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Decomposing Changes in the Distribution of Real Hourly Wages in the U.S

Author

Listed:
  • Ivan Fernandez-Val

    (Institute for Fiscal Studies and Boston University)

  • Franco Peracchi

    (Institute for Fiscal Studies)

  • Francis Vella

    (Institute for Fiscal Studies and Georgetown University)

  • Aico van Vuuren

    (Institute for Fiscal Studies)

Abstract

We analyze the sources of changes in the distribution of hourly wages in the United States using CPS data for the survey years 1976 to 2016. We account for the selection bias from the employment decision by modeling the distribution of annual hours of work and estimating a nonseparable model of wages which uses a control function to account for selection. This allows the inclusion of all individuals working positive hours and thus provides a fuller description of the wage distribution. We decompose changes in the distribution of wages into composition, structural and selection e?ects. Composition e?ects have increased wages at all quantiles but the patterns of change are generally determined by the structural e?ects. Evidence of changes in the selection e?ects only appear at the lower quantiles of the female wage distribution. These various components combine to produce a substantial increase in wage inequality.

Suggested Citation

  • Ivan Fernandez-Val & Franco Peracchi & Francis Vella & Aico van Vuuren, 2019. "Decomposing Changes in the Distribution of Real Hourly Wages in the U.S," CeMMAP working papers CWP61/19, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:cemmap:61/19
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    References listed on IDEAS

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    Cited by:

    1. Bernd Fitzenberger & Jakob Lazzer, 2022. "Changing selection into full-time work and its effect on wage inequality in Germany," Empirical Economics, Springer, vol. 62(1), pages 247-277, January.

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