Do Changes in Job Mobility Explain the Growth of Wage Inequality among Men in the United States, 1977-2005?

Abstract

To what extent did the increase in wage inequality among men in the United States over the past three decades result from job loss and/or employment instability? We propose a simple method for decomposing the change in wage inequality into components due to upward and downward between-employer mobility and within-employer wage changes using data on men's wages and job mobility from the 1977-2005 waves of the Panel Study of Income Dynamics. We find that downward employer mobility—a proxy for job displacement based on movement to a lower paid job with a new employer—has the largest effect on inequality over a two-year period. However, the effect of job displacement declines with time. We find that the effect of job loss accounts for 39 percent of the increase in wage inequality during the average eight-year period from 1977 through 2005, compared to 52 percent that is attributable to wage changes for workers who stay with the same employer.