Working Paper: NBER ID: w13568
Authors: Claudia Goldin; Lawrence F. Katz
Abstract: The U.S. wage structure evolved across the last century: narrowing from 1910 to 1950, fairly stable in the 1950s and 1960s, widening rapidly during the 1980s, and "polarizing" since the late 1980s. We document the spectacular rise of U.S. wage inequality after 1980 and place recent changes into a century-long historical perspective to understand the sources of change. The majority of the increase in wage inequality since 1980 can be accounted for by rising educational wage differentials, just as a substantial part of the decrease in wage inequality in the earlier era can be accounted for by decreasing educational wage differentials.
Although skill-biased technological change has generated rapid growth in the relative demand for more-educated workers for at least the past century, increases in the supply of skills, from rising educational attainment of the U.S. work force, more than kept pace for most of the twentieth century. Since 1980, however, a sharp decline in skill supply growth driven by a slowdown in the rise of educational attainment of successive U.S. born cohorts has been a major factor in the surge in educational wage differentials. Polarization set in during the late 1980s with employment shifts into high- and low-wage jobs at the expense of the middle leading to rapidly rising upper tail wage inequality but modestly falling lower tail wage inequality.
Keywords: wage structure; wage inequality; educational wage differentials; skill-biased technological change
JEL Codes: J2; J24; J31; N32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| educational attainment (I21) | wage structure changes (J31) |
| rising educational wage differentials (J31) | increase in wage inequality (J31) |
| declining skill supply growth (J24) | increased wage inequality (J31) |
| skill-biased technological change (J24) | demand for more-educated workers (J24) |
| returns to education (I26) | variance of log hourly wages (J31) |