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Understanding Increasing and Decreasing Wage Inequality

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Author Info
Andrew B. Bernard
J. Bradford Jensen

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Abstract

This paper uses data on inequality within U.S. states to test hypotheses about the sources of rising wage inequality during the 1970s and 1980s. State labor markets are found to respond to local demand shocks in the short and medium run and to national (industry) demand shocks only after long intervals. The measure of wage inequality employed in the paper is the (log) ratio of the weekly wage at the 90th percentile to that at the 10th percentile in the state after controlling for observable characteristics of the workers. Individual states are found to have very different levels and changes of inequality. For example, Pennsylvania and Georgia had the second lowest and ninth highest 90-10 ratios respectively in 1970. By 1990, Georgia's 90-10 ratio had fallen 4% while Pennsylvania's had risen 21%. This paper finds that changes in industrial composition, in particular the loss of durable manufacturing jobs, are strongly correlated with inequality increases.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6571.

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Date of creation: May 1998
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Handle: RePEc:nbr:nberwo:6571

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Find related papers by JEL classification:
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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.:

  1. Berman, E. & Bound, J. & Machin, S., 1997. "Implications of Skill-Biased Technological Change: International Evidence," Papers 25, Centre for Economic Performance & Institute of Economics.
    Other versions:
  2. David Neumark & William Wascher, 1992. "Employment effects of minimum and subminimum wages: Panel data on state minimum wage laws," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 46(1), pages 55-81, October.
  3. Fortin, Nicole M & Lemieux, Thomas, 1997. "Institutional Changes and Rising Wage Inequality: Is There a Linkage?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 75-96, Spring. [Downloadable!] (restricted)
  4. Hooker, Mark A & Knetter, Michael M, 1997. "The Effects of Military Spending on Economic Activity: Evidence from State Procurement Spending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 400-421, August.
  5. Barry T. Hirsch & David A. MacPherson, 1993. "Union membership and coverage files from the Current Population Surveys: Note," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 46(3), pages 574-578, April.
  6. George J. Borjas & Richard B. Freeman & Lawrence F. Katz, 1996. "Searching for the Effect of Immigration on the Labor Market," NBER Working Papers 5454, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Gottschalk, Peter, 1997. "Inequality, Income Growth, and Mobility: The Basic Facts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 21-40, Spring. [Downloadable!] (restricted)
  8. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change And Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1055-1089, November. [Downloadable!] (restricted)
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  9. 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. [Downloadable!] (restricted)
  10. Bernard, Andrew B. & Jensen, J. Bradford, 1997. "Exporters, skill upgrading, and the wage gap," Journal of International Economics, Elsevier, vol. 42(1-2), pages 3-31, February. [Downloadable!] (restricted)
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  11. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1992-1), pages 1-76. [Downloadable!]
  12. DiNardo, John E & Pischke, Jorn-Steffen, 1997. "The Returns to Computer Use Revisited: Have Pencils Changed the Wage Structure Too?," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 291-303, February.
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  13. Paul Krugman, 1995. "Technology, Trade, and Factor Prices," NBER Working Papers 5355, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. 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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Cited by:
(explanations, 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.)

  1. Andrew Bernard & Stephen Redding & Peter Schott, 2005. "Factor Price Equality and the Economies of the United States," Working Papers 05-21, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
    Other versions:
  2. Christopher H. Wheeler, 2004. "Industry localization and earnings inequality: evidence from U.S. manufacturing," Working Papers 2004-023, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  3. Tebaldi, Edinaldo & Kim, Jongsung, 2008. "Two Tales on the Returns to Education: The Impact of Trade on Wages," MPRA Paper 9698, University Library of Munich, Germany. [Downloadable!]
  4. Gordon H. Hanson & Matthew J. Slaughter, 1999. "The Rybczynski Theorem, Factor-Price Equalization, and Immigration: Evidence from U.S. States," NBER Working Papers 7074, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Alfonso Gambardella & David Ulph, 2002. "Technology, Entrepreneurship, And Inequality," LEM Papers Series 2002/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
  6. Jennifer M. Mellor & Jeffrey Milyo, 1999. "Re-Examining the Evidence of an Ecological Association between Income Inequality and Health," Discussion Papers Series, Department of Economics, Tufts University 9922, Department of Economics, Tufts University. [Downloadable!]
  7. Maskus, Keith E. & Otsuki, Tsunehiro & Wilson, John S., 2005. "The cost of compliance with product standards for firms in developing countries: an econometric study," Policy Research Working Paper Series 3590, The World Bank. [Downloadable!]
  8. Christopher H. Wheeler & Elizabeth A. La Jeunesse, 2007. "Neighborhood income inequality," Working Papers 2006-039, Federal Reserve Bank of St. Louis. [Downloadable!]
  9. Eiichi Tomiura, 2003. "Changing Economic Geography and Vertical Linkages in Japan," NBER Working Papers 9899, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Christopher H. Wheeler, 2004. "Cities, skills, and inequality," Working Papers 2004-020, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  11. Jeff Borland, 2000. "Economic Explanations of Earnings Distribution Trends in the International Literature and Application to New Zealand," Treasury Working Paper Series 00/16, New Zealand Treasury. [Downloadable!]
  12. Robin Leichenko & Julie Silva, 2003. "International Trade, Employment, and Earnings: Evidence from U.S. Rural Counties," Working Papers 03-12, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
    Other versions:
  13. Fredrik Andersson & Elizabeth E. Davis & Matthew L. Freedman & Julia I. Lane & Brian P. McCall & L. Kristin Sandusky, . "Decomposing the Sources of Earnings Inequality Assessing the Role of Reallocation," Working Papers 0106, Industrial Relations Center, University of Minnesota (Twin Cities Campus). [Downloadable!]
  14. Christopher H. Wheeler & Elizabeth A. La Jeunesse, 2006. "Trends in the distributions of income and human capital within metropolitan areas: 1980-2000," Working Papers 2006-055, Federal Reserve Bank of St. Louis. [Downloadable!]
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