Abstract:
Wage inequality in the U.S. exceeds that of Canada, Denmark, Finland, Italy, Netherlands, Norway, Sweden, and Switzerland. Some researchers have pointed to the higher relative rewards for higher cognitive skill and more education in the U.S. as an important cause of this difference; others emphasize the greater diversity of labor market skills within the American population. This paper uses recently collected international data on cognitive skills, earnings, age, and years of formal schooling to assess the relative importance of population heterogeneity and higher relative pay for more cognitive skill in explaining higher U.S. wage inequality.
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