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Jobs, Workers and Changes in Earnings Dispersion

  • Burgess, Simon
  • Lane, Julia
  • Stevens, David

The ‘fractal’ nature of the rise in earnings dispersion is one of its key features and remains a puzzle. This paper offers a new perspective on the causes of changes in earnings dispersion, focusing on the role of labour reallocation. Once we drop the assumption that all firms pay a given worker the same, the allocation of workers to firms matters for the dispersion of earnings. This perspective highlights two new factors that can affect the dispersion of earnings: rates of job and worker reallocation, and the nature of the process allocating workers to jobs. We set out a framework capturing this idea and quantify the impact of reallocation on earnings dispersion, using a dataset which comprises almost the universe of workers and the universe of employers in Maryland. We show that these factors have potentially large effects in general on earnings dispersion. In the case of Maryland over the period 1985–94, the changing allocation of workers to jobs played a significant role in explaining movements in the dispersion of earnings.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1714.

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Date of creation: Oct 1997
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Handle: RePEc:cpr:ceprdp:1714
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  1. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August.
  2. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Universite de Montreal, Departement de sciences economiques.
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  6. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation by Skill," NBER Working Papers 5718, National Bureau of Economic Research, Inc.
  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. Card, David & Lemieux, Thomas, 1996. "Wage dispersion, returns to skill, and black-white wage differentials," Journal of Econometrics, Elsevier, vol. 74(2), pages 319-361, October.
  9. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
  10. Simon Burgess & Julia Lane & David Stevens, 1996. "Job Flows, Worker Flows and Churning," Labor and Demography 9604004, EconWPA.
  11. Parsons, Donald O., 1987. "The employment relationship: Job attachment, work effort, and the nature of contracts," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 14, pages 789-848 Elsevier.
  12. Richard J. Murnane & John B. Willett & Frank Levy, 1995. "The Growing Importance of Cognitive Skills in Wage Determination," NBER Working Papers 5076, National Bureau of Economic Research, Inc.
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  14. Heckman, James J & Sedlacek, Guilherme L, 1990. "Self-selection and the Distribution of Hourly Wages," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages S329-63, January.
  15. Louis S. Jacobson & Robert J. LaLonde & Daniel Sullivan, 1992. "Earnings Losses of Displaced Workers," Upjohn Working Papers and Journal Articles 92-11, W.E. Upjohn Institute for Employment Research.
  16. Lane, Julia & Stevens, David & Burgess, Simon, 1996. "Worker and job flows," Economics Letters, Elsevier, vol. 51(1), pages 109-113, April.
  17. Robert H. Topel & Michael P. Ward, 1988. "Job Mobility and the Careers of Young Men," NBER Working Papers 2649, National Bureau of Economic Research, Inc.
  18. Erica L. Groshen, 1988. "Why do wages vary among employers?," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 19-38.
  19. Steven J. Davis & John Haltiwanger, 1995. "Employer Size and The Wage Structure in U.S. Manufacturing," NBER Working Papers 5393, National Bureau of Economic Research, Inc.
  20. 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.
  21. Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1077-1125, December.
  22. Steve J. Davis & John Haltiwanger, 1991. "Wage Dispersion Between and Within U.S. Manufacturing Plants, 1963-1986," NBER Working Papers 3722, National Bureau of Economic Research, Inc.
  23. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
  24. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  25. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-20.
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