Labor Market Friction

8/9/2019 Labor Market Friction

1/27

The Evolution of US EarningsInequality: 1961 - 2001

Zvi Eckstein and Eva Nagypal

Federal Reserve Bank of Minneapolis Quarterly Review

Vol. 28, No. 2, December 2004, pp. 1029


2/27

Goals

Review of the main evidence on the evolution of

earnings (level and inequality) and employment from

1961 to 2002.

What are the main factors behind the increase in

inequality? Education, Occupation, marketsegmentation: sex , race, occupation, skills. Or

unobserved.

Is it skilled biased technical change?

(others; trade, demographics, unions, Min-W)

Or/and Is it change in the sorting into jobs(occupations)?


3/27


4/27

Outline

Earnings:Growth and Inequality

Education: The Case for Skill-Biased Technical Change

Occupations: Has There Been a Skill Bias?

Regressions: Education, Occupation, or Unobservables?

Labor Supply: AGender Hypothesis?


5/27

Figure 1: Index of compensation and wage and accruals per full-time employee from NIPA,

and index of mean and median wage of full-time full-year workers age 22-65 from CPS

80

100

120

140

160

180

1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

compensation from NIPA

wages and salary accruals from NIPA

mean wage from CPSmedian wage from CPS


6/27

Figure 2: Index of mean / median of real wage of

full-time full-year men / women age 22 - 65

70

100

130

160

190

220

250

1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

women - mean

women - median

men - mean

men - median

90

10 0

11 0

12 0

13 0

1995 1998 2001

women - mean

men - mean


7/27

Figure 3 a ard devia ion of log wages

of full-fime full-yearmen and women age22-65

0.35

0.4

0.45

0.5

0.55

0.6

0.65

0.7

0.75

1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

men

omen


8/27

Figure 4: Index of real wages of full-t ime full-year

men age 22-65 by specific percentiles

60

80

100

120

140

160

180

200

220

1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

perc 90

perc 75

perc 50

perc 25

perc 10


9/27

Figure 5: Index of real wages of full-time full-year

women age22-65 by s ecific percentiles

50

70

90

110

130

150

170

1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

pe c 90

pe c 75

pe c 50

pe c 25

pe c 10


10/27

Figure 6: Index of mean of re al wages of

full-time full-year men age 22 - 65 by education group

80

100

120

140

160

180

200

220

240

1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002

PGCG

SC

HSG

HSD


11/27

Figure 7: Index ofmean of real wage of

full-time full-year women age22 - 65 by education group

80

100

120

140

160

180

200

220

240

1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002


12/27

Figure 8: Educational composition of employed men age 22-65

0%

10%

20%

30%

40%

50%

1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003

HSD

HSGSC

CG

PG


13/27

Figure 9: Educational composition ofemployed women age22-65

0%

10%

20%

30%

40%

50%

1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003


14/27

Figure 10a: Occupational composition of male full-t ime full-year worke rs

0%

10%

20%

30%

40%

50%

60%

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

professional

white collar

blue collar


15/27

Figure 10b: Occupational composition of female full -time full-year workers

0%

10%

20%

30%

40%

50%

60%

70%

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

professional

white collar

blue collar


16/27

Figure 11: Mean wages by occupation groups for men

90

100

110

120

130

140

150

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

professional

white collar

blue collar


17/27

Figure12: Mean wages by occupation groups for women

80

90

100

110

120

130

140

150

160

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

p o essona

h e co a

b ue c o a


18/27

Figure 13: Coefficient on educational dummies in the Mincerian wage regre ssion for men

with and without the inclusion of occupation dummies

-40%

-20%

0%

20%

40%

60%

80%

100%

1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999

PC

PC with occ

CG

CG with occ

SC

SC with occ

HSD

HSD with occ


19/27

Figure 14: Coefficient on educational dummies in the Mincerian wage regre ssion for women with and without the

inclusion of occupation dummies

-40%

-20%

0%

20%

40%

60%

80%

100%

1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999

PC

PC with occ

CG

CG with occ

SC

SC with occ

HSD

HSD with occ


20/27

Figure 15: Coefficient on experience in the Mincerian wage regression


0%

1%

2%

3%

4%

5%

6%

1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999

Men

Men with occ

Women

Women with occ


21/27

Figure 16: Coeff icient on occupation dummies in the Mincerian wage regre ssion

-10%

0%

10%

20%

30%

40%

50%

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

Professional men

Professional women

White collar men

White collar women


22/27

Figure17: Standard deviation of residuals fromMincerian wage regression


0.3

0.35

0.4

0.45

0.5

0.55

0.6

0.65

1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999

Menomen

Men h occ

omen h occ


23/27

Figure18: Labor force participation (left axis)and unemployment rate (right axis)

ofmen and women age22-65

0%

20%

40%

60%

80%

100%

1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

men pa c pa on

omen pa c pa on

men unemp oymen

omen unemp oymen


24/27

Figure 19: Labor force participation rate of men age 22-65

by educational group

60%

65%

70%

75%

80%

85%

90%

95%

100%

1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003

PG

CG

SC

HSG

HSD


25/27

Figure 20: Labor force participation rate of women age 22-65

by educational group

30%

40%

50%

60%

70%

80%

90%

100%

1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003

PG

CGSC

HSG

HSD


26/27

Conclusions

Inequality startedto increase for menin 1974 and forwomenin 1981, and for both genders inequality continued

to increase throughout 2002.

Duringthe same periodthat earnings inequality increased,

the wage premium of college graduates overnon-college

workers increased substantially, andthe premium of

postgraduate workers increased even more.

The ratio of college educated workers to non-college

workers also increased from 1961 to 2002 -Two main facts

that motivate the SBTC.NEW: a. Mostimportantgroup contributingto the increase

inthe college wage premium - postgraduate workers;

NEW: b. Increase inthe proportion of postgraduate workers

started earlierandthe share stabilized since the early 90s.


27/27

SBTC? Occupations.

After some increase inthe 70s, the employment

share ofthe different occupations for men have stayed

roughly constant from 1983 to 2001, share of professional 30%)

The occupational composition changed much more markedly for

women.

The wage premium of professional workers over blue collarworkers continuously rose duringthe same periodthatinequality

increased.

The evolution ofthe standarddeviation of log wages andthat of

the standarddeviation ofthe conditional errorterm from the OLS

regression have exactly the same shape. Overthe last 40 years - dramatic change inthe composition of

the labor force by gender (not only education). Canthe SBTC

hypothesis explainthe change inthe gender composition?

Services sector restaurants andday cares?? Lee and Wolpin.

Labor Market Friction

Documents

Transcript of Labor Market Friction