EARNINGS INEQUALITY IN USA, 1969-99: COMPARING INEQUALITY USING EARNINGS EQUATIONS

Abstract

A simple decomposition method using an earnings equation is proposed by synthesizing two decomposition methodologies, those of Juhn, Murphy, and Pierce (1993) and Fields (2003), in order to study changes in earnings inequality in America during the last three decades in the 20th century. The proposed method enables us to compute both aggregate and detailed decompositions of changes in earnings inequality. The decomposition of earnings inequality change during the last three decades in 20th century shows that the increase in earnings inequality in America was caused by changes in the wage structure and the distribution of unobservables. The premium to education contributes substantially to the widening of earnings inequality during the 1980s and 1990s. A decreasing male wage premium contributes to leveling earnings inequality.