Increase In Earnings Inequality Research Articles

The increase in earnings inequality in Italy: The role and persistence of atypical contracts

This paper investigates the factors that shape earnings inequality, using administrative matched employer‐employee data from the Italian Social Security Institute (INPS), between 1990 and 2021. It reveals that inequality in annual earnings rose steadily over time according to various measures, such as the Gini index, the interquartile ranges, and the variance. When exploring the mechanisms behind such an increase, it shows that the rise in inequality is driven by the quantity of work, which varied heterogeneously across workers, as atypical contracts (e.g., part‐time and fixed‐term) became widespread in the economy. We compare these measures based on the annual compensation of workers with those based on full‐time equivalent weekly wages, which display a much less dispersed evolution over time, except during the double‐dip recession in 2008–2012. Finally, we document a large persistence, increasing over time, in disadvantaged positions both in the short‐ and in the long‐run.

Employer-Sponsored Health Insurance Premium Cost Growth and Its Association With Earnings Inequality Among US Families

Costs of employer-sponsored health care benefits have increased faster than workers' wages for several decades, with important implications for disparities in earnings and wage stagnation. To quantify how growth in employer-sponsored health insurance (ESI) premiums may have been associated with reduced annual wages, disparities in earnings by race and ethnicity and wage level, and wage stagnation among US families with ESI. In this economic evaluation, serial cross-sectional analyses were performed of US families receiving ESI from 1988 to 2019 based on data from the Consumer Expenditure Survey, Kaiser Employer Health Benefits Survey, US Census Bureau's Current Population Survey, and federal payroll taxation rates. Statistical analysis was conducted from February 2022 to July 2023. Percentage of annual compensation associated with health care premiums (after accounting for tax deductibility) and lost wages associated with growth in cost of premiums from 1989 to 2019 based on 1988 compensation. To assess disparities, analyses were stratified by race and ethnicity and wage level. In 1988, 44.7 million individuals (head of household: mean [SD] age, 43.3 [13.1] years; 30.1% were female; and 2.4% identified as Asian, 6.2% as Hispanic, 8.6% as non-Hispanic Black, and 82.8% as non-Hispanic White) were covered by ESI family plans; this number remained similar in 2019 at 44.8 million individuals (head of household: mean [SD] age, 47.1 [12.9] years; 41.3% were female; and 1.3% identified as Asian, 9.9% as Hispanic, 9.9% as non-Hispanic Black, and 78.9% as non-Hispanic White). In 1988, the mean (SD) household size was 3.3 (1.3) people, and in 2019, it was 3.4 (1.3) people. If ESI costs had remained at the same proportion of the 1988 average compensation package, then in 2019, the median US family with ESI could have earned $8774 (95% CI, $8354-$9195) more in annual wages. During all 32 years, health care premiums as a percentage of compensation were greater for non-Hispanic Black and Hispanic families than for non-Hispanic White families. By 2019, 13.8% (95% CI, 13.5%-14.1%) of compensation among non-Hispanic White families with ESI went to premium costs compared with 19.2% (95% CI, 18.8%-19.7%) among non-Hispanic Black families and 19.8% (19.3%-20.3%) among Hispanic families with ESI. In 2019, health care premiums as a percentage of compensation at the 95th percentile of earnings for families with ESI were 3.9% (95% CI, 3.8%-4.0%) compared with 28.5% (95% CI, 27.8%-29.2%) at the 20th percentile of earnings. From 1988 to 2019, the mean cumulative lost earnings associated with growth in health care premiums for the median US family with ESI was $125 340 (95% CI, $120 155-$130 525) in 2019 dollars, 4.7% of earnings over the 32-year period. This economic evaluation of US families receiving ESI suggests that 3 decades of increasing health care premiums were likely associated with reduced annual earnings and increased earnings inequality by race and ethnicity and wage level and were meaningfully associated with wage stagnation.

