Demand-Side Determinants of Wage Inequality

Since 1979, there has been an increasing gap in earnings between skilled and unskilled workers. Supply-side factors were shown to offset the demand shifts in the 1970’s, but the supply of college graduates stabilized during the 1980’s. As the wage inequality began to grow, focus turned to demand-side factors that contributed to the wage inequality. Three main factors were highlighted: changes in the industrial structure, international trade, and increased investment in technology. These factors expanded the relative demand for skilled workers, increasing the wage gap between skilled and unskilled workers. Increased educational subsidies is recommended as the best policy response