![Measuring Inequality Percent change in wages from 1963 to 1995: Why does this equal the percentage change in average wages? =ln[w 95 /w 63 ] =ln[w 95 /w 63 -w 63 /w 63 +1] Recall that ln( x +1) ≈ x when x is small. Thus, Can look at changes at different points in the earnings distribution. For example: One can examine the percentage change in wages at the 10 th , 50 th and 90 th percentile of the wage distribution.](https://image.slidesharecdn.com/thewagestructureweb-100928044754-phpapp01/85/The-wage-structure-web-7-320.jpg)
The wage structure web
- 2. Introduction and Overview Explain the positive skew in earnings distribution. Understand wage inequality in the United States. The facts: patterns and trends in the data. The explanations: factors that have led to increased inequality.
- 3. Basic Shape of the Wage Distribution Positively skewed: Frequency Wage Human capital theory can explain the shape of this distribution.
- 4. Distribution of Ability Worried? http://www.iqtest.com/
- 5. Human Capital Theory Individual’s with the highest ability have the greatest incentive to invest. This stretches out the earnings distribution at the top end. Years of Schooling $ MRR1 r S2 S1 MRR2
- 6. Measuring Inequality The spread between wages at different percentiles of wage distribution is a measure of wage dispersion. Density Density Wage below which 90% of population earns Wage below which 10% of population earns w 10 w 90 Wage w 10 w 90
- 7. Measuring Inequality Percent change in wages from 1963 to 1995: Why does this equal the percentage change in average wages? =ln[w 95 /w 63 ] =ln[w 95 /w 63 -w 63 /w 63 +1] Recall that ln( x +1) ≈ x when x is small. Thus, Can look at changes at different points in the earnings distribution. For example: One can examine the percentage change in wages at the 10 th , 50 th and 90 th percentile of the wage distribution.
- 8. Percent Change in Weekly Wage by Percentile, 1963-1995
- 9. Percent Change in Weekly Wage by Percentile, 1963-1995
- 10. Timing of Increasing Inequality
- 12. Explaining Increased Inequality In theory: two possible reasons: Increases in the dispersion of skills. Increase in the returns to skills . Note: Some skills are observable to researchers (education, experience), others are unobservable to researchers (motivation, charisma). We will start by looking at changes in the returns to observable skill . . .
- 13. Trend in Educational Wage Gap
- 14. Wage Growth by Demographic Group, 1963-1995 25.1 College 4.5 Some college 5.7 High school -4.4 Less than high school Education 17.1 Women 0.9 Men Percent Change in Real Wage Group
- 15. Changes in the Returns to Experience
- 16. What are residual wages? Education (X) Log Wage Regression Line Slope= β wage residual (u) α
- 17. Increasing Residual Wage Dispersion Education Log Wage Education Log Wage Over time, we have seen increasing residual wage dispersion.
- 18. Changes in Residual Wage Gap Residual Wage : wage after controlling for age, education, experience and region of residence.
- 19. Where Have Changes Occurred? Observable skill quantities ( X i =education, experience) Increasing spread in educational attainment Increasing spread in experience Returns to observable skill ( β ) Returns to unobservable skill ( u i ) Percentage Change in the 90 th -10 th Wage Differential Juhn, Murphy, Pierce 1993 .208 .128 .035 .373 1964-1988 Unobservable Skill Observed Skill Returns Observed Skill Quantities Total Change
- 20. Why Did Wage Inequality Increase? Demand-side factors Supply-side factors Institutional factors
- 21. Demand-Side Factors Relative Employment Of Skilled Workers Relative Wage Of Skilled Workers S D 0 e 0 w 0 D 1 w 1 Major Demand Factors Skill-Biased Technological Change Globalization and Trade Imports hurt less-skilled Exports benefit more-skilled
- 22. Supply-Side Factors Relative Employment Of Skilled Workers Relative Wage Of Skilled Workers S 0 D 0 e 0 w 0 Major Supply Factors Cohort size (i.e. the Baby Boomers) Female Labor Force Participation International Immigration Influx of low-skilled immigrants in the 1980s but not big enough to cause relative supply of skilled workers to fall. S 1 w 1
- 23. Shifts in Supply and Demand Relative Employment Of Skilled Workers Relative Wage Of Skilled Workers S 0 D 0 e 0 w 0 D 1 w* Demand shifts must outweigh supply shifts e* S 1
- 24. Institutional Factors: Industry Wage Differentials Fact: Workers in some industries earn more than workers in other industries. True even after controlling for observable worker differences. During the 1980s: The proportion of less-educated workers in low-paying industries The proportion of highly-educated workers in high-paying industries Also, industry wage differentials This might explain part of the reason why the returns to education appears to have increased.
- 25. Institutional Factors Decreases in Unionization Fact: Unions tend to increase wages by as much as 15%. Union membership for men 1973-74 = 30.8% Union membership for men 1993 = 18.7% Changes by Education: Less educated men = College graduates increased slightly. Thus, the decline in unionization for workers with less education may also explain part of the increase in the returns to education.
- 26. Institutional Factors: Decline in the Real Value of the Minimum Wage Real value of minimum wage has eroded over time. Less-educated workers most often earn minimum wage Could explain drop in wages of less educated relative to wages of more educated.