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Understanding Increasing and Decreasing Wage Inequality

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  • Andrew B. Bernard
  • J. Bradford Jensen

Abstract

This paper uses data on inequality within U.S. states to test hypotheses about the sources of rising wage inequality during the 1970s and 1980s. State labor markets are found to respond to local demand shocks in the short and medium run and to national (industry) demand shocks only after long intervals. The measure of wage inequality employed in the paper is the (log) ratio of the weekly wage at the 90th percentile to that at the 10th percentile in the state after controlling for observable characteristics of the workers. Individual states are found to have very different levels and changes of inequality. For example, Pennsylvania and Georgia had the second lowest and ninth highest 90-10 ratios respectively in 1970. By 1990, Georgia's 90-10 ratio had fallen 4% while Pennsylvania's had risen 21%. This paper finds that changes in industrial composition, in particular the loss of durable manufacturing jobs, are strongly correlated with inequality increases.

Suggested Citation

  • Andrew B. Bernard & J. Bradford Jensen, 1998. "Understanding Increasing and Decreasing Wage Inequality," NBER Working Papers 6571, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6571
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    Cited by:

    1. Robin Leichenko & Julie Silva, 2004. "International Trade, Employment and Earnings: Evidence from US Rural Counties," Regional Studies, Taylor & Francis Journals, vol. 38(4), pages 355-374.
    2. Christopher H. Wheeler, 2007. "Industry localisation and earnings inequality: Evidence from U.S. manufacturing," Papers in Regional Science, Wiley Blackwell, vol. 86(1), pages 77-100, March.
    3. Fredrik Andersson & Elizabeth E. Davis & Matthew L. Freedman & Julia I. Lane & Brian P. Mccall & Kristin Sandusky, 2012. "Decomposing the Sources of Earnings Inequality: Assessing the Role of Reallocation," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(4), pages 779-810, October.
    4. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2001. "Factor Price Equality and the Economies of the United States," NBER Working Papers 8068, National Bureau of Economic Research, Inc.
    5. Elizabeth A. Freund & Irwin L. Morris, 2005. "The Lottery and Income Inequality in the States," Social Science Quarterly, Southwestern Social Science Association, vol. 86(s1), pages 996-1012.
    6. James K. Galbraith & J. Travis Hale, 2008. "State Income Inequality and Presidential Election Turnout and Outcomes," Social Science Quarterly, Southwestern Social Science Association, vol. 89(4), pages 887-901.
    7. Nicolas Fleury & Fabrice Gilles, 2012. "MOBILITES INTERGENERATIONNELLES DE CAPITAL HUMAIN ET RESTRUCTURATIONS INDUSTRIELLES. UNE EVALUATION POUR LE CAS DE LA France, 1946-1999," Working Papers hal-00988949, HAL.
    8. Jennifer M. Mellor & Jeffrey Milyo, 1999. "Re-Examining the Evidence of an Ecological Association between Income Inequality and Health," Discussion Papers Series, Department of Economics, Tufts University 9922, Department of Economics, Tufts University.
    9. Christopher H. Wheeler & Elizabeth A. La Jeunesse, 2007. "Neighborhood income inequality," Working Papers 2006-039, Federal Reserve Bank of St. Louis.
    10. Tomiura, Eiichi, 2003. "Changing economic geography and vertical linkages in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 561-581, December.
    11. Christopher H. Wheeler, 2005. "Cities, Skills, and Inequality," Growth and Change, Wiley Blackwell, vol. 36(3), pages 329-353.
    12. repec:spr:scient:v:58:y:2003:i:2:d:10.1023_a:1026292711921 is not listed on IDEAS
    13. Edinaldo Tebaldi & Jongsung Kim, 2010. "Two Tales on the Returns to Education: The Impact of Trade on Wages," Review of Development Economics, Wiley Blackwell, vol. 14(4), pages 768-782, November.
    14. Gordon H. Hanson & Matthew J. Slaughter, 1999. "The Rybczynski Theorem, Factor-Price Equalization, and Immigration: Evidence from U.S. States," NBER Working Papers 7074, National Bureau of Economic Research, Inc.
    15. Maskus, Keith E. & Otsuki, Tsunehiro & Wilson, John S., 2005. "The cost of compliance with product standards for firms in developing countries: an econometric study," Policy Research Working Paper Series 3590, The World Bank.
    16. Christopher H. Wheeler & Elizabeth A. La Jeunesse, 2006. "Trends in the distributions of income and human capital within metropolitan areas: 1980-2000," Working Papers 2006-055, Federal Reserve Bank of St. Louis.
    17. Alfonso Gambardella & David Ulph, 2002. "Technology, Entrepreneurship, And Inequality," LEM Papers Series 2002/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    18. Evans, Peter & Stavetieg, Sarah, 2009. "The Changing Structure of Employment in Contemporary China," Institute for Research on Labor and Employment, Working Paper Series qt62c9905n, Institute of Industrial Relations, UC Berkeley.
    19. Jeff Borland, 2000. "Economic Explanations of Earnings Distribution Trends in the International Literature and Application to New Zealand," Treasury Working Paper Series 00/16, New Zealand Treasury.
    20. Simon Burgess & Julia Lane & Kevin McKinney, 2009. "Matching, Reallocation and Changes in Earnings Dispersion," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 91-110, February.

    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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