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Why Has Inequality in Weekly Earnings Increased in Canada?

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  • Morissette, Rene
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    Abstract

    Inequality in weekly earnings increased in the eighties in Canada. The growth in inequality occurred in conjunction with three facts. First, real hourly wages of young workers dropped more than 10%. Second, the percentage of employees working 35-40 hours per week in their main job fell and the fraction of employees working 50 hours or more per week rose. Third, there was a growing tendency for highly paid workers to work long workweeks. We argue that any set of explanations of the increase in weekly earnings inequality must reconcile these three facts. Sectoral changes in the distribution of employment by industry and union status explain roughly 30% of the rise in inequality. The reduction in real minimum wages and the decline of average firm size explain very little of the growth in age-earnings differentials. Skill-biased technological change could have increased both the dispersion of hourly wages and the dispersion of weekly hours of work and thus, is consistent a priori with the movements observed. Yet other factors may have played an equally important - if not more important - role. The growth in competitive pressures, possible shifts in the bargaining power (between firms and labour) towards firms, the greater locational mobility of firms, the increase in Canada's openness to international trade, the rise in fixed costs of labour and possibly in training costs may be major factors behind the growth in weekly earnings inequality in Canada.

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    Bibliographic Info

    Paper provided by Statistics Canada, Analytical Studies Branch in its series Analytical Studies Branch Research Paper Series with number 1995080e.

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    Date of creation: 30 Jul 1995
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    Handle: RePEc:stc:stcp3e:1995080e

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    Keywords: Globalization and the labour market; Labour; Wages; salaries and other earnings;

    References

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    1. Richard B. Freeman, 1991. "How Much Has De-Unionisation Contributed to the Rise in Male Earnings Inequality?," NBER Working Papers 3826, National Bureau of Economic Research, Inc.
    2. Freeman, Richard Barry, 1984. "Longitudinal Analyses of the Effects of Trade Unions," Scholarly Articles 4631951, Harvard University Department of Economics.
    3. W. Craig Riddell, 1993. "Unionization in Canada and the United States: A Tale of Two Countries," NBER Chapters, in: Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, pages 109-148 National Bureau of Economic Research, Inc.
    4. Murphy, Kevin M & Welch, Finis, 1992. "The Structure of Wages," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 285-326, February.
    5. Beach, C.M. & Slotsve, G.A., 1994. "Polarization of Earnings in the Canadian Labour Market: A Non-Microdata Approach," Working Papers 17, John Deutsch Institute for the Study of Economic Policy.
    6. Doiron, Denise J & Barrett, Garry F, 1996. "Inequality in Male and Female Earnings: The Role of Hours and Wages," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 410-20, August.
    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. Richard B. Freeman & Karen Needels, 1991. "Skill Differentials in Canada in an Era of Rising Labor Market Inequality," NBER Working Papers 3827, National Bureau of Economic Research, Inc.
    9. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
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    Cited by:
    1. Paul Beaudry & David Green, 1997. "Cohort Patterns in Canadian Earnings: Assessing the Role of Skill Premia in Inequality Trends," NBER Working Papers 6132, National Bureau of Economic Research, Inc.
    2. Picot, Garnett & Wannell, Ted, 1997. "Une enquete experimentale canadienne visant a etablir le lien entre les pratiques au lieu de travail et la condition des employes : raisons de sa necessite et description de son fonctionnement," Direction des etudes analytiques : documents de recherche 1997100f, Statistics Canada, Direction des etudes analytiques.
    3. Drolet, Marie & Morissette, Rene, 1997. "Working More? Working Less? What Do Canadian Workers Prefer?," Analytical Studies Branch Research Paper Series 1997104e, Statistics Canada, Analytical Studies Branch.
    4. Zakhilwal, Omar, 2001. "The Impact of International Trade on the Wages of Canadians," Analytical Studies Branch Research Paper Series 2001156e, Statistics Canada, Analytical Studies Branch.
    5. Drolet, Marie & Morissette, Rene, 1998. "Computers, Fax Machines and Wages in Canada: What Really Matters?," Analytical Studies Branch Research Paper Series 1998126e, Statistics Canada, Analytical Studies Branch.
    6. Heisz, Andrew & Larochelle-Cote, Sebastien, 2003. "Working Hours in Canada and the United States," Analytical Studies Branch Research Paper Series 2003209e, Statistics Canada, Analytical Studies Branch.
    7. Larochelle-Cote, Sebastien & Heisz, Andrew, 2006. "Summary Of: Work Hours Instability in Canada," Analytical Studies Branch Research Paper Series 2006279e, Statistics Canada, Analytical Studies Branch.
    8. Picot, Garnett & Wannell, Ted, 1997. "An Experimental Canadian Survey that Links Workplace Practices and Employee Outcomes: Why it is Needed and How it Works," Analytical Studies Branch Research Paper Series 1997100e, Statistics Canada, Analytical Studies Branch.
    9. Picot, Garnett, 1998. "What is Happening to Earnings, Inequality and Youth Wages in the 1990s?," Analytical Studies Branch Research Paper Series 1998116e, Statistics Canada, Analytical Studies Branch.
    10. Susan Johnson & Peter Kuhn, 2004. "Increasing Male Earnings Inequality in Canada and the United States, 1981­1997: The Role of Hours Changes versus Wage Changes," Canadian Public Policy, University of Toronto Press, vol. 30(2), pages 155-176, June.
    11. Urvashi Dhawan-Biswal, 2002. "Consumption and Income Inequality: The Case of Atlantic Canada from 1969­1996," Canadian Public Policy, University of Toronto Press, vol. 28(4), pages 513-537, December.
    12. Larochelle-Cote, Sebastien & Heisz, Andrew, 2006. "Work Hours Instability in Canada," Analytical Studies Branch Research Paper Series 2006278e, Statistics Canada, Analytical Studies Branch.
    13. Berube, Charles & Morissette, Rene, 1996. "Longitudinal Aspects of Earnings Inequality in Canada," Analytical Studies Branch Research Paper Series 1996094e, Statistics Canada, Analytical Studies Branch.

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