Sources of Rising Inequality in the US

An interesting paper:

Controversies about the Rise of American Inequality: A Survey by Robert J. Gordon and Ian Dew-Becker.


This paper provides a comprehensive survey on six aspects of rising inequality: changes in laborfs share, inequality at the bottom, inequality at the top, labor mobility, inequality in consumption as contrasted to inequality of income, and international differences in inequality, particularly at the top. Outside the scope of this paper are changes in the rate of return to higher education, the evolution of the college wage premium, and the mechanisms by which family human capital is transmitted to infants and children.

We conclude that changes in laborfs share play no role in rising inequality of labor income; by one measure laborfs income share was almost the same in mid]2007 as in 1950. Within the bottom 90 percent as documented by CPS data, movements in the 50]10 ratio are consistent with a role of decreased union density for men and of a decrease in the real minimum wage for women, particularly in 1980]86. There is little evidence on the effects of imports, and an ambiguous literature on immigration which implies a small overall impact on the wages of the average native American, a significant downward effect on high]school dropouts, and potentially a large impact on previous immigrants working in occupations in which immigrants specialize.

The literature on skill]biased technical change (SBTC) has been valuably enriched by a finer grid of skills, switching from a two]dimension to a three] or five]dimensional breakdown of skills. We endorse the three]way gpolarizationh hypothesis that seems a plausible way of explaining differentials in wage changes and also in outsourcing.

To explain increased skewness at the top, we introduce a three]way distinction between market]driven superstars where audience magnification allows a performance to reach one or ten million people, a second market]driven segment consisting of occupations like lawyers and investment bankers, and a third segment consisting of top corporate officers. Our review of the CEO debate places equal emphasis on the market in showering capital gains through stock options and an arbitrary management power hypothesis based on numerous non]market aspects of executive pay.

The paper concludes that data on consumption inequality are too fragile to reach firm conclusions, and a perspective on international differences that blends institutional and market-driven explanations.

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