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Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?

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Author Info
Thomas Lemieux

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Abstract

This paper shows that a large fraction of the 1973-2003 growth in residual wage inequality is due to composition effects linked to the secular increase in experience and education, two factors associated with higher within-group wage dispersion. The level and growth in residual wage inequality are also overstated in the March Current Population Survey (CPS) because, unlike the May or Outgoing Rotation Group (ORG) CPS, it does not measure directly the hourly wages of workers paid by the hour. The magnitude and timing of the growth in residual wage inequality provide little evidence of a pervasive increase in the demand for skill due to skill-biased technological change. (JEL J31)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 3 (June)
Pages: 461-498
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Handle: RePEc:aea:aecrev:v:96:y:2006:i:3:p:461-498

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  1. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March. [Downloadable!] (restricted)
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  2. Philippe Aghion, 2002. "Schumpeterian Growth Theory and the Dynamics of Income Inequality," Econometrica, Econometric Society, vol. 70(3), pages 855-882, May. [Downloadable!] (restricted)
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