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Trading one kind of inequality for the other
...we show that the two major developments experienced by the US labor market - rising inequality and narrowing of the male-female wage gap - can be explained by a common source: the increase in price of cognitive skills and the decrease in price of motor skills. We obtain the implicit price of a multidimensional vector of skills by combining a hedonic price framework with data on the skill requirements of jobs from the Dictionary of Occupational Titles and workers’ wages from the CPS.
We find that in the 1968-1990 period the returns to cognitive skills increase four-fold and the returns to motor skills decline by 30%. Given that the top of the wage distribution of college and high school graduates is relatively well endowed with cognitive skills, these changes in skill prices explain up to 40% of the rise in inequality among college graduates and about 20% among high school graduates. In a similar way, because women were in occupations intensive in cognitive skills while men were in motor-intensive occupations, these skill-price changes explain over 80% of the observed narrowing of the male-female wage gap.
Here is a link to the paper.
Posted by Tyler Cowen on October 3, 2006 at 09:49 AM in Economics | Permalink
Comments
I asked this question over at Mark Thoma's blog:
"Wouldn't movement of those tasks (household tasks such as housecleaning, food preparation, lawn care) into the formal marketplace also increase income inequality?"
If higher prices for cognitive skills induced talented housewives to enter the workforce, then those higher prices indirectly led to increased number of low-skilled, low-wage workers. Those low-skilled workers would include not only housekeepers and personal cooks, but also employees at McDonald's. at day care centers, and at food processing plants.
Posted by: JohnDewey at Oct 3, 2006 12:09:20 PM
Affirmative action in affirmative action.
Posted by: Larry at Oct 4, 2006 12:43:18 AM
"We find that in the 1968-1990 period the returns to cognitive skills increase four-fold and the returns to motor skills decline by 30%."
Automation, immigration and shipping "motor skill jobs" to Asia are what I think of as the possible causes. This summer I had a repair done on my furnace and discovered the workmen, who were immigrants from Serbia, were only earning $10 per hour. I can remember when such work was paid twice that in real terms. How can Bush claim we need more low/motor skill labor provided by guest workers when their wages are falling? If there was a shortage their wages would be rising.
Posted by: joan at Oct 5, 2006 12:53:07 AM
joan: "How can Bush claim we need more low/motor skill labor provided by guest workers when their wages are falling? "
Do you have any evidence, other than your experience with Serbian immigrants, that wages for low-skilled workers are falling? My close relative hires immigrant construction workers in Texas. He told me that he’s had to increase the wages he offers.
How did you find out what the repair company pays its workers?
Posted by: JohnDewey at Oct 5, 2006 5:33:59 AM
JohnDewey,
Yes, your relative has had to increase the amount he pays his construction workers. States and the INS have begun cracking down on illegal immigrants working in the US. And as expected wages have begun to rise. Chicken and pork processing plants in the South and farms that depend on migrant workers to pick the crops are all experiencing wage increase demands. I think we covered this in Econ 101. Supply and demand. Reduce supply?
Posted by: Murphy at Oct 5, 2006 9:34:21 AM
JohnDewey:"How did you find out what the repair company pays its workers?"
Since I am sceptical of statistical results that are not noticible in the real world I have made it a practice to ask all workers that I come in contact with what their company pays them. They are usually willing to answer if you imply that they are very vauable to you.
The statistical evidence is in the article that Tyler referenced.
Posted by: joan at Oct 5, 2006 5:11:27 PM
