.79 72.61 89.69 106.65 274.15 211.79 408.06 1244.48 117.56
I32.97 49.03 36.08 48.96 77.95 102.38 128.67 366.34 281.90 545.45 1854.26 144.84
W-162.06 -29.97 -0.64 1.23 138.04 376.57 891.51 5475.11 3380.01 8891.17 38911.66 1375.86
Unskilled E45.60 28.10 15.69 20.50 30.46 41.33 45.63 70.25 71.96 58.34 286.48 41.66
I49.85 33.82 20.50 26.05 36.04 48.90 58.36 98.81 91.83 90.67 449.15 53.67
W-73.78 -10.16 -0.55 -4.47 20.16 91.51 249.80 1376.79 971.83 1816.38 9957.02 347.73
All E39.88 34.95 18.71 24.34 41.44 53.46 69.10 158.98 119.46 214.96 829.76 69.45
I44.23 39.30 23.61 29.58 46.97 62.13 83.35 213.32 150.26 293.53 1211.37 87.05
W-111.56 -16.33 -0.75 -6.59 40.98 157.73 426.66 3003.60 1750.45 4391.43 23950.10 724.07
XTable A5: A e age ea nings, income and weal h o US households, 2007
B 0-1 B 1-5 B 5-10 1s Q 2nd Q 3 d Q 4 h Q 5 h Q T 90-95 T 95-99 T 99-100 All 0-100
Skilled E44.21 49.97 37.40 46.12 73.28 95.54 99.26 305.01 288.20 462.22 1415.72 123.83
I45.27 55.06 44.24 51.61 80.52 105.72 120.68 442.35 355.60 701.57 2457.92 160.17
W-110.42 -28.96 1.18 3.72 149.78 387.06 857.99 5956.26 4086.98 10055.75 40267.84 1471.03
Unskilled E33.19 28.13 16.21 19.92 31.57 38.67 45.03 81.88 73.09 83.11 343.55 43.40
I39.19 34.70 22.22 26.31 37.83 48.53 58.68 118.52 95.36 120.96 635.24 57.95
W-95.67 -13.05 -1.29 -6.90 19.32 95.49 264.85 1381.40 884.51 1711.94 10947.21 350.47
All E38.81 36.06 17.91 24.88 38.44 53.69 69.44 172.23 117.66 282.50 875.49 71.76
I42.12 42.68 24.74 30.92 45.38 63.85 83.27 246.36 155.09 385.69 1509.85 93.99
W-107.69 -18.35 -1.29 -7.09 39.98 166.29 418.91 3106.47 1650.20 4984.13 25040.12 745.57
XTable A6: A e age ea nings, income and weal h o US households, 2010
B 0-1 B 1-5 B 5-10 1s Q 2nd Q 3 d Q 4 h Q 5 h Q T 90-95 T 95-99 T 99-100 All 0-100
Skilled E64.93 59.67 42.77 45.44 62.37 80.04 95.04 280.47 248.53 471.98 982.94 112.79
I72.13 65.31 48.21 51.68 69.15 91.69 116.94 356.70 300.16 599.34 1377.89 137.39
W-245.65 -70.79 -14.00 -25.51 71.81 244.93 691.27 4826.92 3287.17 7684.50 31898.93 1164.72
Unskilled E51.26 37.26 25.73 22.92 25.42 38.07 42.75 65.12 57.95 88.35 242.92 38.87
I59.10 44.81 32.92 30.59 32.48 46.48 56.19 93.41 81.75 125.08 345.99 51.85
W-143.19 -32.89 -5.96 -15.16 10.64 55.22 174.33 1050.43 667.46 1474.98 8051.88 255.47
All E60.42 46.40 30.27 27.87 35.53 48.19 58.25 161.79 136.45 260.55 725.57 66.43
I68.51 53.02 36.98 35.19 42.05 58.03 73.51 209.24 170.96 319.87 1025.27 83.74
W-192.15 -46.59 -7.94 -20.02 20.96 97.54 294.14 2568.44 1604.80 3982.72 20324.84 594.43
29 ILO Wo king Pape 105
XTable A7: A e age ea nings, income and weal h o US households, 2013
B 0-1 B 1-5 B 5-10 1s Q 2nd Q 3 d Q 4 h Q 5 h Q T 90-95 T 95-99 T 99-100 All 0-100
Skilled E44.47 44.82 38.55 37.39 59.63 76.28 96.52 273.76 227.34 399.47 1277.04 108.69
I70.77 50.13 44.86 44.23 67.67 90.02 121.10 396.80 296.94 571.96 2294.97 143.92
W-188.79 -61.00 -16.66 -21.77 64.62 236.87 624.33 4410.79 2984.98 7055.77 31757.32 1062.61
Unskilled E40.15 31.24 20.80 19.38 24.79 33.19 37.87 62.54 50.57 83.38 254.23 35.56
I47.15 38.53 28.82 27.46 32.07 42.78 54.46 93.16 73.91 120.67 394.48 50.01
W-153.46 -29.95 -5.57 -14.98 9.29 47.18 151.67 954.63 578.53 1234.96 8105.64 230.00
