Educational Wage Inequality

Introduction

The United States wage structure is heavily dependent on the level of education as there appears to be a consistent growth in demand for highly educated or skilled workers with college degrees. Wage inequality experienced by all genders rose in America during the 1980s. An examination inclined to demand and supply structure is applied to investigate the alterations in wage composition (Katz and Murphy, 1992, p.39). Additionally, it is also deemed that adjustments of technology plus enhanced information access have a crucial role in what has become a contemporary wage configuration.

The U.S. Pattern of Educational Wages

In light with Katz and Murphy (1992, p.40), wage inequality amongst education and gender noted an increase in America during the 1980s. The first reason was the rise in wage disparities because of education. Secondly, wages of the older workforce increased against those of younger workers, especially for those who never attended college (Katz and Murphy, 1992, p.40). As a result of these two changes, there was a consequent increase in weekly wages of younger college graduates by roughly 31% compared to the young male workforce with few years of schooling between 1979 and 1987. Shifts in the supply of college and high school educated graduates to explain occasional variations in wages. Advancements in technology cannot be ignored either, especially concerning wages. Technology has indisputably disrupted wage structure as it will be elaborated on later. Many studies using cross-section data from the 1990s and early 2000s found that the return to primary education in wage employment is significantly lower than that to post-primary education. It is because of low demand for primary education which is no match for the demand for a college-educated workforce.

What Happened to the Supply of Graduates over the Same Period?

In studying wage inequality, education supply has been one of the critical pillars compared to other factors. Katz and Murphy (1992, p.45), introduced a supply-demand model of labour market based on Tinbergen’s 1974 scheme of the contest amongst demand and supply. Katz and Murphy, on page 49, explain relative wage supply. The table on page 49 summarises wage change, whereby every amount is examined comparative to the overall provision in competence units. Based on the table, there has been a considerable long-run enhancement in the relative supply of most educated employees, young workers plus women. Moreover, the improvement in the regular educational accomplishment of the labour-power force is specifically increasing. The portion of collective hours worked donated by college graduates enhancement from 13.0 to 26.3 for the period 1963 to 1987. On the other hand, the share of high school dropouts decreased from 39.2 to 12.6 per cent in the same period of time. Because the comparative supplies plus wages of most educated employees and women enhanced, absolute demand alterations favouring these particular groups are mandatory to elaborate on the seen data.

On the contrary, the table in 49 also depicts an option that the dissimilarities in the degree of enhancement in the absolute supply of college graduates might be able to assist in elaborating the design of alterations in wage premium. What is more, the most significant enhancement in the number of college graduates comes in the period from 1971 to 1979 whereby the college wage premium reduced, plus the least development of supply in the period 1979 to 1987 in which college wage premium increased high. Additionally, a soft secular enhancement in the comparative demand for college graduates united with depicted variations in the degree of improvement of unlimited supply could elaborate on the actions in college wage premium in the same period.

Alterations in age construction of labour force may be a useful segment of an elaboration for secular enhancement in the comparative wages of other employees. Labour supply share accounted for by employees with one to ten years of involvement progressed from 18.9 per cent from 1963 to 30.8 per cent during 1980; this amount then declined by 27.4 per cent in 1987. Secular enhancement in the part of young employees involved a dramatic increase in the comparative supply of fresh entrants from mid-1960s to 1970s. The design of alterations in unlimited supplies can assist enhance in experience differences in the 1970s; however, it has some snags with sharp enhancement in knowledge differences for less-educated, during 1980s.

Why Did the Authors Compositionally Adjust the Average Wages That They Then Used to Estimate the Parameters in Equation (17)?

College and high school wage quality enhanced from 1963 to 1971 and then fell from 1971 to 1979. Afterwards, there was a sharp increase after 1979. Based on Katz and Murphy (1992, p.67), there are two types of explanation to elaborate on this concept. Firstly, these alterations in comparative earnings relate to changes in the relative market price of abilities held by college plus high school graduates. What is more, the second explanation concentrates on alterations in the composition of college plus high school graduates affecting comparable ability levels of both groups. This elaboration, therefore, translates the reduction in college wage premium in the 1970s as depicting a decrease of similar college graduate’s quality plus enhancement in education returns in 1980s as showing a falling off in the relative quality of high school graduates. As within regiment associations are probable to hold the comparative variety of college plus high school alumnae comparatively continuous, this supposition illustrates that one need not find effectual within-cohort alterations in college wage quality. Actions in college and high school wage difference are the same within-cohorts, and inexperience points over the sample period. The authors concluded that the most appropriate solution was to overlook the dissimilarities in movements in college wage quality in the 1960s, 1970s and 1980s as mainly depicting alterations in the comparative cost of college skills rather than as chiefly representing changes in the qualified price of college capabilities rather than as chiefly showing changes in the relative premium of college graduates. Therefore, the authors turn to assess supply and demand elaborations for alterations in the relative cost of college skills.

