The wage structure web
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The wage structure web

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The wage structure web The wage structure web Presentation Transcript

  • The Wage Structure
  • 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.
  • Basic Shape of the Wage Distribution
    • Positively skewed:
    Frequency Wage Human capital theory can explain the shape of this distribution.
  • Distribution of Ability Worried? http://www.iqtest.com/
  • 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
  • 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
  • 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.
  • Percent Change in Weekly Wage by Percentile, 1963-1995
  • Percent Change in Weekly Wage by Percentile, 1963-1995
  • Timing of Increasing Inequality
  • International Comparisons
  • 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 . . .
  • Trend in Educational Wage Gap
  • 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
  • Changes in the Returns to Experience
  • What are residual wages? Education (X) Log Wage Regression Line Slope= β wage residual (u) α
  • Increasing Residual Wage Dispersion Education Log Wage Education Log Wage Over time, we have seen increasing residual wage dispersion.
  • Changes in Residual Wage Gap Residual Wage : wage after controlling for age, education, experience and region of residence.
  • 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  
  • Why Did Wage Inequality Increase?
    • Demand-side factors
    • Supply-side factors
    • Institutional factors 
  • 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
  • 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
  • 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
  • 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.
  • 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.
  • 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.