Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/53866
Authors: 
Kryvtsov, Oleksiy
Ueberfeldt, Alexander
Year of Publication: 
2007
Series/Report no.: 
Bank of Canada Working Paper 2007,12
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 general equilibrium 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 wage differentials. 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 skill redistribution dampens the response of wage inequality to a policy change and amplifies the response of output by an additional 1 to 2 percent.
Subjects: 
Labour markets
Potential output
Productivity
JEL: 
H52
J31
J38
Document Type: 
Working Paper
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