Matching, Heterogeneity and the Evolution of Income and Wage Inequality

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Daron Acemoglu Massachusetts Institute of Technology SBR-9602116 The first part of this research will develop a theoretical model examining the links job mismatch, wage and income inequality and growth. With significant costs of finding the best job and increases in the dispersion of worker skills, high skilled employees will have a lower ratio of physical capital (under investment) to human capital than low skilled workers. With less physical capital than optimal, wages of high skilled workers will decrease relative to wages of low skilled workers, wage inequality will be reduced and economic growth will be lower. The second part of the project looks at the effect of public education and redistribution of income on growth. An empirical comparison will be made between the U.S. and Great Britain, considering differences in institutions in the two countries.