Income inequality: The consequences of skill-upgrading when firms have hierarchical organisational structures

Anders Frederiksen, Odile Poulsen

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During the last three decades, most developed countries have experienced increasing income inequality. Using Danish register data from 1992 to 2007 for all private-sector employees, we confirm that income inequality has increased in Denmark. We also observe an increase in the relative employment of highly-educated individuals, as well as differential income growth rates across employee subgroups where, in particular, managers experienced significant real income progression. We use an equilibrium search framework with on-the-job search to derive the income distribution. In this model we can determine the management and education premia. We can also show that when our model is exposed to skill-upgrading it is capable of producing income dynamics similar to those observed in the Danish income distribution. (JEL J3, J6, M5)
Original languageEnglish
Pages (from-to)1224-1239
Number of pages16
JournalEconomic Inquiry
Issue number2
Early online date17 Nov 2015
Publication statusPublished - Apr 2016


  • income inequality
  • search model
  • skill-upgrading
  • organizational structure

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