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Trends in U.S. Wage Inequality: Revising the Revisionists

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A recent "revisionist" literature characterizes the pronounced rise in U.S. wage inequality since 1980 as an "episodic" event of the first half of the 1980s driven by nonmarket factors (particularly a falling real minimum wage) and concludes that continued increases in wage inequality since the late 1980s substantially reflect the mechanical confounding effects of changes in labor force composition. Analyzing data from the Current Population Survey for 1963 to 2005, we find limited support for these claims. The slowing of the growth of overall wage inequality in the 1990s hides a divergence in the paths of upper-tail (90/50) inequality-which has increased steadily since 1980, even adjusting for changes in labor force composition-and lower-tail (50/10) inequality, which rose sharply in the first half of the 1980s and plateaued or contracted thereafter. Fluctuations in the real minimum wage are not a plausible explanation for these trends since the bulk of inequality growth occurs above the median of the wage distribution. Models emphasizing rapid secular growth in the relative demand for skills-attributable to skill-biased technical change-and a sharp deceleration in the relative supply of college workers in the 1980s do an excellent job of capturing the evolution of the college/high school wage premium over four decades. But these models also imply a puzzling deceleration in relative demand growth for college workers in the early 1990s, also visible in a recent "polarization" of skill demands in which employment has expanded in high-wage and low-wage work at the expense of middle-wage jobs. These patterns are potentially reconciled by a modified version of the skill-biased technical change hypothesis that emphasizes the role of information technology in complementing abstract (high-education) tasks and substituting for routine (middle-education) tasks. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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... In this context we observe changes in the development of the wage ratio Q90/Q50 (how the upper decile deviates from the median), which expresses the upper-tail inequality, and Q50/Q10 (how the lower decile deviates from the median), which expresses the lower-tail inequality. Autor, Katz and Kearney (2008) follow the development of wage inequality in the United States in the context of wage polarization in this way. ...
... The decrease in the trend of the ratio Q50/Q10 is evidently due to a relatively higher increase in wages in the lower decile of the wage distribution than the median wage, especially after 2014. The decline in the trend of Q50/Q10 is consistent in scope with the conclusions of Autor, Katz and Kearney (2008), who examined the development of wage inequality in the United States between 1980 and 2005. However, their results implied a massive increase in upper-tail inequality, i.e. a relatively large increase in the Q90/Q50 coefficient due to wage growth, especially in the upper decile (Q90), while in our case the Q90/Q50 coefficient is relatively stable. ...
... This results in a relatively rapid transfer not only of what is desirable, but also of what may be undesirable in terms of socio-economic consequences. Disproportionate growth in wage inequality may be undesirable, due to technological changes that are biased towards middle-skilled and middle-paid workers (Autor, Katz and Kearney, 2008;Mazzolari and Ragusa, 2013). ...
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