Accounting for changes in between-group inequality

We offer a quantitative analysis of changes in U.S. between-group inequality from 1984 to 2003. We use an assignment framework with many labor groups, equipment types, and occupations in which changes in inequality are driven by shocks to work-force composition, occupation demand, computerization, and labor productivity. We parameterize our model using detailed data including direct measures of computer usage within labor group-occupation pairs. We separately quantify the impact of each shock for various measures of between-group inequality. We find, for instance, that the combination of computerization and shifts in occupation demand—which are measured without directly using data on changes in wages—account for roughly 80 % and that computerization alone accounts for roughly 60 % of the rise in the skill premium. We show theoretically how to link the strength of computerization and changes in occupation demand to changes in the extent of international trade.