1. Copyright © 2009 Pearson Education, Inc. 15- 1 Topic 9 (Chapter 15) Inequality in Earnings

2. Copyright © 2009 Pearson Education, Inc. 15- 2 Figure 15.1: Earning Distribution with Perfect Equality

3. Copyright © 2009 Pearson Education, Inc. 15- 3 Figure 15.2: Distributions of Earnings with Difference Degrees of Dispersion

4. Copyright © 2009 Pearson Education, Inc. 15- 4 Table 15.1: The Dispersion of Earnings by Gender, Ages 25-64, 1980-2005 (expressed in 2005 dollars)

5. Copyright © 2009 Pearson Education, Inc. 15- 5 Table 15.2: Earnings Ratios at Various Percentiles of the Earnings Distribution, 1980, 1990, 2005

6. Copyright © 2009 Pearson Education, Inc. 15- 6 Table 15.3: Mean Earnings and the Returns to Education among Full-Time, Year-Round Workers Between the Ages of 35 and 44 (expressed in 2005 dollars)

7. Copyright © 2009 Pearson Education, Inc. 15- 7 Wage Differential between College/High School Graduates

8. Copyright © 2009 Pearson Education, Inc. 15- 8 Table 15.4: Ratio of Earnings at the 80th to 20th Percentiles for Males, by Age and Education, 1980-2005

9. Copyright © 2009 Pearson Education, Inc. 15- 9 Table 15.5: Employment Shares (within Gender) of Educational Groups, Workers 25 and Older: 1980, 1990, 2005

10. Copyright © 2009 Pearson Education, Inc. 15- 10 Stylized fact  Wage dispersion increased substantially in l980s and 90s  Gender differential declined, but by education and occupation (between group variation), it increased.  Within group variation increased too  Individual earnings inequality leads to family income inequality

11. Copyright © 2009 Pearson Education, Inc. 15- 11 The Transmission of Inequality Across Generations

12. Copyright © 2009 Pearson Education, Inc. 15- 12 Causes of growing inequality 1) Changes in supply: slowdown in the rate of growth of relative skill + increase in unskilled immigration 2) Institutional factors: decline in unionization, erosion of real value of minimum wage 3) Changes in demand: skill biased technological change 4) Role of globalization pressures: demand for less educated decreased

13. Copyright © 2009 Pearson Education, Inc. 15- 13 Figure 15.3: Changes in Supply as the Dominant Cause of Wage Changes

14. Copyright © 2009 Pearson Education, Inc. 15- 14 Table 15.6: Changes in the Share of Employment for Four Major Occupational Groups, 1983-2005

15. Copyright © 2009 Pearson Education, Inc. 15- 15 Changes in demand  Product demand for skilled / unskilled workers  Changing the mix of productive factors: innovation increase / decrease the demand for labor (gross complement / gross substitute with capital?)  New technology increase within group dispersion as well: In an environment in which changes in technology create a great expansion of revenues of some firms, we experience the most immediate change in earnings.

16. Copyright © 2009 Pearson Education, Inc. 15- 16 Framework: Change in wage structure Introduction of new technologies Skill upgradin g Employer characteristics Change in wage structure Union

17. Copyright © 2009 Pearson Education, Inc. 15- 17 Measuring inequality  Variance =  Relative interquartile range =  Lorenz curve: cumulative fraction of income earned by each fraction of population.  Gini Coefficient = (Shaded area Y) / (Triangle AOB) in the Lorenz curve

18. Copyright © 2009 Pearson Education, Inc. 15- 18 Figure 15A.1: Lorenz Curves for 1980 and 2002 Distributions of Income in the United States

19. Copyright © 2009 Pearson Education, Inc. 15- 19 Figure 15A.2: Lorenz Curves That Cross

20. Copyright © 2009 Pearson Education, Inc. 15- 20 Figure 15A.3: Calculating the Gini Coefficient for the 2002 Distribution of Household Income