Perfect equality = O < G < 1 = Perfect inequality

1
G A/(AB)
A
B
20
4
20
Perfect equality O lt G lt 1 Perfect inequality
2
World Development Report 2006 Equity and
Development
3
World Development Report 2006 Equity and
Development
4
Gini coefficients in the world
5
World Development Report 2006 Equity and
Development
6
Wage ratios
W80
WR
W20
20
20
W80
W20
Wage
7
Wages rising at upper tail, falling at lower tail
Acemoglu, Daron Technical Change, Inequality,
and the Labor Market Journal of Economic
Literature, March 2002
8
W ßX e X vector of measured skills e
residual
Residual inequality wage differences holding
constant education, experience
Acemoglu, Daron Technical Change, Inequality,
and the Labor Market Journal of Economic
Literature, March 2002
9
Wage dispersion ratio of the 90th percentile to the 10th percentile wage Wage dispersion ratio of the 90th percentile to the 10th percentile wage Wage dispersion ratio of the 90th percentile to the 10th percentile wage Wage dispersion ratio of the 90th percentile to the 10th percentile wage
1980-1984 1995-1999 ? 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
10
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

11
Rising inequality not due to gender discrimination
Source Bureau of Labor Statistics
12
Rising inequality not due to race discrimination
Source Bureau of Labor Statistics
13
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14
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

15
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16
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17
Acemoglu, Daron Technical Change, Inequality,
and the Labor Market Journal of Economic
Literature, March 2002
18
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

19
Econ 1 Test

• Has to be a demand side reason for
• Rising relative employment
• Rising relative wages
• Cause must be common across industrialized
  economies

20
Acemoglu, Daron Technical Change, Inequality,
and the Labor Market Journal of Economic
Literature, March 2002
21
Estimated own and cross price elasticities
between capital, labor and human capital per
worker
Demand for Price of Price of Price of
Demand for 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.
22
ln(WR) ß0 ß1 NR ß2 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
Acemoglu, Daron Technical Change, Inequality,
and the Labor Market Journal of Economic
Literature, March 2002
23
Stop here
24
Other issues

• Economic policy to limit inequality and labor
  market performance
• Tax and Transfer policies and inequality
• Inequality within occupations

25
Tradeoff between rising inequality and employment
stability
26
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
27
http//www.census.gov/hhes/www/poverty/effect2004/
effectofgovtandt2004.pdf
28
Buckley, John. Rankings of Full-Time
Occupations, by Earnings, 2000. Monthly Labor
Review 125 (March 2002) 46-57.
29
Buckley, John. Rankings of Full-Time
Occupations, by Earnings, 2000. Monthly Labor
Review 125 (March 2002) 46-57.
30
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
31
All workers
Restricted to Full-time 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
32
Economic Freedom Index High Medium Low
33
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34
Returns to Education and Experience among
Full-Time, Year-Round Workers, Selected Ages,
19752003 (in 2003 dollars)