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Decomposing Wage Residuals: Unmeasured Skill or Statistical Artifact?

  • Suen, Wing

The decomposition of wage residuals into standard deviation and percentile ranks can be misleading because the two measures are not necessarily independent. With rising wage inequality, the mean percentile rank of low-wage groups will rise simply because more dispersed distributions have thicker tails. This interpretation is consistent with the observed stability of gender and racial wage gaps. In contrast, the unmeasured skill interpretation of wage residuals would predict widening wage gaps in the face of rising wage inequality, unless one posits an increase in the level of unobserved skill for women and blacks. Copyright 1997 by University of Chicago Press.

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File URL: http://dx.doi.org/10.1086/209872
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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 15 (1997)
Issue (Month): 3 (July)
Pages: 555-66

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Handle: RePEc:ucp:jlabec:v:15:y:1997:i:3:p:555-66
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  1. Finis Welch, 1969. "Linear Synthesis of Skill Distribution," Journal of Human Resources, University of Wisconsin Press, vol. 4(3), pages 311-327.
  2. Claudia Goldin & Robert A. Margo, 1991. "The Great Compression: The Wage Structure in the United States at Mid- Century," NBER Working Papers 3817, National Bureau of Economic Research, Inc.
  3. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
  4. Blau, Francine D & Kahn, Lawrence M, 1992. "The Gender Earnings Gap: Learning from International Comparisons," American Economic Review, American Economic Association, vol. 82(2), pages 533-38, May.
  5. Rosen, Sherwin, 1978. "Substitution and Division of Labour," Economica, London School of Economics and Political Science, vol. 45(179), pages 235-50, August.
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