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Title: Schooling, Inequality and Government Policy

Citation Type: Working Paper

Publication Year: 2007

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Abstract: This paper asks: What is the effect of government policy on output and inequality in an environment with education and labor-supply decisions? The answer is given in a generalequilibrium model, consistent with the post 1960s facts on male wage inequality and labor supply in the U.S. In the model, education and labor-supply decisions depend on progressive income taxation, the education system, the social security system, and technology-driven wagedifferentials. Government policies affect output and inequality through two channels. First, a policy change leads to an asymmetric adjustment of working hours and savings of schooled and unschooled individuals. Second, there is a redistribution of the workforce between schooled and unschooled workers. Using a battery of proposed government policies, we demonstrate that skillredistribution dampens the response of wage inequality to a policy change and amplifies the response of output by an additional 1 to 2 percent.

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Authors: Ueberfeldt, Alexander; Kryvtsov, Oleksiy

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Publication Number: 2007-12

Institution: Bank of Canada

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Publisher Location: Ottawa, Ontario, Canada

Data Collections: IPUMS CPS

Topics: Education

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