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Trends in U.S. Wage Inequality: Re-Assessing the Revisionists

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David H. Autor
Lawrence F. Katz
Melissa S. Kearney

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Abstract

A recent "revisionist " literature characterizes the pronounced rise in U.S. wage inequality since 1980 as an "episodic " event of the first-half of the 1980s driven by non-market factors (particularly a falling real minimum wage) and concludes that continued increases in wage inequality since the late 1980s substantially reflect the mechanical confounding effects of changes in labor force composition. Analyzing data from the Current Population Survey for 1963 to 2005, we find limited support for these claims. The slowing of the growth of overall wage inequality in the 1990s hides a divergence in the paths of upper-tail (90/50) inequality -- which has increased steadily since 1980, even adjusting for changes in labor force composition -- and lower tail (50/10) inequality, which rose sharply in the first-half of the 1980s and plateaued or contracted thereafter. Fluctuations in the real minimum wage are not a plausible explanation for these trends since the bulk of inequality growth occurs above the median of the wage distribution. Models emphasizing rapid secular growth in the relative demand for skills -- attributable to skill-biased technical change -- and a sharp deceleration in the relative supply of college workers in the 1980s do an excellent job of capturing the evolution of the college/high-school wage premium over four decades. But these models also imply a puzzling deceleration in relative demand growth for college workers in the early 1990s, also visible in a recent "polarization" of skill demands in which employment has expanded in high-wage and low-wage work at the expense of middle-wage jobs. These patterns are potentially reconciled by a modified version of the skill-biased technical change hypothesis that emphasizes the role of information technology in complementing abstract (high-education) tasks and substituting for routine (middle-education) tasks.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11627.

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Date of creation: Sep 2005
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Handle: RePEc:nbr:nberwo:11627

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Find related papers by JEL classification:
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
D3 - Microeconomics - - Distribution
O3 - Economic Development, Technological Change, and Growth - - Technological Change

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  32. 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. [Downloadable!] (restricted)
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  34. Berman, Eli & Bound, John & Machin, Stephen, 1997. "Implications of Skill-Biased Technological Change: International Evidence," Working Paper Series 486, Research Institute of Industrial Economics.
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  35. David Card & John E. DiNardo, 2002. "Skill Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," NBER Working Papers 8769, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  36. Claudia Goldin & Lawrence F. Katz, 2007. "The Race between Education and Technology: The Evolution of U.S. Educational Wage Differentials, 1890 to 2005," NBER Working Papers 12984, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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