All E47.20 34.10 29.77 24.44 32.19 44.16 56.68 162.30 130.18 254.17 771.50 63.93
I60.41 41.18 36.36 32.20 39.60 55.19 74.97 230.38 170.34 348.23 1294.15 86.43
W-172.65 -41.58 -8.76 -18.63 17.95 89.28 271.00 2406.87 1337.00 3772.93 19600.45 552.93
XTable A8: A e age ea nings, income and weal h o US households, 2016
B 0-1 B 1-5 B 5-10 1s Q 2nd Q 3 d Q 4 h Q 5 h Q T 90-95 T 95-99 T 99-100 All 0-100
Skilled E43.37 53.60 46.50 46.39 66.59 81.25 116.57 350.46 268.50 623.34 1658.54 132.45
I47.27 57.84 51.88 52.31 77.50 101.47 153.89 526.28 373.53 877.23 3012.74 182.62
W-207.90 -64.26 -17.16 -20.17 95.62 297.52 821.07 6165.24 3821.76 9970.48 45762.50 1476.57
Unskilled E40.66 32.57 26.56 23.27 27.71 38.70 45.64 70.79 56.63 80.25 352.87 41.19
I48.62 39.47 33.70 31.05 35.02 48.62 63.17 110.71 87.03 136.57 514.54 57.67
W-97.01 -24.19 -4.79 -10.44 12.16 59.86 174.66 1135.61 653.86 1454.14 9808.87 273.68
All E45.96 43.39 30.38 26.57 33.78 48.30 58.69 190.48 136.35 281.44 1118.24 71.55
I51.46 48.26 37.17 33.53 41.48 59.71 80.17 279.62 195.62 400.56 1799.70 98.88
W-149.97 -38.51 -7.20 -16.36 20.99 99.02 292.37 2990.30 1615.18 4504.90 26296.39 676.86
30 ILO Wo king Pape 105
31 ILO Wo king Pape 105
XTable A9: Measu es o inequali y among US households, o al and by skill g oup, 1989
Skilled Unskilled All
E I W E I W E I W
Coe icien o a -
ia ion
4.51 5.04 3.84 1.17 1.47 6.28 3.85 4.60 5.06
Va iance o logs 0.87 0.82 3.76 1.08 0.99 4.16 1.09 1.05 4.27
Gini index 0.48 0.51 0.76 0.51 0.47 0.78 0.53 0.52 0.79
Loca ion o mean 68.00 74.00 79.00 61.00 64.00 77.00 65.00 69.00 80.00
99-50 a io 7.13 8.64 36.51 6.42 6.57 44.04 7.88 8.37 50.56
90-50 a io 2.53 2.48 6.62 2.56 2.34 8.31 2.63 2.61 8.50
Mean- o-median
a io
1.39 1.53 3.27 1.28 1.30 4.04 1.38 1.43 4.21
50-30 a io 1.45 1.47 3.07 1.91 1.74 6.24 1.74 1.66 4.93
XTable A10: Measu es o inequali y among US households, o al and by skill g oup, 1995
Skilled Unskilled All
E I W E I W E I W
Coe icien o a -
ia ion
3.17 4.22 5.08 1.53 2.78 5.87 2.92 4.14 5.89
Va iance o logs 0.82 0.84 3.00 1.02 1.10 3.44 1.04 1.13 3.48
Gini index 0.52 0.52 0.78 0.52 0.48 0.78 0.54 0.52 0.80
Loca ion o mean 72.00 75.00 81.00 61.00 64.00 77.00 67.00 71.00 82.00
99-50 a io 8.54 9.34 47.69 7.53 7.35 33.17 8.86 9.09 44.00
90-50 a io 2.67 2.80 7.41 2.67 2.51 6.73 2.64 2.57 7.14
Mean- o-median
a io
1.48 1.61 4.04 1.32 1.33 3.52 1.44 1.48 3.89
50-30 a io 1.55 1.44 2.33 2.06 1.64 4.64 1.75 1.66 3.92
XTable A11: Measu es o inequali y among US households, o al and by skill g oup, 2001
Skilled Unskilled All
E I W E I W E I W
Coe icien o a -
ia ion
2.15 3.18 3.94 2.01 2.06 5.03 2.34 3.40 4.94
Va iance o logs 0.96 0.94 3.15 0.95 0.92 4.03 1.08 1.08 4.23
Gini index 0.53 0.57 0.77 0.50 0.46 0.79 0.55 0.56 0.82
Loca ion o mean 75.00 79.00 81.00 64.00 64.00 78.00 69.00 73.00 81.00
99-50 a io 12.87 14.61 50.83 5.33 5.41 46.21 12.20 12.57 80.49
90-50 a io 2.62 2.84 6.85 2.58 2.46 10.02 2.86 2.79 8.91
Mean- o-median
a io
1.54 1.76 3.71 1.33 1.34 4.64 1.59 1.69 5.05
50-30 a io 1.54 1.51 2.57 1.72 1.56 4.25 1.67 1.64 4.23
XTable A12: Measu es o inequali y among US households, o al and by skill g oup, 2004
