Aghion, Philippe, Peter Howitt, and Gianluca Violante, 2000, “General Purpose Technology and Within-Group Inequality,” manuscript, University College, London.
Blundell, Richard, H. Reed, and Thomas Stoker, 1999, “Interpreting Movements in Average Male Earnings: The Role of Labor Market Participation,” IFS Working Paper No. 99/13 (London, U.K.: Institute for Fiscal Studies).
Bound, John and George Johnson, 1992, “Changes in the Structure of Wages During the 1980s: An Evaluation of Alternative Explanations,” American Economic Review, Vol. 82, pp. 371–92.
Buchinsky, Moshe, 1994, “Changes in the U.S. Wage Structure 1963–1987: Application of Quantile Regression,” Econometrica, Vol. 62, pp. 405–58.
Dickens, Richard, 2000, “The Evolution of Individual Male Earnings in Great Britain,” The Economic Journal, Vol. 110, pp. 27–49.
Fortin, Nicole M. and Thomas Lemieux, 2000, “Are Women’s Wage Gains Men’s Losses? A Distributional Test,” AER Papers and Proceedings, Vol. 90, pp. 456–60.
Galor, Oded and Omer Moav, 2000, “Ability-Biased Technological Transition, Wage Inequality, and Economic Growth,” Quarterly Journal of Economics, Vol. 115, pp. 469–97.
Gottschalk, Peter and Timothy M. Smeeding, 1997, “Cross-National Comparisons of Earnings and Income Inequality,” Journal of Economic Literature, Vol. 35, pp. 633–87.
Gregg, Paul and Stephen Machin, 1994, “Is the Rise in U.K. Inequality Different,” in The U.K. Labor Market: Comparative Aspects and Institutional Developments, ed. by Ray Barrell (Glasgow, U.K.: Bell and Bain Ltd.).
Juhn, Chinhui, Kevin M. Murphy, and Brooks Pierce, 1993, “Wage Inequality and the Rise in Returns to Skill,” Journal of Political Economy, Vol. 101, pp. 410–12.
Katz, Lawrence F. and Kevin M. Murphy, 1992, “Changes in the Wage Structure: Supply and Demand Factors,” Quarterly Journal of Economics, Vol. 107, pp. 35–78.
Lee, David S., 1999, “Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum Wage?” Quarterly Journal of Economics, Vol. 114, pp. 977–1023.
Machin, Stephen and John Van Reenen, 1998, “Technology and Changes in Skill Structure: Evidence from Seven OECD Countries,” Quarterly Journal of Economics, Vol. 113, pp. 1215–44.
Machin, Stephen, 1998, “Recent Shifts in Wage Inequality and the Wage Returns to Education in Britain,” National Institute Economic Review, pp. 87–95.
Nickell, Stephen and Brian Bell, 1996, “Changes in the Distribution of Wages and Unemployment in OECD Countries,” American Economic Review, Vol. 86, pp. 302–08.
Prasad, Eswar S., 2000, “The Unbearable Stability of the German Wage Structure: Evidence and Interpretation,” IMF Working Paper No. 00/22.
Siebert, Horst, 1997, “Labor Market Rigidities: At the Root of Unemployment in Europe,” Journal of Economic Perspectives, Vol. 11, pp. 37–54.
1 am grateful to the Office for National Statistics, U.K., for providing the NES data and, in particular, to Nigel Studdard and Tiara Roy for help in using the dataset. I would also like to thank Richard Dickens, Julio Escolano and numerous colleagues and seminar participants at the IMF for helpful discussions and Stefan Hubrich for efficient research assistance. An anonymous referee provided useful comments that helped sharpen the exposition.
Dickens (1996) finds that increases in the permanent and temporary components of inequalityare about equally responsible for the increases in male wage inequality over the period 1975–95. In subsequent work (Dickens, 1998), he finds evidence of very limited short-term(year to year) mobility within the wage distribution and also reports that wage mobility hasdeclined from the late 1970s to the mid-1990s.
See Dickens (2000) for more details on the NES dataset and for a comparison of this dataset with Labour Force Survey data on low-wage workers.
The use of the RPI-X or the private consumption deflator made little difference to the resultsreported in this paper.
This 4-group classification is based on 1-digit industry codes as follows: Manufacturing (metal manufacturing; textiles, leather, clothing; other manufacturing); Construction, utilities and transportation (construction; gas, electricity and water; transport and communications); Trade and services (retail and wholesale trade; financial and professional services; other services); Public administration. Excluded from this classification are agriculture, forestry and fishing; mining and quarrying; and food, drink and tobacco. Together, these 3 industries account for only about 6 percent of total employment.
This 4-group classification is based on regional codes as follows: North (North East, North West, Merseyside); Midlands and Eastern (East Midlands, West Midlands, Eastern); London and South (London, South East, South West); and Wales and Scotland.
The shift in inequality in 1991 for skilled manual workers partly reflects a change in codingthat made it difficult to obtain a perfect match for the pre- and post-1991 occupational codes.
This approach was popularized by Juhn, Murphy, and Pierce (1993). Using this technique, these authors show that, in the U.S., both within- and between-group inequality rose sharply among men during the 1980s.
This weighting procedure is similar to that employed by Fortin and Lemieux (2000). The kernel density estimates for log hourly wages were computed using an Epanechnikov kernel with bandwidth set to 0.05. These density estimates were also computed using optimalband widths computed separately for each year—these bandwidths were typically in the range of 0.04-0.06. Using optimal bandwidths had little effect on the shape of the distributions. The use of a fixed bandwidth is solely to maintain consistency when comparing distributions across different years.
Fortin and Lemieux (2000) document a similar phenomenon in the U.S. They argue that this helps reconcile two findings. One is that male wage inequality has increased sharply in the U.S. in the 1980s and, although at a slower rate, also in the 1990s, with both within- and between-group inequality among men contributing to this increase (see, e.g., Juhn, Murphy and Pierce, 1993). The second result documented by Lee (1999), is that the overall wage distribution in the U.S., including both men and women, was actually quite stable in the 1980s and 1990s once the effects of the decline in the real value of the minimum wage are controlled for.
In addition, the dispersion of annual earnings could differ from that of monthly earnings. However, the NES does not have information on annual earnings (or on the number of months of employment per year).
The results reported in Table 5 are for 5-year cohorts and are based on the full sample that includes both full-time and part-time workers. Results based on 10-year cohorts or on a restricted sample limited to full-time workers made little difference to the main conclusions.
Self-selection into retirement probably accounts for the decline in inequality among older workers.
Using the more limited panel sub-sample from the NES, Dickens (2000) provides a careful analysis of cohort effects on male wage inequality in the U.K. during the period 1975–95.