Advanced Search
MyIDEAS: Login to save this paper or follow this series

Real Wage Inequality

Contents:

Author Info

  • Enrico Moretti

Abstract

A large literature has documented a significant increase in the difference between the wage of college graduates and high school graduates over the past 30 years. I show that from 1980 to 2000, college graduates have experienced relatively larger increases in cost of living, because they have increasingly concentrated in metropolitan areas that are characterized by a high cost of housing. When I deflate nominal wages using a location-specific CPI, I find that the difference between the wage of college graduates and high school graduates is lower in real terms than in nominal terms and has grown less. At least 22% of the documented increase in college premium is accounted for by spatial differences in the cost of living. The implications of this finding for changes in well-being inequality depend on why college graduates sort into expensive cities. Using a simple general equilibrium model of the labor and housing markets, I consider two alternative explanations. First, it is possible that the relative supply of college graduates increases in expensive cities because college graduates are increasingly attracted by amenities located in those cities. In this case, the higher cost of housing reflects consumption of desirable local amenities, and there may still be a significant increase in well-being inequality even if the increase in real wage inequality is limited. Alternatively, it is possible that the relative demand for college graduates increases in expensive cities due to shifts in the relative productivity of skilled labor. In this case, the relative increase in skilled workers’ standard of living is offset by the higher cost of living. The evidence indicates that changes in the geographical location of different skill groups are mostly driven by changes in their relative demand. I conclude that the increase in well-being disparities between 1980 and 2000 is smaller than the increase in nominal wage disparities that has been the focus of the previous literature.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w14370.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14370.

as in new window
Length:
Date of creation: Sep 2008
Date of revision:
Publication status: published as Enrico Moretti, 2013. "Real Wage Inequality," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 65-103, January.
Handle: RePEc:nbr:nberwo:14370

