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Two Sides of the Same Coin: U.S. "Residual" Inequality and the Gender Gap

Author

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  • Marigee Bacolod

    (University of California-Irvine)

  • Bernardo S. Blum

    (University of Toronto)

Abstract

In this paper we show that the two major developments experienced by the US labor market - rising inequality and narrowing of the male-female wage gap - can be explained by a common source: the increase in price of cognitive skills and the decrease in price of motor skills. We obtain the price of a multidimensional vector of skills by combining a hedonic price framework with data on the skill requirements of jobs from the Dictionary of Occupational Titles (DOT) and workers’ wages from the CPS. We find that in the 1968-1990 period the returns to cognitive skills increased 4-fold and the returns to motor skills declined by 30%. Given that the top of the wage distribution of college and high school graduates is relatively well endowed with cognitive skills, these changes in skill prices explain up to 40% of the rise in inequality among college graduates and about 20% among high school graduates. In a similar way, because women were in occupations intensive in cognitive skills while men were in motor-intensive occupations, these skill price changes explain over 80% of the observed narrowing of the male-female wage gap.

Suggested Citation

  • Marigee Bacolod & Bernardo S. Blum, 2005. "Two Sides of the Same Coin: U.S. "Residual" Inequality and the Gender Gap," Working Papers 050617, University of California-Irvine, Department of Economics.
    • Handle: RePEc:irv:wpaper:050617
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    File URL: https://www.economics.uci.edu/files/docs/workingpapers/2005-06/Bacolod-17.pdf
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    References listed on IDEAS

    as
    1. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-245, May.
    2. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
    3. Casey B. Mulligan & Yona Rubinstein, 2004. "The Closing of the Gender Gap as a Roy Model Illusion," NBER Working Papers 10892, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Shintaro Yamaguchi, 2007. "Career and Skill Formation: A Dynamic Occupational Choice Model With Multidimensional Skills," 2007 Meeting Papers 729, Society for Economic Dynamics.
    2. Sandra E. Black & Alexandra Spitz-Oener, 2010. "Explaining Women's Success: Technological Change and the Skill Content of Women's Work," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 187-194, February.
    3. Erosa, Andres & Fuster, Luisa & Restuccia, Diego, 2016. "A quantitative theory of the gender gap in wages," European Economic Review, Elsevier, vol. 85(C), pages 165-187.

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