Trends in U.S. Wage Inequality: Re-Assessing the Revisionists

Abstract

A recent "revisionist " literature characterizes the pronounced rise in U.S. wage inequality since 1980 as an "episodic " event of the first-half of the 1980s driven by non-market factors (particularly a falling real minimum wage) and concludes that continued increases in wage inequality since the late 1980s substantially reflect the mechanical confounding effects of changes in labor force composition. Analyzing data from the Current Population Survey for 1963 to 2005, we find limited support for these claims. The slowing of the growth of overall wage inequality in the 1990s hides a divergence in the paths of upper-tail (90/50) inequality --which has increased steadily since 1980, even adjusting for changes in labor force composition --and lower tail (50/10) inequality, which rose sharply in the first-half of the 1980s and plateaued or contracted thereafter. Fluctuations in the real minimum wage are not a plausible explanation for these trends since the bulk of inequality growth occurs above the median of the wage distribution. Models emphasizing rapid secular growth in the relative demand for skills --attributable to skill-biased technical change --and a sharp deceleration in the relative supply of college workers in the 1980s do an excellent job of capturing the evolution of the college/high-school wage premium over four decades. But these models also imply a puzzling deceleration in relative demand growth for college workers in the early 1990s, also visible in a recent "polarization" of skill demands in which employment has expanded in high-wage and low-wage work at the expense of middle-wage jobs. These patterns are potentially reconciled by a modified version of the skill-biased technical change hypothesis that emphasizes the role of information technology in complementing abstract (high-education) tasks and substituting for routine (middle-education) tasks.

Mexico in the 1990s: The Main Cross-Sectional Facts

“…In each year of the sample both series remain below one: this is a much smaller value that the one commonly computed with US data. 5 The increase in …nancial wealth in 1996 that we …nd using the ENIGH data is con…rmed by the evidence from macro data. The statistics reported in the "Report on Mexican Monetary Policy" that is released annually by the Bank of Mexico show that between 1994 and 1996 aggregate savings as a share of the national GDP increased by around one percentage point.…”

“…In 1998 it was back to a value of around ten per cent. 5 Graphs C and D in Figure 7 show the wealth-income ratios computed by dividing net …nancial wealth and net total wealth over total disposable income across all households in the sample. Consistently with the trends of net …nancial wealth, the two series exhibit a pronounced spike in 1996.…”

Revisiting the German Wage Structure*

“…those with a college degree) relative to the medium-skilled. We also document that the decline in the share of the low-skilled started to slow down in the late 1980s, whereas the share of the high-skilled increased at a roughly linear rate from 4.7% in 1975 to 14.8% in 2004. Using a nested CES production framework based on that by Katz (2007a, 2008), we show that fluctuations in relative supply explain the evolution of the wage differential between the low-and medium-skilled very well, but do a poor job in predicting the evolution of the wage differential between the medium-and high-skilled.…”

“…This is consistent with Autor, Levy, and Murnane's (2003) hypothesis that computer technology decreases the demand for jobs that require routine manual or clerical skills (and are found in the middle of the wage distribution), and increases the demand for jobs that require non-routine cognitive and interpersonal skills (and are found at the top of the wage distribution). This paper thus adds to the growing evidence that technology does not simply increase the demand for skilled labor relative to that of unskilled labor, but instead asymmetrically affects the bottom and the top of the wage distribution (see, for example, Autor, Katz, and Kearney 2006Kearney , 2008 for the United States and Goos and Manning 2007 for the United Kingdom). This may begin to supply the unifying international evidence on technological change that so far has been absent.…”

“…In particular, West Germany, the third largest economy and the largest exporter in the world, has been singled out as a country characterized by a stable wage distribution during the 1980s (see, for example, Steiner and Wagner 1998;Prasad 2004). 3 Numerous scholars cite this stability as evidence against the hypothesis that the growth of inequality observed in the United States and United Kingdom is primarily due to skill-biased technological change, as firms in Continental Europe had access to the same technologies as firms in the United States or 4 , and more recently social norms (e.g. Piketty and Saez 2003).…”