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Jobs, Workers and Changes in Earnings Dispersion

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  • Burgess, Simon
  • Lane, Julia
  • Stevens, David

Abstract

The ‘fractal’ nature of the rise in earnings dispersion is one of its key features and remains a puzzle. This paper offers a new perspective on the causes of changes in earnings dispersion, focusing on the role of labour reallocation. Once we drop the assumption that all firms pay a given worker the same, the allocation of workers to firms matters for the dispersion of earnings. This perspective highlights two new factors that can affect the dispersion of earnings: rates of job and worker reallocation, and the nature of the process allocating workers to jobs. We set out a framework capturing this idea and quantify the impact of reallocation on earnings dispersion, using a dataset which comprises almost the universe of workers and the universe of employers in Maryland. We show that these factors have potentially large effects in general on earnings dispersion. In the case of Maryland over the period 1985–94, the changing allocation of workers to jobs played a significant role in explaining movements in the dispersion of earnings.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1714.

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Date of creation: Oct 1997
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Handle: RePEc:cpr:ceprdp:1714

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Keywords: Allocation of Workers; Earnings Inequality; Matched Worker-firm Panels; Within-group Inequality;

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References

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  1. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1992. "Earnings losses of displaced workers," Working Paper Series, Macroeconomic Issues 92-28, Federal Reserve Bank of Chicago.
  2. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues 91-5, Federal Reserve Bank of Chicago.
  3. Topel, Robert H & Ward, Michael P, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 439-79, May.
  4. Parsons, Donald O., 1987. "The employment relationship: Job attachment, work effort, and the nature of contracts," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 14, pages 789-848 Elsevier.
  5. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Universite de Montreal, Departement de sciences economiques.
  6. Heckman, James J & Honore, Bo E, 1990. "The Empirical Content of the Roy Model," Econometrica, Econometric Society, vol. 58(5), pages 1121-49, September.
  7. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  8. David Card & Thomas Lemieux, 1993. "Wage Dispersion, Returns to Skill, and Black-White Wage Differentials," Working Papers 691, Princeton University, Department of Economics, Industrial Relations Section..
  9. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
  10. Burgess, Simon & Lane, Julia & Stevens, David, 2000. "Job Flows, Worker Flows, and Churning," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 473-502, July.
  11. Lane, Julia & Stevens, David & Burgess, Simon, 1996. "Worker and job flows," Economics Letters, Elsevier, vol. 51(1), pages 109-113, April.
  12. Heckman, James J & Sedlacek, Guilherme L, 1990. "Self-selection and the Distribution of Hourly Wages," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages S329-63, January.
  13. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
  14. McKinley L. Blackburn & David Neumark, 1991. "Omitted-Ability Bias and the Increase in the Return to Schooling," NBER Working Papers 3693, National Bureau of Economic Research, Inc.
  15. Steven J. Davis & John Haltiwanger, 1995. "Employer Size and The Wage Structure in U.S. Manufacturing," NBER Working Papers 5393, National Bureau of Economic Research, Inc.
  16. Murphy, Kevin M & Welch, Finis, 1992. "The Structure of Wages," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 285-326, February.
  17. Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1077-1125, December.
  18. Erica L. Groshen, 1988. "Why do wages vary among employers?," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 19-38.
  19. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
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Cited by:
  1. Anthony B. Atkinson, 2000. "The Changing Distribution of Income: Evidence and Explanations," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 3-18, 02.
  2. Ramos, Xavier, 2001. "The dynamics of individual male earnings in Great Britain: 1991-1999," ISER Working Paper Series 2001-15, Institute for Social and Economic Research.
  3. Simon Burgess, 1999. "The Reallocation of Labour: An International Comparison Using Job Tenure," CEP Discussion Papers dp0416, Centre for Economic Performance, LSE.

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