The Increase in Earnings Inequality and Volatility in Italy: The Role and Persistence of Atypical Contracts

The Increase in Earnings Inequality and Volatility in Italy: The Role and Persistence of Atypical Contracts

Increasing Earnings Inequality: Reconciling Evidence from Survey and Administrative Data

Increasing Earnings Inequality: Reconciling Evidence from Survey and Administrative Data

Earnings dynamics of immigrants and natives in Sweden 1985–2016

This paper analyzes earnings inequality and earnings dynamics in Sweden over 1985–2016. The deep recession in the early 1990s marks a historic turning point with a massive increase in earnings inequality and earnings volatility, and the impact of the recession and the recovery from it lasted for decades. In the aftermath of the recession, we find steady growth in real earnings across the entire distribution for men and women and decreasing inequality over more than 20 years. Despite the positive trend, large gender differences in earnings dynamics persist. While earnings growth for men is more closely tied to the business cycle, women face much higher volatility overall. Earnings volatility is also substantially higher among foreign‐born workers, reflecting weaker labor market attachment and high risk of large negative shocks for low‐income immigrants. We document an important role of social benefits usage for the overall trends and for differences across subpopulations. Higher benefits enrollment, especially for women and immigrants, is associated with higher earnings volatility. As the generosity and usage of benefit programs declined over time, we find stronger earnings growth among low‐income workers, consistent with higher self‐sufficiency.

College and Lifecycle Earnings Inequality

Has a rising college earnings premium contributed to increased earnings inequality over the past 50 years? I answer this question with a model of college linked to a Ben-Porath human capital problem. The model is estimated from data on college attainment rates and lifecycle income profiles, which I document by education level. I find that lifetime earnings inequality within cohorts has risen significantly since the 1970s but little of this is directly attributable to the college premium. Higher tuition is also not particularly important. Increasing earnings risk seems to be the main driver, with higher college return dispersion a contributing factor.

The Great Recession and Economic Outcomes for Indigenous Peoples in the United States

This article examines the earnings and employment experience of American Indians and Alaska Natives (AIAN) and Native Hawaiians and Pacific Islanders (NHPI) residing in the United States during and after the Great Recession. I compare these populations to non-Hispanic whites over the same time period with respect to median earnings and inequality, labor force participation rates, earnings by location, educational attainment, and occupational status. I find that the AIAN population has the lowest median earnings and highest level of earnings inequality. NHPI and AIAN experience a sharp increase in earnings inequality over the Great Recession and AIAN have a pronounced drop in labor force participation; these inequality measures remained elevated and stable over the recovery period especially for the AIAN population. Indigenous peoples employed in food services occupations experienced the least amount of earnings decline over the Great Recession, while those employed in construction and sales experienced larger declines. Labor force participation rates dropped most dramatically for the AIAN population over the Great Recession and remained at a new lower level in the recovery period. The analysis shows that there are stark differences across time, space, and occupation for these groups.

Risk, the College Premium, and Aggregate Human Capital Investment

Despite increases in the college earnings premium to persistently high levels, investment in college education remains low. We can understand this apparent puzzle by considering the risk of attending college and, in particular, the possibility of failing to graduate. Students with a reasonable probability of completing college already enroll, and for those who do not enroll, the low chance of completion blunts the impact of the rising college premium. In the absence of improved college readiness, our quantitative results suggest that continuing long-standing trends in skill-biased technological change can be expected primarily to increase earnings inequality rather than college attainment. (JEL E24, I22, I23, J24, J31, O33)

Inequality Consequences of the COVID-19 Recession

The COVID-19 pandemic and the resulting lockdown policies have disproportionately affected workers at the bottom of the income distribution, thus widening the earnings gap between the top and the bottom percentiles of workers. In this paper, we examine how changes in the labor market due to the COVID-19 recession affect earnings inequality in the US and contrast the effect of COVID-19 recession with previous recessions identified since 1988. Using monthly earnings data from the Current Population Survey, we find a precipitous increase in inequality as measured by the 10/90 ratio of earnings in April 2020. The increase in earnings inequality can be attributed to the widening of the gap in earnings in the bottom of the earnings distribution. Compared to the Great Recession, that saw a comparable increase in earnings inequality, the underlying causes of changes in inequality differ significantly. Most job losses in the COVID-19 recession are concentrated among low earning industries in the services sector, while job losses during the Great Recession were more uniformly distributed across the earnings distribution. The results of the present study provide key guidelines for the design of redistribution policies in the post pandemic recovery.

A Study of Major Impact: Assortative Mating and Earnings Inequality Among U.S. College Graduates

This research has two goals: to measure the extent of assortative (non-random) mating by college major in the United States, and to assess the extent to which assortative mating by college major increases earnings inequality among college-educated couples. Assortative mating of college graduates with other college graduates has been extensively studied, but research on assortative mating by field of study is rare. The analysis uses a large sample (659,732 couples) from five years of the American Community Survey public use files to group college degrees into nine categories, compute the frequency of all marital pairings, and compare these frequencies to a random assignment of pairings. The results show that assortative mating by college major is common for all majors and both genders, and that these results are robust to division of the sample by age group. Because high-earning majors tend to be married to spouses from the same high-earning major group, and likewise for low-earning majors, assortative mating increases earnings inequality among two-earner college-educated couples. The extent of this increased earnings inequality is calculated with both dollar measures and standard aggregate measures of inequality. Thus college-educated Americans tend to marry persons with similar college majors and this tendency measurably increases earnings inequality among college-educated couples.

