Financial frictions and wage inequality. (1st September 2020)

• Record Type: Journal Article
• Authors: Pi, Jiancai; Fan, Yanwei
• Is Part Of: International journal of finance & economics. Volume 27:Number 1(2022)
• Page Start: 1064
• Page End: 1074
• Publication Date: 2020-09-01
• Subjects: cost constrained -- financial frictions -- quantity constrained -- wage inequality; International finance -- Periodicals; Economics -- Periodicals; 332
• DOI: 10.1002/ijfe.2200
• Languages: English
• ISSNs: 1076-9307

Abstract

Abstract: This paper investigates how financial frictions affect skilled‐unskilled wage inequality. In both the cost constrained model and the quantity constrained model, we find that a decrease of financial frictions in the skilled (resp. unskilled) sector will increase (resp. decrease) wage inequality when there is a properly large elasticity of substitution between capital and skilled labor (resp. unskilled labor). In sum, the role of financial frictions is sector‐specific, which is largely neglected by the existing literature.