Lower Tail Inequality Research Articles

Wage Polarization in the Context of the Czech Republic

Abstract Existing studies have provided evidence of job polarization in many developed countries. The issue of wage polarization is less obvious: many articles do not address it at all, and some even confuse it with job polarization. At the same time, the significance of the phenomenon of polarization results precisely from the consequence of wage polarization: the increase in wage inequality. The aim of this article is to find out whether wage polarization occurred in the Czech Republic during the period 2004–2018. Wage development in the private sphere does not imply wage polarization, but in the public sphere, results imply a very slight wage polarization mainly due to the development between 2004 and 2010. This phenomenon has occurred in both male and female occupations. Panel regression analysis shows that globalization reduces upper-tail inequality (the ratio Q90/Q50) while increasing lower-tail inequality (the ratio Q50/Q10). At the level of the whole economy, technology seems to contribute to reducing both upper-tail and lower-tail inequality. These results probably correspond to the nature of the Czech economy, which is based on middle-skilled workers with a pro-export focus.

The Direct Effect of Taxes and Transfers on Changes in the U.S. Income Distribution, 1967-2015.

Scholars have increasingly drawn attention to rising levels of income inequality in the United States. However, prior studies have provided an incomplete account of how changes to specific transfer programs have contributed to changes in income growth across the distribution. Our study decomposes the direct effects of tax and transfer programs on changes in the household income distribution from 1967 to 2015. We show that despite a rising Gini coefficient, lower-tail inequality (the ratio of the 50th to 10th percentile) declined in the United States during this period due to the rise of in-kind and tax-based transfers. Food assistance and refundable tax credits account for nearly all the income growth between 1967 and 2015 at the 5th percentile and roughly one-half the growth at the 10th percentile. Moreover, income gains near the bottom of the distribution are concentrated among households with children. Changes in the income distribution were far less progressive among households without children.

The Role of the Minimum Wage on the Declining Wage Inequality in Latin America: Evidence from Brazil.

Over the past two decades, the downward trend of income inequality in Brazil has been accompanied by a sharp increase in the real value of the minimum wage. There is no empirical consensus on whether the minimum wage has an equalizing effect on income distribution because of its ambiguous effects on employment. I document the effectiveness of the minimum wage on compressing wage inequality throughout the wage distribution and its effects on employment by using Brazilian regional data over the post-inflationary period (1995-2015). A counterfactual exercise shows that half of the decline in lower-tail inequality is attributable to the increase in the real minimum wage whereas the effects of the minimum wage on upper-tail inequality are negligible. Furthermore, the increase in the minimum wage has small contemporaneous adverse effects on formal employment which appear to vanish after three quarters.JEL classification: E24Keywords: wage inequality, employment, minimum wage.

Wage Inequality and Firm Growth

We examine how within-firm skill premia – wage differentials associated with jobs involving different skill requirements – vary both across firms and over time. Our firm-level results mirror patterns found in aggregate wage trends, except that we find them with regard to increases in firm size. In particular, we find that wage differentials between high- and either medium- or low-skill jobs increase with firm size, while those between medium- and low-skill jobs are either invariant to firm size or, if anything, slightly decreasing. We find the same pattern within firms over time, suggesting that rising wage inequality – even nuanced patterns, such as divergent trends in upper- and lower-tail inequality – may be related to firm growth. We explore two possible channels: i) wages associated with “routine” job tasks are relatively lower in larger firms due to a higher degree of automation in these firms, and ii) larger firms pay relatively lower entry-level managerial wages in return for providing better career opportunities. Lastly, we document a strong and positive relation between within-country variation in firm growth and rising wage inequality for a broad set of developed countries. In fact, our results suggest that part of what may be perceived as a global trend toward more wage inequality may be driven by an increase in employment by the largest firms in the economy.

When supply meets demand: wage inequality in Portugal

Wage inequality in Portugal has increased over the last thirty years, with two distinct periods. The period from 1984 to the mid-90s witnessed strong increases in both upper- and lower-tail inequality. A shortage of skills combined with skill-biased technological changes were at the core of this evolution. Since the mid-90s, lower-tail inequality has decreased, while upper-tail inequality has increased, but at a slower rate. A larger supply of skills and polarization of labor demand contribute to this evolution. Other developed economies share similar trends, but the Portuguese experience shows clearly the role of supply and demand factors in shaping the wage distribution.

Minimum wage in a deflationary economy: The Japanese experience, 1994–2003

The statutory minimum wage in Japan has increased continuously for a few decades until the early 2000s even during a period of deflation. This paper examines the impact of the minimum wage on wage and employment outcomes under this unusual circumstance. We find that the minimum-wage increase resulted in the compression of the lower tail of the wage distribution among women and that the wage compression is only partially attributable to the loss of employment. The continuous increase in the minimum wage accounts for one half of the reduction in lower-tail inequality that occurred among women during the period between 1994 and 2003.

Évolution des inégalités salariales en France

Résumé Cet article étudie l’évolution de la distribution des salaires en France de 1990 à 2008. Nous isolons l’effet des variations de la probabilité d’emploi et de la qualification de l’effet des changements du prix du travail. Contrairement à d’autres pays développés, les inégalités à la fois dans le bas et dans le haut de la distribution entre le premier et le dernier décile reculent chez les hommes et les femmes. La période récente peut ainsi être qualifiée de période de « grande compression » salariale entre le premier et le dernier décile. La baisse des rendements de l’éducation et de l’expérience sur la période a produit une structure des salaires en 2008 parmi la plus égalitaire jamais observée en France depuis les années 1960.

