policy, but the institute itself takes no institutional policy positions.

We construct a model of international trade and multinational production (MP) to examine the impact of globalization on the skill premium in skill-abundant and skill-scarce countries. The key mechanisms in our framework arise from the interaction between three elements: asymmetric countries, technological heterogeneity across producers within sectors, and skill-biased technology. Reductions in trade and/or MP costs induce a reallocation of resources towards a country’s comparative advantage sector (increasing the skill premium in skill-abundant countries and reducing it in skill-scarce countries) and within sectors towards more productive and skill-intensive producers (increasing the skill premium in all countries). We parameterize the model to match salient features of the extent and composition of trade and MP between the U.S. and skill-abundant and skill-scarce countries in 2006. We show that a reduction in trade and MP costs, moving from autarky to 2006 levels of trade and MP, increases the skill premium by 5 % in skill-abundant countries and 6 % in skill-scarce countries. Globalization accounts for between 1=9th and 1=6th of the 24 % rise in the U.S. skill premium between 1966 and 2006. MP is at least as important as international trade in generating this rise in the skill premium. We thank Francisco Alcalá, Chris Kurz, and especially Eric Verhoogen for help with their data. We are grateful to

Between 1979 and 2007 a strong positive monotonic relationship between wage inequality and city size has developed. This paper investigates the links between this emergent city size inequality premium and the contemporaneous nationwide increase in wage inequality. After controlling for the skill composition of the workforce across cities of different sizes, we show that at least 23 percent of the overall increase in the variance of log hourly wages in the United States from 1979 to 2007 is explained by the more rapid growth in the variance of log wages in larger locations relative to smaller locations. This influence occurred throughout the wage distribution and was most prevalent during the 1990s. More rapid growth in within skill group inequality in larger cities has been by far the most important force driving these city size specific patterns in the data. Differences in the industrial composition of cities of different sizes explain up to one-third of this city size effect. These results suggest an important role for agglomeration economies in generating changes in the wage structure during the study period.

(ii) development of

the skill premium

The present study linked general mental ability (GMA) to extrinsic career success using a multilevel framework that included time and 3 possible time-based mediators of the GMA – career success relationship. Results, based on a large national sample, revealed that over a 28-year period, GMA affected growth in 2 indicators of extrinsic career success (income and occupational prestige), such that the careers of high-GMA individuals ascended more steeply over time than those of low-GMA individuals. Part of the reason high-GMA individuals had steeper growth in extrinsic success over time was because they attained more education, completed more job training, and gravitated toward more complex jobs. GMA also moderated the degree to which within-individual variation in the mediating variables affected within-individual variation in extrinsic career success over time: Education, training, and job complexity were much more likely to translate into career success for more intelligent individuals.

This paper looks at the contribution of occupations to changes in the distribution of wages. We …rst present a simple model where wages in each occupation are set on the basis of linear task pricing model. We argue that this simple model provides a general way of capturing changes in wages induced by factors like technological change and o¤shoring. Using Current Population Survey (CPS) for the years 1983-85 and 2000-02, we …nd that the simple linear skill pricing model characterizes well the observed changes in the wage distribution. In particular, it goes a long way towards accounting for the U-shaped feature of the curve depicting changes in real wages at each percentile of the overall wage distribution. We then explicitly quantify the contribution of these factors to changes in wage inequality relative to other explanations such as de-unionization and changes in the returns to education. We do so using a decomposition based on the in‡uence function regression approach suggested by Firpo, Fortin, and Lemieux (2009). The results indicate that technological change and o¤shoring are two among a variety of other

Lance Lochner would like to acknowledge support from the Social Sciences and Humanities Research Council of Canada. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

A planner sets a lump sum transfer and a linear tax on labor income in an economy with incomplete markets, heterogeneous agents, and aggregate shocks. The planner’s concerns about redistribution impart a welfare cost to fluctuating transfers. The distribution of net asset holdings across agents affects optimal allocations, transfers, and tax rates, but the level of government debt does not. Two forces shape longrun outcomes: the planner’s desire to minimize the welfare costs of fluctuating transfers, which calls for a negative correlation between the distribution of net assets and agents ’ skills; and the planner’s desire to use fluctuations in the real interest rate to adjust for missing state-contingent securities. In a model parameterized to match stylized facts about US booms and recessions, distributional concerns mainly determine optimal policies over business cycle frequencies. These features of optimal policy differ markedly from ones that emerge from representative agent Ramsey models like Aiyagari et al. (2002). Key words: Distorting taxes. Transfers. Redistribution. Government debt. Interest rate risk. JEL codes: E62,H21,H63

emigration to the US. This emigration is about a small but rising number of individuals. Yet since 1990, emigrants are increasingly selected from the upper tail quality distribution of their source country workforce in terms of education, scientifi c knowledge and, unobservable skills. This nineties surge has been amplifed by the fact that returnees were fewer, older and, if anything, relatively less educated. As for the rationales, I provide preliminary evidence showing that the brain drain refl ects the weakness of demand for skilled labor in Europe. Lately, I show that the technological changes triggered by human capital losses could make these outfl ows increasingly costly for Europe in terms of productivity.