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Decomposing Wage Residuals: Unmeasured Skill or Statistical Artifact?

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Suen, Wing

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Abstract

The decomposition of wage residuals into standard deviation and percentile ranks can be misleading because the two measures are not necessarily independent. With rising wage inequality, the mean percentile rank of low-wage groups will rise simply because more dispersed distributions have thicker tails. This interpretation is consistent with the observed stability of gender and racial wage gaps. In contrast, the unmeasured skill interpretation of wage residuals would predict widening wage gaps in the face of rising wage inequality, unless one posits an increase in the level of unobserved skill for women and blacks. Copyright 1997 by University of Chicago Press.

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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 15 (1997)
Issue (Month): 3 (July)
Pages: 555-66
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Handle: RePEc:ucp:jlabec:v:15:y:1997:i:3:p:555-66

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  3. Edin, Per-Anders & Richardson, Katarina, 1999. "Swimming with the tide: solidarity wage policy and the gender earnings gap," Working Paper Series 1999:3, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
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  10. Shoshana Neuman & Ronald Oaxaca, 2004. "Wage Decompositions with Selectivity-Corrected Wage Equations: A Methodological Note," Journal of Economic Inequality, Springer, vol. 2(1), pages 3-10, April. [Downloadable!] (restricted)
  11. Bruce Weinberg, 1998. "Computer Use and the Demand for Women Workers," Working Papers 98-06, Ohio State University, Department of Economics. [Downloadable!]
  12. Yolanda Pena-Boquete, 2006. "A Comparative Analysis of the Evolution of Gender Wage Discrimination: Spain Versus Galicia," ERSA conference papers ersa06p340, European Regional Science Association. [Downloadable!]
  13. Amy Y.C. Liu, 2003. "The Gender wage gap in Vietnam, 1993–1998," Development Economics Working Papers 595, East Asian Bureau of Economic Research. [Downloadable!]
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