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Title: The market for 'rough diamonds' : information, finance and wage inequality in macroeconomics
Author: Koutmeridis, Theodore
ISNI:       0000 0004 2744 674X
Awarding Body: University of Warwick
Current Institution: University of Warwick
Date of Award: 2013
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During the past four decades both between and within group wage inequality increased significantly in the US. Three of the most well-documented facts concern the increase in the education premium, the rise in the experience premium and the narrowing gender wage gap. Existing studies explain some of them separately but there is no unified explanation of all three at the same time. I provide a microfounded justification for the first two, by introducing private employer learning in a signaling model with credit constraints. I show that when financial constraints relax, talented individuals can acquire education and leave the uneducated pool. This implies that the eventual group of uneducated young workers becomes of lower average quality, as most of the rough diamonds have now been plucked out of this group. My explanation is consistent with US data from 1970's to 2000's, indicating that the rise in the education and the experience premium coincides with a fall in unskilled inexperienced wages, while at the same time skilled or experienced wages do not change much. The model accounts also for the fact that the education premium increases more for low-experienced workers, while the experience premium increases only for the low-educated ones. The introduction of gender-specific credit constraints, explains also the narrowing gender wage gap, by allowing the cost of borrowing to decline and become more similar for the two genders recently, while in the past it was much costlier for women. More equal borrowing opportunities for men and women, decrease inequality between genders, however they also increase inequality within gender by boosting the wage gap between different education and experience groups for both sexes. This theory explains the puzzling coexistence of increasing meritocracy and growing wage inequality in the American society, by highlighting the conflict between equal opportunities and substantial economic equality.
Supervisor: Not available Sponsor: Royal Economic Society (Great Britain) ; University of Warwick ; Alexander S. Onassis Public Benefit Foundation
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: HB Economic Theory ; HD Industries. Land use. Labor