Wage inequality determinants in European Union countries

Abstract

The explanation of the recent increase in intra-country wage inequality in favour of high-skilled labour has been dominated by two explanations: skill-biased technological change (SBTC) and international trade (IT) liberalization. Since few empirical studies have tried to assess both explanations across a comprehensive sample of countries, we analyse the impact of both and add some new variables within a unified framework and across 18 European Union countries. Results show that the SBTC, the immigration and education present an impact positive on wage inequality measured by the wage ratio of college to secondary graduates.

Keywords:

• skill-biased technological change
• international trade
• immigration
• education
• wage inequality

JEL Classification:

• C23
• F41
• J31
• O33
• O50

Notes

¹ It was only feasible to analyse a sample of 18 EU countries and divide into three groups of countries, concerning the innovation performance: leaders, followers and moderate innovators. This is because we did not find satisfactory data regarding modestly innovative countries as well as data for Cyprus, Estonia, Malta, Greece and Slovakia.