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Perfect equality = O < G < 1 = Perfect inequality
4%
20%
20%
AABB
G = A/(A+B)G = A/(A+B)
World Development Report 2006: Equity and Development
World Development Report 2006: Equity and Development
Gini coefficients in the world
World Development Report 2006: Equity and Development
Wage ratios
Wage
20% 20%
W80W20
W80
W20
WR =
Acemoglu, Daron “Technical Change, Inequality, and the Labor Market” Journal of Economic Literature, March 2002
Wages rising at upper tail, Wages rising at upper tail, falling at lower tail falling at lower tail
Acemoglu, Daron “Technical Change, Inequality, and the Labor Market” Journal of Economic Literature, March 2002
Residual inequality: wage Residual inequality: wage differences holding differences holding constant education, constant education, experienceexperience
W = βX + e; X = vector of measured skills; e = residual
Wage dispersion: ratio of the 90th percentile to the 10th percentile wage
1980-1984
1995-1999
Δ 1999-1980
Australia 2.88 2.94 0.06
Finland 2.49 2.36 -0.13
France 3.18 3.07 -0.11
Germany 2.88 2.87 -0.01
Japan 3.08 2.99 -0.09
Netherlands 2.47 2.85 0.38
New Zealand 2.89 3.28 0.39
Sweden 2.01 2.23 0.22
UK 3.09 3.45 0.36
USA 3.91 4.59 0.68
Source: OECD Employment Outlook, 2004
Stylized facts regarding earnings inequality
1) Inequality has been increasing steadily in the U.S. since the 1980s for both men and women
2)Inequality has been rising in other industrialized economies
3) Until 1980, inequality had been rising across countries
4) Conclusions are not sensitive to measure of inequality used
Rising inequality not due to gender discriminationRising inequality not due to gender discrimination
Source: Bureau of Labor Statistics
Rising inequality not due to Rising inequality not due to race discriminationrace discrimination
Source: Bureau of Labor Statistics
Ratio of Women's to Men's Hourly Earnings by Country, 1970-2002Source: Blau, Ferber, and Winkler, The Economics of Women, Men and Work 2006.
0.5
0.55
0.6
0.65
0.7
0.75
0.8
0.85
0.9
0.95
1970 1975 1980 1985 1990 1995 2000 2005
Year
Rat
io
Australia
France
Germany
Norway
Sweden
UK
USA
Stylized facts regarding earnings inequality
5) Women are gaining relative to men
6) Minorities gained relative to whites before the 1980s, but relative earnings for minorities stabilized thereafter
7) Wage inequality between women increased, as did wage inequality between men
8) Residual inequality began to increase for both men and women in the 1970s
Relative wages of males 25-54 versus males 20-24, 1973-1998
0.8
0.9
1
1.1
1.2
1.3
1.4
1970 1975 1980 1985 1990 1995 2000
Year
Ratio (1973=1)
CANADA
JAPAN
FRANCE
USA
UK
Estimated Returns to Schooling Relative to High School Graduates: 1976-1998
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1976 1981 1986 1991 1996
Bachelor's Degree Recipients
Post Graduate education
Acemoglu, Daron “Technical Change, Inequality, and the Labor Market” Journal of Economic Literature, March 2002
Stylized facts regarding earnings inequality
9) There have been coincident increases in returns to schooling over that period
10) There have been rising returns to experience over that time frame
11) Young college graduates have gained the most, especially in the 1990s
12) Rising returns to college even as relative supply has increased tremendously
Econ 1 Test
Has to be a demand side reason for
Rising relative employmentRising relative wages
Cause must be common across industrialized economies
Acemoglu, Daron “Technical Change, Inequality, and the Labor Market” Journal of Economic Literature, March 2002
Demand for
Price of
Physical Capital
Numbers of Workers
Human Capital per Worker
Physical Capital -0.45 1.07 -0.11
Numbers of Workers
0.66 -1.44 0.15
Human Capital per Worker
-0.15 0.35 -0.13
Red: Complements; Blue: Substitutes
Note: Based on share-weighted elasticities of substitution reported in Table 6 of Huang. Hallam, Orazem and Paterno, "Empirical Tests of Efficiency Wage Models."Economica 65 (February 1998):125-143.
Estimated own and cross price elasticities between capital, labor and human capital per worker
Acemoglu, Daron “Technical Change, Inequality, and the Labor Market” Journal of Economic Literature, March 2002
ln(WR)= β0 + β1* NR + β2* r + e
WR= relative college to high school wage
NR = relative weeks worked of college educated to high school educated
r = relative price of equipment capital
Stop here
Other issues
Economic policy to limit inequality and labor market performance
Tax and Transfer policies and inequality
Inequality within occupations
Scatterplot of Changes in wage dispersion and unemployment rates, 1990-2000
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
-6 -4 -2 0 2 4 6 8
Change in unemployment rate
Ch
ang
e in
90-
10 w
age
rati
o
France
UK
New ZealandUSA
Netherlands
Finland
Sweden
Japan
Germany
Australia
Tradeoff between rising inequality Tradeoff between rising inequality and employment stabilityand employment stability
Weinberg, Daniel. Alternative Measures of Income Poverty and. the Anti-poverty Effects of Taxes and Transfers www.welfareacademy.org/pubs/poverty/Weinberg_Alt_Measures.pdf
http://www.census.gov/hhes/www/poverty/effect2004/effectofgovtandt2004.pdf
Buckley, John. “Rankings of Full-Time Occupations, by Earnings, 2000.” Monthly Labor Review 125 (March 2002): 46-57.
Buckley, John. “Rankings of Full-Time Occupations, by Earnings, 2000.” Monthly Labor Review 125 (March 2002): 46-57.
CPS: Current Population Survey
MINT: Social Security Administration data
B. Bosworth, G. Burtless and C. Sahn “The Trend in Lifetime Earnings Inequality and Its Impact on the Distribution of Retirement Income” August 2001
Restricted to Full-time workers
All workers
CPS: Current Population Survey
MINT: Social Security Administration data
B. Bosworth, G. Burtless and C. Sahn “The Trend in Lifetime Earnings Inequality and Its Impact on the Distribution of Retirement Income” August 2001
Economic Freedom Index
High
Medium
Low
Returns to Education and Experience among Full-Time, Year-Round Workers, Selected Ages, 1975–2003 (in 2003 dollars)
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