Full Economic Interpretation of Main Findings and a Critique Based on the More Recent Evidence Found in the Wage Inequality Literature

There is a fresh elaboration on growing wage inequality based on alterations in job responsibilities in the economy, resulting from changes in occupational work. It, therefore, is identified as job polarisation approach (Autor, Katz, and Kearney, 2006). The latter enhances Skill-biased Technological Change (SBTC) basing on two categories of college workers and non-college that has been applied in explanation of wage inequality in the 1980s (Katz and Murphy, 1992, 70). SBTC is ineffective since it does not elaborate on essential wage trends in the 1990s; contrariwise, job polarisation explains generally elaborate on job tasks and emphasises on wage differences in 1990s (Zhicheng and Jia 2011,p.4). According to Katz and Murphy (1992, p.71), employment rise was polarised, with the employment portion of skilled and low-skilled jobs enhancing while job cut of middle-skilled under reduction. Thus, this pattern noted an understandable alteration relative to the 1980s; through professional expertise levels, employment progressed at the lowest, further in the middle and maximum in the top.

First, once wage inequality enhanced at the top plus bottom growth in the 1980s, in 1990s, it became differently asymmetric about the mean, with increasing inequality at the top half of spreading plus reducing in the bottom half. Considerable secure evolution in demand of most educated employees is, therefore, mandatory in the explanation of observed alterations in comparative wages as variations in competitive skill costs (Spitz-Oener 2006,p. 237). Examined differences in the allocation of labour demand, among sectors account for a considerable minority of profane demand shifts, maybe favouring entities with growing comparative wages (Wozniak 2010,p.961). Additionally, demand shifts that arise from alterations in international variations in manufacturing commence being quantitative important with the entrance of massive trade deficits in the 1980s (Gordo and Skirbekk 2013). Mishel, Schmitt, and Shierholz (2013) state that alternating wage differences have been determined by economic regulation in turns of commissions. What is more, Goos, Manning and Salomons (2014,p.2510) attest that SBTC only concentrates on two types of employees, for instance, more and fewer learnt, polarisation approach, focuses on three, for example, low, middle, and effectively-skilled workers.

Conclusion

United States wage construction mainly rely on the level of education as there seems to be a substantial enhancement in demand for extremely educated employees with college degrees. One of the reasons for wage disparity is education. Additionally, wages of the older workforce enhanced against that of, the younger force, particularly for those individuals who never received a college education (Katz and Murphy 1992, p.40). For instance, due to these alterations, there was a resulting enhancement in weekly wages of younger college graduates by unevenly 31% when compared to younger males between 1979 and 1987 (Katz and Murphy, 1992, p.40). Additionally, after wage inequality increased at the top and bottom growth during the 1980s, wage inequality in 1990s became otherwise unequal concerning mean, with enhancing variation at the highest half of scattering and falling in the bottom half.

References

Autor, D.H., Katz, L.F. and Kearney, M.S., 2006. The polarisation of the U.S. labour market. The American Economic Review, 96(2), pp. 189-194.

Goos, M., Manning, A. and Salomons, A., 2014. Explaining job polarisation: routine-biased technological change and offshoring. American economic review, 104(8), pp. 2509-2526.

Gordo, L.R. and Skirbekk, V., 2013. Skill demand and the comparative advantage of age: jobs tasks and earnings from the 1980s to the 2000s in Germany. Labour Economics, 22, pp. 61-69.

Katz, L.F. and Murphy, K.M., 1992. Changes in relative wages, 1963-1987: supply and demand factors. The Quarterly Journal of Economics, 107(1), pp. 35-78.

Mishel, L., Schmitt, J. and Shierholz, H., 2013. Assessing the job polarisation explanation of growing wage inequality. Economic Policy Institute. [Online] Available at <https://www.epi.org/files/2012/wp295-assessing-job-polarization-explanation-wage-inequality.pdf> [Accessed 17 Mar. 2020].

Spitz-Oener, A., 2006. Technical change, job tasks, and rising educational demands: looking outside the wage structure. Journal of labour economics, 24(2), pp. 235-270.

Wozniak, A., 2010. Are college graduates more responsive to distant labour market opportunities? Journal of Human Resources, 45(4), pp. 944-970.

Zhicheng, X., and Jia, Y. 2011. Does skill-biased technological change necessarily cause an increase in wage inequality?[J]. Economic Review, 3.