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Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?

  • Thomas Lemieux

This paper shows that a large fraction of the 1973-2003 growth in residual wage inequality is due to composition effects linked to the secular increase in experience and education, two factors associated with higher within-group wage dispersion. The level and growth in residual wage inequality are also overstated in the March Current Population Survey (CPS) because, unlike the May or Outgoing Rotation Group (ORG) CPS, it does not measure directly the hourly wages of workers paid by the hour. The magnitude and timing of the growth in residual wage inequality provide little evidence of a pervasive increase in the demand for skill due to skill-biased technological change. (JEL J31)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 3 (June)
Pages: 461-498

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:3:p:461-498
Note: DOI: 10.1257/aer.96.3.461
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  1. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  2. Philippe Aghion, 2002. "Schumpeterian Growth Theory and the Dynamics of Income Inequality," Econometrica, Econometric Society, vol. 70(3), pages 855-882, May.
  3. Aghion, Philippe, 2002. "Schumpeterian Growth Theory and the Dynamics of Income Inequality," Scholarly Articles 3350067, Harvard University Department of Economics.
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