This dissertation has three chapters. In this first chapter, I study the wage inequality. By decomposing residual wage inequality for the highly educated, I find that the within-job component is the main contributor to both the level and increase of wage inequality from 1990 to 2000. To explain this fact, I propose a model that allows within-job wage inequality to be influenced by performance-pay incidence and job fitness. Both factors were found to be correlated with within- job wage inequality. Performance pay amplifies ability dispersion through self-selection and work incentives; job fitness causes wage inequality even among individuals with the same ability level, and the expected job fitness affects the motive for the performance pay. I calibrate the model to the US economy in 1990 and quantify the importance of these two factors for wage inequality. The model explains around 71.5% of residual wage inequality for the high skill group in 2000. The job-fitness channel explains 18.8% and performance-pay channel explains 34.1% of the increase in wage inequality. In the second chapter, I study the Chinese economy. About four decades ago, the agricultural sector in China was characterized by a Dual Track System (DTS) which featured the coexistence of a planned and market economy. Under the DTS, farmers were obligated to sell agricultural products to the government at a given price before selling the remainders to market. Urban workers and enterprises enjoyed quota benefits that allowed them to buy agricultural products at a lower price from the government. In this paper, I build a model to quantitatively analyze DTS's impact on China's transition between 1978 and 1992. Within the system, procurement requirements influence the occupational choice of rural workers, and quota benefits impact firms' entry decisions. Misallocation occurs when people with a comparative advantage in farming choose to work in rural enterprises in order to avoid procurement requirements and when urban firms with low productivity survive as a result of lower input prices. Quantitative analysis shows that compared to a market economy, the DTS has decreased rural and urban enterprises' output by 6% and 37% respectively. Comparatively, a policy with the constant procurement would have decreased the output by more than 80%. The third chapter is about education mismatch. In order to better understand education mismatch, I build a model with three underlying channels--preference, promotion and search friction--and quantify their effects on residual wage inequality for the highly educated. Education mismatch is measured by the relatedness between a worker's field of study of the highest degree and the current occupation. In survey data, these three factors attributed 70% of education mismatch. Workers who are mismatched because of preference change or search friction are usually paid relatively lower than matched workers. However, the pay for the mismatched workers due to promotion opportunities is actually higher than the matched group when controlling for demo- graphic characteristics. These factors affect the wage inequality through the employment decision. Quantitatively, I found that the promotion channel has a large contribution to the increase of wage inequality, and the total contribution of preference and search friction is around 28%.