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Jelle Zijlstra Professorial Fellow (1 September 2005 - 31 January 2006)
The starting point for my research at NIAS is the recent widening of earnings differentials observed in many OECD countries, and the popular consensus that wider earnings differentials are the result of increased demand for skilled workers. It is true that new technology has increased the demand for skilled workers, and globalisation has displaced low-skilled jobs, but I believe that this is only part of the story. There are other factors influencing wages. Nor is the conventional explanation fully convincing in its own terms. Is it obvious that all countries are affected equally? What happens if demand continues to out-strip supply?
In the theoretical part of the project, I explored ideas already in mind. The upper part of the earnings distribution is, I believe, explained by a blend of hierarchical salary structures, which have become steeper, and rents earned by "superstars", which have become more concentrated. Not only has each component become more unequal, but also we have seen a shift from hierarchy to rents, as managers and others have become superstars. In part, I was able to develop aspects that I did not envisage at the outset. In particular, I modelled a dynamic equilibrium where there is a constant wage premium for skilled workers but the size of the premium depends on the speed of adjustment. Countries where education responds more quickly have a smaller premium. Less obviously, countries where wages adjust more rapidly exhibit wider fluctuations. This casts a different light on the frequent calls by policymakers for greater flexibility in the labour market.
The point of departure for the empirical part of my research was the database on the distribution of earnings made available by the OECD. This dataset has been widely used in economic research and to draw policy conclusions. During my Fellowship, I investigated the construction of the OECD database, by going back to the underlying national sources. For each of twenty OECD countries, I drafted country appendices, each containing a description of the principal sources of data on earnings, assessment of their strengths, references to the findings, and detailed tables with the statistics for that country, used to produce three standard graphs summarising the evolution of earnings dispersion in the country over the period 1945 to 2005.
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