Understanding Increasing and Decreasing Wage Inequality

45 Pages Posted: 11 Jun 2000 Last revised: 17 Dec 2022

See all articles by Andrew B. Bernard

Andrew B. Bernard

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

J. Bradford Jensen

Georgetown University - McDonough School of Business; Peterson Institute for International Economics

Date Written: May 1998

Abstract

This paper uses data on inequality within U.S. states to test hypotheses about the sources of rising wage inequality during the 1970s and 1980s. State labor markets are found to respond to local demand shocks in the short and medium run and to national (industry) demand shocks only after long intervals. The measure of wage inequality employed in the paper is the (log) ratio of the weekly wage at the 90th percentile to that at the 10th percentile in the state after controlling for observable characteristics of the workers. Individual states are found to have very different levels and changes of inequality. For example, Pennsylvania and Georgia had the second lowest and ninth highest 90-10 ratios respectively in 1970. By 1990, Georgia's 90-10 ratio had fallen 4% while Pennsylvania's had risen 21%. This paper finds that changes in industrial composition, in particular the loss of durable manufacturing jobs, are strongly correlated with inequality increases.

Suggested Citation

Bernard, Andrew B. and Jensen, J. Bradford, Understanding Increasing and Decreasing Wage Inequality (May 1998). NBER Working Paper No. w6571, Available at SSRN: https://ssrn.com/abstract=226303

Andrew B. Bernard (Contact Author)

Dartmouth College - Tuck School of Business ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR) ( email )

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J. Bradford Jensen

Georgetown University - McDonough School of Business ( email )

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Peterson Institute for International Economics ( email )

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