Note: LS
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. David H. Autor & Frank Levy & Richard J. Murnane, 2001. "The Skill Content of Recent Technological Change: An Empirical Exploration," NBER Working Papers 8337, National Bureau of Economic Research, Inc.
  2. Krupka, Douglas J., 2007. "Location-Specific Human Capital, Location Choice and Amenity Demand," IZA Discussion Papers 2987, Institute for the Study of Labor (IZA).
  3. David Autor & Lawrence Katz & Alan Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 756, Princeton University, Department of Economics, Industrial Relations Section..
  4. Bound, John & Holzer, Harry J, 2000. "Demand Shifts, Population Adjustments, and Labor Market Outcomes during the 1980s," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 18(1), pages 20-54, January.
  5. Katz, Lawrence F & Murphy, Kevin M, 1992. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(1), pages 35-78, February.
  6. Ian Dew-Becker & Robert J. Gordon, 2005. "Where Did Productivity Growth Go? Inflation Dynamics and the Distribution of Income," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2), pages 67-150.
  7. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, American Economic Association, vol. 82(3), pages 371-92, June.
  8. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(6), pages 1257-78, December.
  9. Claudia Goldin & Lawrence F. Katz, 2007. "Long-Run Changes in the U.S. Wage Structure: Narrowing, Widening, Polarizing," NBER Working Papers 13568, National Bureau of Economic Research, Inc.
  10. Ian Dew-Becker & Robert J. Gordon, 2005. "Where Did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income," NBER Working Papers 11842, National Bureau of Economic Research, Inc.
  11. Thomas Lemieux, 2007. "The Changing Nature of Wage Inequality," NBER Working Papers 13523, National Bureau of Economic Research, Inc.
  12. Thomas Lemieux, 2006. "Postsecondary Education and Increasing Wage Inequality," American Economic Review, American Economic Association, American Economic Association, vol. 96(2), pages 195-199, May.
  13. David Card & Thomas Lemieux, 2000. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," NBER Working Papers 7655, National Bureau of Economic Research, Inc.
  14. Michael Greenstone & Richard Hornbeck & Enrico Moretti, 2008. "Identifying Agglomeration Spillovers: Evidence from Million Dollar Plants," Working Paper Series, The Rimini Centre for Economic Analysis 36-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
  15. Jeff Grogger & Eric Eide, 1995. "Changes in College Skills and the Rise in the College Wage Premium," Journal of Human Resources, University of Wisconsin Press, vol. 30(2), pages 280-310.
  16. Joseph Gyourko & Christopher Mayer & Todd Sinai, 2013. "Superstar Cities," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 5(4), pages 167-99, November.
  17. Edward L. Glaeser & Joseph Gyourko, . "Urban Decline and Durable Housing," Zell/Lurie Center Working Papers, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania 382, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  18. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, American Economic Association, vol. 96(3), pages 461-498, June.
  19. Robert J. Gordon & Ian Dew-Becker, 2008. "Controversies about the Rise of American Inequality: A Survey," NBER Working Papers 13982, National Bureau of Economic Research, Inc.
  20. Gordon B. Dahl, 2002. "Mobility and the Return to Education: Testing a Roy Model with Multiple Markets," Econometrica, Econometric Society, Econometric Society, vol. 70(6), pages 2367-2420, November.
  21. Daniel S. Hamermesh, 1990. "A Genral Model of Dynamic Labor Demand," NBER Working Papers 3356, National Bureau of Economic Research, Inc.
  22. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  23. James Heckman & Lance Lockner & Christopher Taber, 1999. "Human capital formation and general equilibrium treatment effects: a study of tax and tuition policy," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 20(1), pages 25-40, March.
  24. James J. Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents," NBER Working Papers 6384, National Bureau of Economic Research, Inc.
  25. Yuichi Kitamura & William Johnson & Derek Neal, 2000. "Evaluating a Simple Method for Estimating Black-White Gaps in Median Wages," American Economic Review, American Economic Association, American Economic Association, vol. 90(2), pages 339-343, May.
  26. Enrico Moretti, 2002. "Estimating the Social Return to Higher Education: Evidence From Longitudinal and Repeated Cross-Sectional Data," NBER Working Papers 9108, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Beaudry, Paul & Green, David A. & Sand, Benjamin M., 2014. "Spatial equilibrium with unemployment and wage bargaining: Theory and estimation," Journal of Urban Economics, Elsevier, vol. 79(C), pages 2-19.
  2. Robert J. Gordon, 2009. "Misperceptions About the Magnitude and Timing of Changes in American Income Inequality," NBER Working Papers 15351, National Bureau of Economic Research, Inc.
  3. Thomas Kemeny, 2013. "Immigrant Diversity and Economic Development in Cities: A Critical Review," SERC Discussion Papers, Spatial Economics Research Centre, LSE 0149, Spatial Economics Research Centre, LSE.
  4. Gerald Carlino & William R. Kerr, 2014. "Agglomeration and Innovation," Harvard Business School Working Papers, Harvard Business School 15-007, Harvard Business School.
  5. Cinzia, Rienzo, 2010. "Real Wages, Wage Inequality and the Regional Cost-of-living in the UK," MPRA Paper 36390, University Library of Munich, Germany, revised Oct 2010.
  6. Lindley, Joanne & Machin, Stephen, 2013. "Spatial Changes in Labour Market Inequality," IZA Discussion Papers 7600, Institute for the Study of Labor (IZA).
  7. Shihe Fu & Stephen Ross, 2010. "Wage Premia in Employment Clusters: How Important is Worker Heterogeneity?," Working Papers, Human Capital and Economic Opportunity Working Group 2011-027, Human Capital and Economic Opportunity Working Group.
  8. Beach, Charles M., 2014. "What Has Happened to Middle-Class Earnings? Distributional Shifts in Earnings in Canada, 1970-2005," CLSSRN working papers, Vancouver School of Economics clsrn_admin-2014-13, Vancouver School of Economics, revised 26 Mar 2014.
  9. Suzanne Kok & Bas ter Weel, 2014. "Cities, Tasks and Skills," CPB Discussion Paper 269, CPB Netherlands Bureau for Economic Policy Analysis.
  10. Veronica Guerrieri & Daniel Hartley & Erik Hurst, 2012. "Within-city variation in urban decline: the case of Detroit," Working Paper 1205, Federal Reserve Bank of Cleveland.
  11. Edward L. Glaeser & Joshua D. Gottlieb, 2009. "The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States," NBER Working Papers 14806, National Bureau of Economic Research, Inc.
  12. Andrea Brandolini & Alfonso Rosolia & Roberto Torrini, 2011. "The distribution of employees’ labour earnings in the European Union: Data, concepts and first results," Working Papers 198, ECINEQ, Society for the Study of Economic Inequality.
  13. Kok, Suzanne & ter Weel, Bas, 2014. "Cities, Tasks and Skills," IZA Discussion Papers 8053, Institute for the Study of Labor (IZA).
  14. repec:wyi:journl:002155 is not listed on IDEAS
  15. Monaco, Kristen & Habermalz, Steffen, 2011. "Wage Inequality of U.S. Truck Drivers," IZA Discussion Papers 5444, Institute for the Study of Labor (IZA).
  16. Leonardi, Marco, 2010. "The Effect of Product Demand on Inequality: Evidence from the US and the UK," IZA Discussion Papers 5011, Institute for the Study of Labor (IZA).

Lists

This item is featured on the following reading lists or Wikipedia pages:
  1. Real Wage Inequality (AEJ:AE 2013) in ReplicationWiki

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:14370. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.