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Abstract:

We revisit the relationship between cognitive skills and wage inequality using data from the Survey of Adult Skills (PIAAC). We argue that previous research suffered from a number of methodological shortcomings, and we offer a single and unified analytical framework for assessing the contribution of skills (including demand and supply conditions) and labour market institutions to wage inequality. Contrary to most previous research, we find that skills are at least as important as labour market institutions in explaining higher wage inequality in the United States.