Growing Wage Inequality Research Articles

Wage Inequality and Demand for Skill: Evidence from Five Decades

Using the 1940-90 Censuses, the author examines long-run changes in male wage inequality and skill premiums and investigates the extent to which shifts in observable measures of skill supply and demand can account for relative wage fluctuations across decades. A simple supply and demand framework is reasonably successful in accounting for movements in the education premium but is less successful in explaining changes in overall wage inequality. While the difference between the 90th and 10th percentiles of the log wage distribution fell sharply in the 1940s and grew at an accelerating rate in the 1980s, relative demand for the most versus the least skilled workers rose steadily throughout the period. The pace of industrial change and, in particular, the expansion of medium-skilled sectors such as blue-collar manufacturing appear to have been inversely related to overall wage inequality growth.

Theory-Driven Facts and the Growth in Earnings Inequality

It is widely accepted that the rise in U.S. wage inequality can be explained by skill-biased technological change: workplace computerization produced demand shifts that worked with a simply supply and demand "vision" of the labor market than with direct statistical evidence, which is remarkably limited. Indeed, the dominance of this elementary textbook vision has led, I argue, to a conflation between statistical facts and "theory-driven" facts-those statements about reality that are selected, interpreted, or simply created to confirm a vision of the way things work. The paper concludes by outlining an alternative explanation of the growth in wage inequality based on a sharply different, Gordonian, vision of the labor market.

Theory-driven facts and the growth in earnings inequality

It is widely accepted that the rise in U.S. wage inequality can be explained by skill-biased technological change: workplace computerization produced demand shifts that worked with a simply supply and demand “vision” of the labor market than with direct statistical evidence, which is remarkably limited. Indeed, the dominance of this elementary textbook vision has led, I argue, to a conflation between statistical facts and “theory-driven” facts—those statements about reality that are selected, interpreted, or simply created to confirm a vision of the way things work. The paper concludes by outlining an alternative explanation of the growth in wage inequality based on a sharply different, Gordonian, vision of the labor market.

Diverging Male Wage Inequality in the United States and Ganada, 1981–1988: Do Institutions Explain the Difference?

The U.S. and Canadian economies have much in common, including similar collective bargaining structures. During the period 1981–88, however, although both countries witnessed a decline in the percentage of workers belonging to unions and an increase in hourly wage inequality, those changes were much more pronounced in the United States than in Canada. Using data on men in Canada and the United States in 1981 and 1988 (from the Labour Force Survey and supplements to the Current Population Survey), the authors study the effect of labor market institutions on changes in wage inequality by computing simple counterfactuals such as the distribution of wages that would prevail if all workers were paid according to the observed nonunion wage schedule. Their results suggest that much more severe declines in the unionization rate in the United States than in Canada account for two-thirds of the differential growth in wage inequality between the two countries.

Diverging Male Wage Inequality in the United States and Canada, 1981-1988: Do Institutions Explain the Difference?

The U.S. and Canadian economies have much in common,including similar collective bargaining structures. During the period 1981-88, however, although both countries witnessed a decline in the percentage of workers belonging to unions and an increase in hourly wage inequality, those changes were much more pronounced in the United States than in Canada. Using micro data on men in the United States and Canada in 1981 and 1988, the authors study the effect of labor market institutions on changes in wage inequality by computing simple counterfactuals such as the distribution of wages that would prevail if all workers were paid according to the observed nonunion wage schedule. Their results suggest that changes in unionization rates and minimum wages account for two-thirds of the differential growth in wage inequality between the two countries.

Training and the Growth of Wage Inequality

Shifts in the incidence of training over the 1980s favored more‐educated, more‐experienced workers. These shifts, coupled with increases in returns to skill, suggest that training may have contributed to the growth of between‐group wage inequality in this period. However, because 1) the shifts in training were too small, and 2) the returns to training did not rise, only small fractions of the increases in returns to schooling and experience over this period can be explained by changes in the distribution of or returns to training.

Institutions, Technical Change, and Diverging Life Chances: Earnings Mobility in the United States and Germany

Some scholars argue that growing wage inequality stems primarily from technical rather than institutional factors. However, this conclusion assumes that institutional differences operate chiefly at the level of individual industries. This article argues in contrast that important institutional effects are countrywide and demonstrates the effect of country-level institutional differences by comparing recent earnings dynamics in the United States and Germany. The recent trend in real earnings has been steeper in Germany, while the variance in earning mobility has been greater in the United State. This is partly due to higher rates of U.S. job mobility, but cross-national differences in earnings trajectories are evident even for workers who did not change jobs.

The dark side of the “employment miracle” in the USA

Whereas in Europe the creation of jobs in the United States has been hailed as an “employment miracle”, in the USA itself there is concern mainly about the negative implications of the considerable increase in employment. A trend towards deindustrialisation, poor productivity and growing wage inequality are issues that are being discussed in this connection.