Ebook Earnings Inequality in International Perspective
The increase in dispersion of personal earnings in the USA has received considerable attention and has been analyzed extensively (see e.g. the review paper by Levy and Murnane (1992) and the recent symposium in the Journal of Economic Perspectives).
The stylized facts, on which there is a broad consensus, may be summarized as follows (see e.g. Murphy and Welch (1997)). First, inequality has increased both within and between groups defined by gender, age, schooling and race. Second, the increase in between-group inequality is entirely due to the increase in age and schooling differentials, whereas gender and race differentials have instead declined. Third, the increase in between-group inequality accounts for a smaller share of the growth in inequality relative to increased dispersion within groups. Fourth, changes in relative wages and in relative employment are positively correlated: relative employment tends to fall whenever relative wages have fallen.
The evidence for other countries is less systematic. There are only a few comparative studies, focusing mostly on descriptions of the overall distribution of income or earnings and largely based on evidence from the 1980s. From these studies, a kind of \consensus view" has emerged (see e.g. the review papers by Gottschalk (1997) and Gottschalk and Smeeding (1997)) which classifies countries into four groups. One extreme would be occupied by the UK and the USA, with very large increases in inequality, the other by Germany, with no changes at all. In between, the consensus view puts two groups of countries: those which experienced large but not extreme increases in inequality (Canada, Australia, New Zealand and Israel) and those which experienced small but positive changes in inequality (the Nordic countries, Netherlands, Italy and Japan). Notice that the USA appear to be the only country which experienced increases in inequality both between education and experience groups and within groups.
This paper reconsiders the available cross-country evidence. The main novelties with respect to previous studies are twofold. First, we compare a broader set of countries using a common methodology and micro-data that have been pre-processed in order to make them more suited for cross-country comparisons. Second, we include data from the early and mid 1990s. Our main interest is to understand whether the US experience is indeed unique or is instead part of a more general phenomenon. The implications would be quite different in the two cases. In the first case, any proposed explanation would have to focus on whatever makes the US labor market unique, whereas in the second case it would have to concentrate on worldwide trends in tastes and technology.
The paper is mainly descriptive and relies on the empirical evidence from a period of about twenty years from the mid 1970s to the mid 1990s. It focuses on personal earnings, as opposed to personal or household income, and looks at the two main dimensions of changes in the distribution of earnings at the aggregate level, namely changes in between-group and within-group dispersion, as well as at the relationship between changes in relative wages and in relative employment. Grouping of the population is based on gender, age and educational attainments.
The remainder of the paper is organized as follows. Section 2 describes the data. The next two sections summarize our empirical findings. Section 3 presents descriptive statistics on the structure of earnings, while section 4 presents descriptive statistics on the structure of employment. Finally, Section 5 draws some conclusions and offers some speculations.
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