Globalization and earnings inequality in metropolitan areas: evidence from the USA

This study examines how the dynamics of the global economy, particularly new patterns of capital ownership, affect earnings inequality in the 276 US metropolitan areas and how these patterns vary across the USA between the south and non-south. We examine the impact of five measures of globalization (global capital, foreign direct investment, exports, foreign-born non-citizens and foreign-born citizens) and four measures of labour market transformation (deindustrialization, corporate restructuring, bureaucratic burden and casualization) on two distinct dimensions of metropolitan-level earnings inequality: upper-tail and lower-tail inequality. We find significant effects of these nine measures on inequality and important variations in their effects in southern and non-southern metropolitan areas.

Changes in Wage Inequality in France: The Impact of Composition Effects (in French)

This paper investigates the recent changes in the French wage structure from 1990 to 2008. To do so, we disentangle the impact of changes in employment probability, changes in the levels of education and experience and changes in the price of labor. Unlike other developped countries, we find that upper and lower tail inequality decline between the first and the last decile for male and female. The recent period thus could be described as a period of “great compression” of wages between the first and the last decile. As a result, the decline in education and experience returns has produced one of the most egalitarian wage structure ever observed in France since the 1960s.

Effects of Minimum Wages on the Russian Wage Distribution

The available minimum wage literature is mostly based on evidence from developed countries or developing countries of Latin America. Little empirical work has been done on the effects of minimum wages in transition economies, where labour institutions experienced rapid changes and law enforcement differs in many important ways. This paper presents the first empirical evidence on minimum wage effects for Russia, the largest transition economy. I use regional variation in the relative level of the federal minimum wage to identify the impact of the threefold increase in the real value of the minimum wage on the Russian wage distribution between 2005 and 2009. The analysis suggests that the minimum wage can account for the bulk of the decline in the lower tail inequality, particularly for females.

The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment

We reassess the effect of minimum wages on US earnings inequality using additional decades of data and an IV strategy that addresses potential biases in prior work. We find that the minimum wage reduces inequality in the lower tail of the wage distribution, though by substantially less than previous estimates, suggesting that rising lower tail inequality after 1980 primarily reflects underlying wage structure changes rather than an unmasking of latent inequality. These wage effects extend to percentiles where the minimum is nominally nonbinding, implying spillovers. We are unable to reject that these spillovers are due to reporting artifacts, however. (JEL J22, J31, J38, K31)

When Supply Meets Demand: Wage Inequality in Portugal

Wage inequality in Portugal increased over the last quarter of century. The period from 1982 to 1995 witnessed strong increases in both upper- and lower-tail inequality. A shortage of skills combined with skill-biased technological changes are at the core of this evolution. Since 1995, lower-tail inequality decreased, while upper-tail inequality increased at a slower rate. The supply of high-skilled workers more than doubled during this period, contributing significantly to the slowdown. Polarization of employment demand is the more credible explanation for the more recent evolution. As in other developed economies, for instance Germany and the United States, we show that institutions played a minor role in shaping changes in inequality.

Revisiting the German Wage Structure

This paper challenges the view that the wage structure in West Germany has remained stable throughout the 80s and 90s. Based on a 2% sample of social security records, we show that wage inequality has increased in the 1980s, but only at the top of the distribution. In the early 1990s, wage inequality started to rise also at the bottom of the distribution. Hence, while the US and Germany experienced similar changes at the top of the distribution throughout the 80s and 90s, the patterns at the bottom of the distribution are reversed. We show that changes in the education and age structure can explain a substantial part of the increase in inequality, in particular at the top of the distribution. We further argue that selection into unemployment cannot account for the stable wage structure at the bottom in the 80s. In contrast, about one third of the increase in lower tail inequality in the 90s can be related to de-unionization. Finally, fluctuations in relative supply play an important role in explaining trends in the skill premium. These findings are consistent with the view that technological change is responsible for the widening of the wage distribution at the top. The widening of the wage distribution at the bottom, however, may be better explained by episodic events, such as changes in labour market institutions and supply shocks.

Rising Wage Inequality: The Role of Composition and Prices

During the early 1980s, earnings inequality in the U. S. labor market rose relatively uniformly throughout the wage distribution. But this uniformity gave way to a significant divergence starting in 1987, with upper-tail (90/50) inequality rising steadily and lower tail (50/10) inequality either flattening or compressing for the next 16 years (1987 to 2003). This paper applies and extends a quantile decomposition technique proposed by Machado and Mata (2005) to evaluate the role of changing labor force composition (in terms of education and experience) and changing labor market prices to the expansion and subsequent divergence of upper- and lower-tail inequality over the last three decades We show that the extended Machado-Mata quantile decomposition corrects shortcomings of the original Juhn-Murphy-Pierce (1993) full distribution accounting method and nests the kernel reweighting approach proposed by DiNardo, Fortin and Lemieux (1996). Our analysis reveals that shifts in labor force composition have positively impacted earnings inequality during the 1990s. But these compositional shifts have primarily operated on the lower half of the earnings distribution by muting a contemporaneous, countervailing lower-tail price compression. The steady rise of upper tail inequality since the late 1970s appears almost entirely explained by ongoing between-group price changes (particularly increasing wage differentials by education) and residual price changes.

Can a More Nuanced View of Skill Biased Technological Change Explain the Recent Changes in Wage Inequality ?

A secular increase in the demand for high-wage workers driven by skill-biased technological change (SBTC) has difficulties in explaining what happened to US and UK wage inequality in the 1990’s. In particular, SBTC predicts a continuing increase in the relative wage and employment of high wage workers and therefore cannot explain the deceleration of growth in lower tail inequality since the late 1980’s. But this paper suggests that a more nuanced view of SBTC recently proposed by Autor, Levy and Murnane (2003) (ALM) goes some distance towards explaining the absence of further growth in lower tail inequality together with further growth in upper tail inequality in the 1990’s.