Changing Wage Growth 1967-1997: Causes and Consequences: Dissertation Summary (original) (raw)
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SSRN Electronic Journal, 2000
Recent trends in lifetime earnings inequality in the United States have been barely explored, despite the fact that lifetime earnings are a better measure of access to resources than the more widely studied annual earnings. This paper demonstrates that lifetime earnings inequality has increased over the past 30 years. We first explore how starting wages and wage growth have changed over time and link the changes to trends in lifetime earnings and the lifetime skill-premium. We then calculated a broader measure of lifetime earnings inequality and show that since the late 1960s, lifetime earnings inequality has increased by a third. Between the late 1960s and mid-1970s a rise in within-education-group inequality more than accounts for the increase; since then the growth in between-educationgroup inequality, accounted for a majority of the rise. These results are consonant with the data on starting wages and wage growth. Finally, we show that the increase in inequality has been largely driven by greater dispersion in hourly wages, although declining hours of work among low-education young men did play a role. The analysis uses data from the March Current Population Survey as well as matched CPS data. Thus we demonstrate how repeated cross-sections and short panels of data can be used to examine issues usually reserved for long panels.
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1998
After two decades of rising wage inequality, it is important to examine the impact of these changes on lifetime wage growth. This paper compares the intragenerational mobility of two NLS cohorts of young white men: the first entered the labor market in the late 1960s, the second in the early 1980s. For each cohort, we analyze wage profiles across 16 years using a mixed-effects model. We find that long-term wage growth has both stagnated and become more unequal in recent years. Changes in the composition of and returns to education, experience, occupation and other covariates explain about half the rise in inequality, leaving a significant residual. Our findings suggest a decline in the economic welfare of workers who entered the labor market in the 1980s.
Inequality and Mobility: Trends in Wage Growth for Young Adults. IEE Working Paper No. 7
1998
After two decades of rising wage inequality, it is important to examine the impact of these changes on lifetime wage growth. This paper compares the intragenerational mobility of two NLS cohorts of young white men: the first entered the labor market in the late 1960s, the second in the early 1980s. For each cohort, we analyze wage profiles across 16 years using a mixed-effects model. We find that long-term wage growth has both stagnated and become more unequal in recent years. Changes in the composition of and returns to education, experience, occupation and other covariates explain about half the rise in inequality, leaving a significant residual. Our findings suggest a decline in the economic welfare of workers who entered the labor market in the 1980s.
Intergenerational Persistence of Earnings: The Role of Early and College Educationy
Recent empirical evidence for the U.S. indicates a high degree of intergenerational persistence in economic status. Assessing the effectiveness of various public policies in reducing persistence and equalizing opportunities in society requires measures of the contribution of major sources of persistence. In this paper we provide a quantitative model of intergenerational human capital transmission and earnings inequality that focuses on three sources of persistence: innate ability, early education, and college education. We find that about half of the intergenerational persistence and one fourth of the cross-sectional inequality in permanent earnings are accounted for by parental investments in education. Our model implies that early education accounts for most of the persistence generated by parental investments while college education accounts for most of the inequality. We show that these results have important implications for education policy. Our model indicates that a 20% increase in public resources devoted to early education has a 10% increase on earnings mobility while a similar increase in college subsidies has virtually no effect on earnings mobility. Despite this result, the progressivity of the college subsidy affects earnings mobility largely because of the indirect incentive effects on investments in early education by poor parents.
Intergenerational Persistence of Earnings: The Role of Early and College Education
American Economic Review, 2004
Recent empirical studies show that the intergenerational persistence of economic status in the U.S. is much higher than previously thought. We develop a quantitative theory of inequality and intergenerational transmission of human capital where parents invest in early and college education of their children subject to borrowing constraints. Children differ exogenously in innate abilities, which can be correlated with their parent's innate ability. An important feature of the environment is that the quality of early education determines the probability of college completion. We calibrate a stationary equilibrium of this economy to relevant statistics in aggregate U.S. data, and use it to investigate the sources of inequality and persistence in earnings. In our benchmark model, about half of the intergenerational persistence and one fourth of the inequality in earnings are accounted for by endogenous investments in education. We find that early investments in education account for most of the endogenous persistence in earnings, while college education generates most of the endogenous inequality in earnings. Our theory is suited to study the effect of educational policies on the persistence of inequality. We show that public resources devoted to early education have the largest impact on earnings mobility. Moreover, non-progressive college subsidies generate more intergenerational persistence of earnings.
In sociological studies of economic stratification and intergenerational mobility, occupation has long been presumed to reflect lifetime earnings better than do short-term earnings. However, few studies have actually tested this critical assumption. In this study, we investigate the cross-sectional determinants of 20-year accumulated earnings using data that match respondents in the Survey of Income and Program Participation to their longitudinal earnings records based on administrative tax information from 1990 to 2009. Fit statistics of regression models are estimated to assess the predictive power of various proxy variables including occupation, education, and short-term earnings on cumulative earnings over the 20-year time period. Contrary to the popular assumption in sociology, our results find that cross-sectional earnings have greater predictive power on long-term earnings than occupation-based class classifications including 3-digit detailed occupations for both men and women. The model based on educational attainment including field of study has slightly better fit than models based on 1-digit occupation or the EGP class scheme. We discuss the theoretical implications of these findings for the sociology of stratification and intergenerational mobility.
Labour market inequality and the changing life cycle profile of male and female wages
We estimate the distribution of life cycle wages for cohorts of prime-age men and women in the US. A quantile selection model is used to consistently recover the full distribution of wages accounting for systematic differences in employment, permitting us to construct genderand education-specific age-wage profiles, as well as measures of life cycle inequality within-and between-education groups and gender. Although common within-group time effects are shown to be a key driver of labor market inequalities, important additional differences by birth cohort emerge with older cohorts of higher educated men partly protected from the lower skill prices of the 1970s. The gender wage gap is found to increase sharply across the distribution in the first half of working life, coinciding with fertility cycles of women. After age 40, there has been substantial gender wage convergence in recent cohorts relative to those born prior to the 1950s.
Education and Lifetime Earnings in the United States
Differences in lifetime earnings by educational attainment have been of great research and policy interest. Although a large literature examines earnings differences by educational attainment, research on lifetime earnings-which refers to total accumulated earnings from entry into the labor market until retirement-remains limited because of the paucity of adequate data. Using data that match respondents in the Survey of Income and Program Participation to their longitudinal tax earnings as recorded by the Social Security Administration, we estimate the 50-year work career effects of education on lifetime earnings for men and women. By overcoming the purely synthetic cohort approach, our results provide a more realistic appraisal of actual patterns of lifetime earnings. Detailed estimates are provided for gross lifetime earnings by education; net lifetime earnings after controlling for covariates associated with the probability of obtaining a bachelor's degree; and the net present 50-year lifetime value of education at age 20. In addition, we provide estimates that include individuals with zero earnings and disability. We also assess the adequacy of the purely synthetic cohort approach, which uses age differences in earnings observed in cross-sectional surveys to approximate lifetime earnings. Overall, our results confirm the persistent positive effects of higher education on earnings over different stages of the work career and over a lifetime, but also reveal notably smaller net effects on lifetime earnings compared with previously reported estimates. We discuss the implications of these and other findings.