Autor Katz Kenney - Economics€¦ · 11/2/2010 1 The Katz-Murphy (1992) formulation As relative...
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11/2/2010 1 The Katz-Murphy (1992) formulation As relative supply increases, relative wage decreases Katz-Murphy (1992) estimate Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323. KM model fits well until 1993
Transcript of Autor Katz Kenney - Economics€¦ · 11/2/2010 1 The Katz-Murphy (1992) formulation As relative...
11/2/2010
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The Katz-Murphy (1992) formulation
As relative supply increases, relative wage decreases
Katz-Murphy (1992) estimate
Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
KM model fits well until 1993
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Katz-Murphy (1992) estimate
Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
>20 yrs experienceCollege wage /High School wage
Relative wages differ by cohort
< 10 yrs experience
< 10 yrs experience
Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
>20 yrs experience
< 10 yrs experienceCollege Grads /High School Grads
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Card and Lemieux (2001) strategy—allowing more flexibility in the CES
Define education cohorts with substitution among cohorts
MP
Chain Rule
Revised estimating equation
Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
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How credible is the minimum wage explanation?
How credible is the minimum wage explanation?
Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
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How credible is the minimum wage explanation?
Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
How credible is the minimum wage explanation?
Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
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Lemieux(2006): Points to the poor fit of the Katz-Murphy model after 1987 as requiring a different explanation for widening inequality in the 1990s+
Unobserved skills
Prices of the unobserved skills
Measurement error in skills
Presumption that εit increases due to pit, but it could be Var(eit) or Var(vit)
90th percentile log wage residuals, different variances
ε90 ε'90
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1) Surge in college supply lowered returns to skill in the 1970s, but residual inequality continued to riseCollege and unobserved skill must be different inputs
2) College/High School premium stops rising in the 1990s, even though the relative supply change is similar to the 1980s. If trend growth is slowing why is residual inequality still rising?
The need for a new explanation
q y g3) If price of unobserved skill is rising, why is black-whote or male-female gap not
rising?
Solution:
Composition of laborComposition of labor market more experienced
→There is no puzzle
Assume initially that
Define for each education-experience group j
Conditional variance of unobserved skill for group j
Variance decomposition using formulation in handout
Group j share of the total population
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Problem : cannot observe eit
Conditional variance of jth group wages is
Imposing that
Change in variance from period s to period t
Within group variance
Between group variance
If change is within group, it is due to pricesIf change is between groups, it is due to
composition
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Inequality rises when MW falls
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Within group error variance—not much going onmuch going on after 1987
Controlling for changes in composition: Data from 1973, 2003
Estimate (P03 |x): probabilityEstimate (P03 |x): probability of being in 2003 data using individual attributes
Higher educated, experienced people downweighted
Vertical distance due to composition, horizontal path due to prices
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What about measurement error?
March CPS: asks Earnings and Hours for the past yearWage = (Earnings/Hours)
May CPS: asks Hourly wage directlyDitto Outgoing Rotation Group
Outgoing Rotation Group: CPS respondents spend 4 months in, 8 months out and then 4 months in
Salaried workers, similar treatment in March, MayHourly workers should have more accurate information in May
MENsmall
big
Variance in log hourly wages:
WOMEN
hourly wages:Classical measurement error in hourly wages, not in salaried positions
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MEN
Between Group Variance
Classical WOMEN
measurement error does not affect
means: between group variation should not be
affected
MEN
Residual Wage Variation
WOMEN
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MEN
Changes in the proportion of workers in the CPS id h lCPS paid hourly
Fraction paid hourly i i i i i
WOMEN
is increasing, raising measured residual inequality by 15-20 percentage points over the sample period
Autor et al---1) What if we consider the upper and lower
tail of the error distribution2) What if we hold prices fixed and let
composition evolve according tocomposition evolve according to
Vertical distance due to change in prices andVertical distance due to change in prices and horizontal movement along path is due to
changes in labor market composition.
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Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
11/2/2010
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Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
Autor, David H., Lawrence Katz and Melissa S. K “T d i U SKearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
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Occupational labor markets Is there a polarization of the labor market?
Facts:
Rising 90/50 inequality Falling 50/10 inequality
What would explain shrinking demand for the median worker with rising demand at the upper and lower tails?
Dictionary of Occupation Titles defines education level and task intensity by occupation
Task intensity of 50 means the occupation is at the median intensity of the task in 1960
Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
Mean years of education by occupation
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ΔE = α + βΔW + εΔE α βΔW ε
β = 3.0 in 1980-1990β = 2.96 in 1990-2000
Autor, David H., Lawrence Katz and Melissa S. Kearney. “Trends in U.S. Wage Inequality: Revising the Revisionists.” The Review of Economics and Statistics 90(2) (May 2008): 300-323.