Skilled Unskilled All
E I W E I W E I W
Coe icien o a -
ia ion
2.45 2.78 4.03 1.56 2.05 5.33 2.53 2.99 5.11
Va iance o logs 0.98 0.90 3.45 0.83 0.81 4.22 1.01 1.00 4.53
Gini index 0.52 0.52 0.78 0.48 0.44 0.79 0.55 0.53 0.82
Loca ion o mean 70.00 73.00 81.00 62.00 63.00 78.00 68.00 70.00 81.00
32 ILO Wo king Pape 105
Skilled Unskilled All
99-50 a io 9.52 10.33 52.01 5.59 5.20 40.25 9.49 10.20 80.30
90-50 a io 2.56 2.60 7.03 2.64 2.53 10.34 2.94 2.87 9.94
Mean- o-median
a io
1.46 1.55 3.94 1.27 1.31 4.34 1.54 1.59 5.41
50-30 a io 1.59 1.58 2.92 1.76 1.52 5.23 1.70 1.62 4.67
XTable A13: Measu es o inequali y among US households, o al and by skill g oup, 2007
Skilled Unskilled All
E I W E I W E I W
Coe icien o a -
ia ion
2.42 3.44 4.30 3.32 4.28 5.97 2.90 4.05 5.44
Va iance o logs 0.97 0.91 3.28 0.93 0.75 4.47 1.08 0.95 4.58
Gini index 0.54 0.56 0.79 0.51 0.46 0.80 0.57 0.55 0.82
Loca ion o mean 74.00 78.00 83.00 62.00 66.00 77.00 70.00 73.00 82.00
99-50 a io 11.83 13.80 51.36 6.48 6.67 48.08 11.33 12.99 78.35
90-50 a io 2.72 2.83 7.34 2.83 2.70 9.67 2.85 2.87 8.55
Mean- o-median
a io
1.60 1.74 3.81 1.35 1.40 4.47 1.56 1.69 5.20
50-30 a io 1.49 1.46 2.88 1.79 1.53 6.01 1.76 1.64 5.10
XTable A14: Measu es o inequali y among US households, o al and by skill g oup, 2010
Skilled Unskilled All
E I W E I W E I W
Coe icien o a -
ia ion
2.59 3.24 4.55 1.84 1.96 6.72 2.74 3.41 5.88
Va iance o logs 1.06 0.98 3.79 1.03 0.69 4.43 1.19 0.94 4.81
Gini index 0.57 0.55 0.82 0.52 0.44 0.85 0.59 0.55 0.87
Loca ion o mean 73.00 75.00 81.00 61.00 64.00 79.00 71.00 73.00 83.00
99-50 a io 13.08 13.39 69.33 6.20 5.70 63.88 13.19 12.91 115.59
90-50 a io 3.23 3.19 12.27 2.84 2.60 11.91 3.06 2.96 14.20
Mean- o-median
a io
1.67 1.73 5.51 1.38 1.37 5.86 1.61 1.65 7.73
50-30 a io 1.61 1.52 3.56 1.96 1.54 5.03 1.87 1.67 5.43
XTable A15: Measu es o inequali y among US households, o al and by skill g oup, 2013
Skilled Unskilled All
E I W E I W E I W
Coe icien o a -
ia ion
3.00 3.89 5.43 1.33 1.48 4.78 3.09 4.06 6.62
Va iance o logs 1.20 1.01 3.45 1.07 0.73 4.77 1.27 0.99 4.97
Gini index 0.58 0.57 0.82 0.53 0.45 0.87 0.60 0.56 0.87
Loca ion o mean 73.00 76.00 81.00 62.00 66.00 80.00 70.00 73.00 83.00
99-50 a io 13.63 14.24 61.29 6.80 6.36 87.15 12.96 13.62 131.06
90-50 a io 3.04 3.01 9.30 3.01 2.74 15.45 3.28 3.17 14.91
Mean- o-median
a io
1.67 1.78 4.97 1.38 1.41 7.71 1.68 1.79 8.15
50-30 a io 1.69 1.59 4.24 1.98 1.55 4.41 1.93 1.66 5.48
33 ILO Wo king Pape 105
XTable A16: Measu es o inequali y among US households, o al and by skill g oup, 2016
Skilled Unskilled All
E I W E I W E I W
Coe icien o a -
ia ion
2.49 3.46 5.30 2.08 2.29 10.01 2.75 3.87 7.30
Va iance o logs 1.23 1.10 3.50 0.98 0.78 4.97 1.24 1.08 5.39
Gini index 0.60 0.61 0.84 0.51 0.46 0.85 0.61 0.60 0.88
Loca ion o mean 75.00 79.00 83.00 63.00 66.00 82.00 72.00 77.00 85.00
99-50 a io 17.84 22.12 81.12 6.17 6.56 74.23 15.72 16.09 146.47
90-50 a io 3.14 3.36 10.35 2.74 2.47 11.27 3.39 3.22 14.09
Mean- o-median
a io
1.81 2.05 5.83 1.36 1.37 6.25 1.79 1.87 8.57
50-30 a io 1.70 1.53 3.45 1.86 1.65 5.47 1.86 1.70 5.82
34 ILO Wo king Pape 105
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