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The best two sentences I read today
Wage dispersion among narrowly defined groups of workers is substantially larger for older and more educated workers than for younger and less educated works. As [a] result, I show that a large fraction of the increase in residual wage inequality is a spurious consequence of the fact that the work force has grown older and more educated since the early 1980s.
That is Thomas Lemieux, from ""Increasing Wage Inequality," the lead article in the June 2006 American Economic Review. Lemieux also dismisses the common view that information technology is the major cause of growing wage dispersion.
Since I am having a 12-course Cantonese meal tonight at Hong Kong Palace [Falls Church], those two sentences are unlikely to be topped later today. Here are related papers by the author.
Posted by Tyler Cowen on June 29, 2006 at 03:31 PM in Economics | Permalink
Comments
Chow fun.
Posted by: dave meleney at Jun 29, 2006 3:51:39 PM
Tyler, I have done original research on this issue at my blog, mostly to see how IQ predicts income after education and other factors are accounted for, using data from the General Social Survey.
Educational attainment had the biggest impact on predicted income. Ater education is taken into effect, high IQ has BARELY ANY IMPACT ON INCOME, but below average IQ does predict lower income, but still to a lesser extent than not having a high school diploma.
My theory is that the "track" people get on early in life has the biggest impact on how much money people make later on. Chosing the wrong major in college will result in lower earnings for the rest of one's life.
The labor market seems quite inefficient in that it overstresses credentials and tracks and doesn't reward those with the capacity for greater accomplishment.
I also studied income and height, and discovered that if a man is 5'7" or shorter this cancels out nearly half of the benefit of a bachelor's degree.
Posted by: Half Sigma at Jun 29, 2006 4:29:31 PM
Half Sigma, you aren't measuring the impact of IQ or education, you are measuring correlation. There is a huge difference.
Posted by: Giovanni at Jun 29, 2006 5:17:40 PM
if a man is 5'7" or shorter .... but it lets him rule most of Europe for a little while
Posted by: dearieme at Jun 29, 2006 5:40:10 PM
Giovanni,
IQ is correlated with income if you ignore education. But when you do a multiple regression analysis including both IQ and education, IQ disappears as a predictor of income.
This indicates that IQ primarily works by helping the person with higher IQ get a better credential and put him on a better career track. But once the credential is obtained, IQ does has no effect.
This tracking leads to more income inequality because once people are on the wrong track they are usually stuck there. The current system is not efficient in allowing people to change tracks if they made a mistake.
Posted by: Half Sigma at Jun 29, 2006 5:57:55 PM
Half Sigma:
Or... the people who have the drive and discipline to get a 'good' certification are the same people who have the drive and discipline to succeed in the business world.
It could be either one, or probably both.
Posted by: BillWallace at Jun 29, 2006 7:50:48 PM
Seems to me that a good chunk of young people got to college just because they are from middle class families and that's what's expected of them. That's not drive or ambition, just inertia.
Posted by: Half Sigma at Jun 29, 2006 9:22:35 PM
I've read some pretty good sentences on menus... 上海小籠包 is probably my favorite.
Posted by: Andrew at Jun 30, 2006 12:33:14 AM
Yeah - shanghai dragon wraps are good...
Posted by: Foobarista at Jun 30, 2006 4:46:08 AM
That the demographics of the work force can have a significant effect on wage distribution seem reasonable, but the effects of the baby boomers entering the work force as well as the increase in the number of working women starting in the late 60’s should have had a large effect on income inequality in the 70’s but very little by the 90’s. This is not what is observed. Since I still believe in econ 101, that is that wages are determined by supply as well as the demand for labor, I would like to see the change in the ratio of us born to immigrant workers by education and experience over the last 25 years.
Posted by: joan at Jun 30, 2006 8:51:36 AM
Is it the characteristics of workers or the churning that is occurring in the kind of jobs available that matter here? The number and kind of jobs available - and thus the skills and other characteristics in demand (i.e. age) determine who will be hired and fired.
Deindustrialization, downsizing, M & A layoffs, outsourcing all would seem to have transformed the job market. Couldn't wage dispersion be a funciton of the kind of work as opposed to the kind of worker?
Posted by: Gorkle at Jun 30, 2006 9:38:58 AM
Foobarista , the fourth character is not dragon (though the bottom radical is dragon) it is cage, and that is usually translated as "shanghai steamed dumplings" or something
Posted by: Andrew at Jun 30, 2006 1:56:55 PM
Half Sigma, multiple regression analysis is still a study of correlation which doesn't necessarly imply a cause/effect relationship. You are controlling for other significant variables which makes a strong case and you clearly know what you are doing, but it is still a correlation.
One other plausible theory: the inertia factors that you suggest cause people to get advanced degrees might be more relevant than the degrees themselves.
Posted by: Giovanni at Jun 30, 2006 2:08:57 PM
Cowen should have his twelve course meal in Hong Kong -- that way we all wouldn't be paying for the externalities of the Chinese restaurant and its staff, starting with beltway traffic.
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