A substantial body of research has documented increasing wage inequality in industrialized countries. Since the late 1970s and continuing through the mid-2000s, overall wage inequality has been increasing in the U.S. (e.g. Autor et al., 2008; Lemieux, 2006a), Germany (e.g. Dustmann et al., 2009), the UK (e.g. Machin and Van Reenen, 2008), Canada (e.g. Boudarbat et al., 2006), and Australia (e.g. ?). As possible explanations of these trends, most of the literature has focused on skill-biased technological change (SBTC), the supply of skilled workers, changes in institutions such as the decline in unionization and changes in the minimum wage, as well as changes in social norms. SBTC has been the most prominent explanation (see the survey by Katz and Autor, 1999), which argues that the increase in demand for skills is stronger than the simultaneous increase in the supply, leading to an increase in wage inequality.
In light of the continuous rise in wage inequality at the top of the wage distribution in the U.S. and the stagnant or even decreasing wage dispersion at the bottom of the wage distribution, several recent studies have proposed as a nuanced version of SBTC that technological change can have a ”polarizing” effect on the labor market rather than uniformly favoring more skilled groups (e.g. Autor et al., 2003, 2006, 2008; Goos and Manning, 2007). That is, technological change for example computerization can favor highly skilled groups at the expense of less skilled routine-manual and routine-cognitive workers and to the advantage of less skilled (non-routine-)manual workers.
While labor market trends seem to be more beneficial for high-skilled jobs relative to medium-skilled jobs, various studies find a disproportionate growth of employment for low-wage jobs and a possibly higher wage growth (Autor et al., 2008). Starting in the 1990s, there seems to be evidence for polarization in employment in the U.S., Germany, and the UK, while the evidence for polarization of wages is restricted to the U.S. (Goos and Manning, 2007; Autor et al., 2008; Autor and Dorn, 2009; Dustmann et al., 2009).
Contents
1 Introduction
2 Data
2.1 CPS for U.S
2.2 IABS for Germany
2.3 Construction of Cohort-Year-Skill Cells
3 Basic Empirical Facts
3.1 Unconditional Wage Growth
3.2 Changes in Employment
4 Empirical Approach
4.1 Characterization of Wage Profiles
4.2 Testing for Uniform Wage Growth
4.3 Empirical Implementation
5 Results
5.1 Estimated Specifications for Wage Equations
5.2 Life-Cycle Profiles
5.3 Time-Trends
5.4 Cohort-effects and Entry Wage Growth
5.5 Rising Wage Dispersion or Polarization of Wages?
- 5.5.1 Development of Skill-Premia due to Macroeconomic-Shifts
5.5.2 Wage Dispersion within Skill-Groups
5.5.3 Compositional Effects on Wage growth and Inequality
5.6 Employment Growth
6 Conclusions
References
Appendix
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Polarization and Rising Wage Inequality: Comparing the U.S. and Germany