Earnings inequality and China's preferential lending policy

Wages have been distributed increasingly unequally over the past decades for most countries. While policymakers have tried different methods to stop the earnings inequality from widening, the effects have been minimal. In this paper, we propose a novel mechanism through which a preferential lending policy reduces the earnings inequality, inspired by the case of China. As most countries have, China has experienced increasing earnings inequality over the past decades; however, the inequality started to decline substantially after 2009. We argue that this change reflects the following important institutional change in China: since 2009, the local governments have been granted the ability to offer their preferred firms cheap credit. Since many of these preferred firms are unskilled-labor intensive, with a lower financing cost, they increase their investment and hire more unskilled workers, thereby reducing the earnings inequality. We incorporate this mechanism into a two-sector model and show quantitatively that our model can account for most of the decline of the earnings inequality observed in the data. Moreover, the model also predicts a surge in the aggregate investment rate, which is also in line with the data.

Why hasn't Social Security changed since 1977?

Despite increasing earnings inequality and aging population, there has been no major reform of Social Security since 1977. To account for this puzzling observation, I construct a heterogeneous agent model with incomplete financial markets. There is a government who chooses the replacement rate schedule by maximizing the weighted welfare of all generations alive. I specify the Pareto weights as a function of household's age and identify them both in 1977 and 2018. I find that there was a slight bias towards younger workers in 1977. However, the bias has shifted towards older households in 2018. This shift is a result of counteracting forces induced by: 1) population aging and 2) increased labor productivity risk and increased college premium. The effect of population aging turns out to be stronger quantitatively.

The Effects of Differential Income Replacement and Mortality on U.S. Social Security Redistribution

We study redistribution via the U.S. Social Security retirement system for cohorts of men born during the second half of the 20th century. Our focus is on redistribution across race and education groups. The cohorts we study are younger than cohorts studied in previous, similar research and thus more exposed to recent increases in earnings inequality. All else equal, this should increase the degree of progressivity of Social Security redistribution due to the structure of the benefit formula. However, we find that redistribution is only modestly progressive for individuals born as late as 1980. Differential mortality rates across race and education groups are the primary explanation. While Black–White mortality gaps have narrowed some in recent years, they remain large and dull progressivity. Mortality gaps by education level are also large and unlike the gaps by race, they are widening, which puts additional regressive pressure on Social Security redistribution.

Increasing earnings inequality and the gender pay gap in Canada: Prospects for convergence

AbstractThis paper retraces the evolution of Canadian women's labour force participation and of the gender earnings ratio across the generations to understand better the prospects for gender convergence in pay. Using data from the public use Labour Force Surveys (LFS) and administrative annual earnings data from the Longitudinal Worker Files (LWF), the paper assesses the role of increasing top earnings inequality in the persistence of the gender pay gap. Having identified a growing role for the under‐representation of women among top earners, the paper then performs an evaluation and critical analysis of existing gender equality policies, centred on horizontal occupational gender segregation, and discusses alternative policies for the future.

Earnings Inequality: The Implications of the Rapidly Rising Cost of Employer-Provided Health Insurance

Health insurance for a high-paid employee costs an employer the same amount as health insurance for a low-paid employee. At the same time, healthcare costs, and therefore health insurance premiums, are growing much more rapidly than earnings. Therefore, it is reasonable to expect that—while earnings will indeed become more unequal over time—total compensation will not become more unequal, or, when considered over the entire labor force, at least will not become as unequal. Direct empirical evidence supports this hypothesis, based on unique, unpublished survey data about employers’ compensation costs collected by the Bureau of Labor Statistics. The supporting results hold both for the period 1996–2008 and for the period 1992–2010. A regression estimated over the period 1990–2014 also bolsters the understanding that the rising cost of health care is a major cause of increasing earnings inequality. This finding suggests that the best policy to reduce inequality would be to effectively control the rate of growth in the cost of health care.

