Wage Dispersion, Returns to Skill, and Black-White Wage Differentials
University of California, Berkeley - Department of Economics; Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)
University of British Columbia - Department of Economics; Universite de Montreal; National Bureau of Economic Research (NBER)
NBER Working Paper No. w4365
During the 1980s wage differentials between younger and older workers and between more and less educated workers expanded rapidly. Wage dispersion among individuals with the same age and education also rose. A simple explanation for both sets of facts is that earnings represent a return to a one-dimensional index of skill, and that the rate of return to skill rose over the decade. We explore a simple method for estimating and testing 'single index' models of wages. Our approach integrates 3 dimensions of skill: age, education, and unobserved ability. We find that a one-dimensional skill model gives a relatively successful account of changes in the structure of wages for white men and women between 1979 and 1989. We then use the estimated models for whites to analyze recent changes in the relative wages of black men and women.
Number of Pages in PDF File: 56working papers series
Date posted: April 27, 2000
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