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A Dynamic Equilibrium Model of the US Wage Structure, 1968-1996

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  • Matthew Johnson
  • Michael P. Keane

Abstract

We develop an equilibrium model of the US labor market, fit to Panel Study of Income Dynamics data from 1968-96. Our main innovation is a finer differentiation of types of labor than in prior work (i.e., by occupation, education, gender, and age). This lets us fit wage and employment patterns better than simpler models. We obtain a good fit to wages and occupational choices over the 29-year period while also explaining college attendance rates. We use the model to assess factors driving changes in the wage structure. Occupational demand shifts and shifts in demand for college labor and female labor within occupations are key factors.

Suggested Citation

  • Matthew Johnson & Michael P. Keane, 2013. "A Dynamic Equilibrium Model of the US Wage Structure, 1968-1996," Journal of Labor Economics, University of Chicago Press, vol. 31(1), pages 1-49.
  • Handle: RePEc:ucp:jlabec:doi:10.1086/666698
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    References listed on IDEAS

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    Cited by:

    1. Brant Abbott & Giovanni Gallipoli & Costas Meghir & Giovanni L. Violante, 2013. "Education Policy and Intergenerational Transfers in Equilibrium," Working Paper series 15_13, Rimini Centre for Economic Analysis.
    2. Christian Belzil & Marco Leonardi, 2013. "Risk Aversion and Schooling Decisions," Annals of Economics and Statistics, GENES, issue 111-112, pages 35-70.
    3. Gianluca Violante & Giovanni Gallipoli & Costas Meghir, 2005. "Education Decisions, Equilibrium Policies and Wages Dispersion," 2005 Meeting Papers 522, Society for Economic Dynamics.
    4. Claudia Olivetti & Barbara Petrongolo, 2014. "Gender gaps across countries and skills: Demand, supply and the industry structure," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 842-859, October.
    5. Osnat Lifshitz & Michael Keane & Zvi Eckstein, 2016. "Sources of Change in the Life-Cycle Decisions of American Men and Women: 1962-2014," 2016 Meeting Papers 918, Society for Economic Dynamics.
    6. Audra J. Bowlus & Chris Robinson, 2012. "Human Capital Prices, Productivity, and Growth," American Economic Review, American Economic Association, vol. 102(7), pages 3483-3515, December.
    7. Colas, Mark, 2018. "Dynamic Responses to Immigration," Working Papers 6, Federal Reserve Bank of Minneapolis, Opportunity and Inclusive Growth Institute.
    8. Carl Sanders & Christopher Taber, 2012. "Life-Cycle Wage Growth and Heterogeneous Human Capital," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 399-425, July.
    9. Suphanit Piyapromdee, 2017. "The Impact of Immigration on Wages, Internal Migration and Welfare," PIER Discussion Papers 69, Puey Ungphakorn Institute for Economic Research, revised Sep 2017.
    10. Caron, Justin & Fally, Thibault & Markusen, James R., 2017. "Per-Capita Income and the Demand for Skills," CEPR Discussion Papers 12077, C.E.P.R. Discussion Papers.
    11. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2010. "The Macroeconomic Implications of Rising Wage Inequality in the United States," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 681-722, August.
    12. Parey, Matthias, 2016. "Vocational Schooling versus Apprenticeship Training. Evidence from Vacancy Data," Annual Conference 2016 (Augsburg): Demographic Change 145655, Verein für Socialpolitik / German Economic Association.
    13. Manuel Fernández & Julián Messina, 2017. "Skill Premium, Labor Supply and Changes in the Structure of Wages in Latin America," IDB Publications (Working Papers) 8219, Inter-American Development Bank.
    14. Mennuni, Alessandro, 2013. "Labor Force Composition and Aggregate Fluctuations," Discussion Paper Series In Economics And Econometrics 1302, Economics Division, School of Social Sciences, University of Southampton.
    15. Capatina, Elena, 2014. "Skills and the evolution of wage inequality," Labour Economics, Elsevier, vol. 28(C), pages 41-57.
    16. Chris Taber & Nicolas Roys, 2017. "Skill Prices, Occupations and Changes in the Wage Structure," 2017 Meeting Papers 208, Society for Economic Dynamics.
    17. Shintaro Yamaguchi, 2012. "Tasks and Heterogeneous Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 1-53.
    18. Chiara Binelli, 2008. "Returns to Education and Increasing Wage Inequality in Latin America," Working Paper series 30_08, Rimini Centre for Economic Analysis.
    19. Lindsay Jacobs, 2015. "Occupational Choice, Retirement, and the Effects of Disability Insurance," Finance and Economics Discussion Series 2016-051, Board of Governors of the Federal Reserve System (U.S.).

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