Earnings Inequality and Coordination Costs: Evidence from US Law Firms

Earnings inequality has increased substantially since the 1970s. How much does this reaect decreases in coordination costs caused by improvements in Information Technology that allow individuals to better exploit returns to skill? We provide evidence on this question using conOdential Census data on U.S. law o¢ ces. We Orst show that earnings inequality among lawyers increased substantially between 1977 and 1992, and that the distribution of partner-associate ratios across o¢ ces changed in ways consistent with the hypothesis that coordination costs fell during this period. We then propose a ihierarchical production functioniin which output is the product of skill and time and estimate its parameters, applying insights from the equilibrium assignment literature. We Ond that, as a result of information technology improvements, coordination costs fell broadly and steadily during this period, such that hiring oneis Orst associate leveraged a partneris skill by about 30% more in 1992 than 1977. We Ond also that changes in lawyersihierarchical organization account for about 2/3 of the increase in earnings inequality among lawyers in the upper tail, but a much smaller share of the increase in inequality between lawyers in the upper tail and other lawyers. These Ondings indicate that new organizational e¢ ciencies potentially explain increases in inequality between individuals with very high and median earnings more broadly.

Earnings Inequality in Germany: A Decomposition-Analysis

Several studies have shown that income inequality has risen in Germany until 2005. Less focus was put on the rise of earnings inequality which continued to rise until 2010. We distinguish different groups in the labour market with respect to working-time, gender and region by exploiting data from the German Socio-Economic panel (SOEP) for the years 1995 till 2014. Using the decomposition of the Theil1-index we demonstrate that the increase in earnings inequality is primarily the result of diverging average earnings of the various groups in the labour market (between-group inequality) and to some extent due to increasing earnings heterogeneity within groups (within-group inequality). The former effect is larger than the latter. Without the inequality reducing effect on earnings inequality due to the continuous decrease in the share of full-time working employees and the increase in the female labour participation rate (compositional effect) earnings inequality would have actually further increased after 2010. Independent of the policy target, policy measures to reduce inequality need always to be designed in such a way that they take the whole work force into account in order to achieve measurable effects.

Taking the Sector Seriously: Data, Developments, and Drivers of Intrasectoral Earnings Inequality

The widespread increase in earnings inequality within postindustrial countries has received a lot of attention in both the public debate and the academic literature. Remarkably, the developments in earnings inequality have mainly been studied at the country level, whereas there is substantial variation across sectors within countries. This study explores the developments and the drivers of earnings inequality at the sectoral level. From an empirical perspective, this study aims to contribute to the inequality literature by analyzing measures of sectoral earnings inequality. The study relies on newly assembled data based on Luxembourg Income Study micro data for eleven sectors across eight countries over the past few decades. As a theoretical contribution, the study examines the three key explanations for increasing earnings inequality that have been debated and analysed by economists, sociologists and political scientists—namely, globalisation, technological change and waning labour union power—but this time with sectoral earnings inequality data. Interestingly, the results provide only limited support for the argument that international trade leads to higher levels of earnings inequality. When we focus the analysis on trade with less developed countries we find a positive association between trade and earnings inequality. With regard to technological change, our findings provide mixed evidence for the hypothesis that skill-biased technological change increases earnings inequality. Our results bring back the waning country-wide labour union power as an important driver of earnings inequality. This corresponds with the fact that our sectoral data reveal a more general trend towards rising inequality across sectors over time.

Augmenting the Human Capital Earnings Equation with Measures of Where People Work

We augment standard log earnings equations for workers in US manufacturing with variables reflecting measured and unmeasured attributes of their employer. Using panel employee-establishment data, we find that establishment-level employment, education of coworkers, capital equipment per worker, and firm-level R&D intensity affects earnings substantially. Unobserved characteristics of employers captured by employer fixed effects also contribute to the variance of log earnings, although less than unobserved characteristics of individuals captured by individual fixed effects. The observed and unobserved measures of employers mediate the effects of individual characteristics on earnings and increase earnings inequality through sorting of workers among establishments.

Are changes in the dispersion of hours worked a cause of increased earnings inequality?

Earnings are the product of wages and hours of work; hence, the dispersion of hours can magnify or dampen a given distribution of wages. This paper examines how earnings inequality is affected by the dispersion of working hours using data for the USA, the UK, Germany, and France over the period 1989–2012. We find that hours dispersion can account for over a third of earnings inequality in some countries and that its contribution has been growing over time. We interpret the expansion in hours inequality in European countries as being the result of weaker union power that led to less successful bargaining concerning working hours.