www.skope.ox.ac.uk

Education, occupations and wage inequality in the UK since the

1980s

Craig HolmesSKOPE and Oxford University

OUDE Research Day, October 9th 2013

www.skope.ox.ac.uk

Introduction• Wage inequality in the UK has risen since the 1980s

www.skope.ox.ac.uk

Introduction• Rising upper- and lower-tail inequality until mid 1990s• Small increases in upper-tail inequality since mid 1990s (except at very

top), coupled with falling inequality at bottom end

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.00.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

1987-2001

1994-2007

Percentile

Real

wag

e gr

owth

www.skope.ox.ac.uk

Workforce composition• Education and earnings are strongly correlated• Increasing the size of the more educated groups drives up inequality

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Total estimated composition

Education

Percentile

Real

wag

e gr

owth

, 198

7-20

01

www.skope.ox.ac.uk

Workforce composition• Other compositional changes also have inequality-increasing effects• This is true for past decade too

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Total estimated composition

Occupations

Education

Unions

Percentile

Real

wag

e gr

owth

, 198

7-20

01

www.skope.ox.ac.uk

The wage structure• Overall effect on inequality depends on structure of wages associated with

these variables• For education:

– Increasing demand for skills widens earnings inequality between the more and less educated groups

– Increasing education attainment could reduce earnings inequalities as earnings benefits spread more widely

www.skope.ox.ac.uk

The wage structure• We do see inequality reducing changes in the wage structure...

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%Composition

Wage structure

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Composition

Wage structure

www.skope.ox.ac.uk

The wage structure• ...but these are not attributable to educational attainment

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Degree

Post compulsory

www.skope.ox.ac.uk

Distribution of jobs• Seems to reflect ‘correction’ of compositional changes – not as many

people in high wage jobs as we’d predict

Year Jobs earning below 2/3 * median hourly

wage

Jobs earning above 1.5* median hourly

wageInitial (1987) 20.2% 23.4%Composition effects only 24.0% 27.1%Final (2001) 23.0% 25.6%Initial (1994) 22.6% 25.2%Composition effects only 25.2% 27.3%Final (2007) 21.3% 25.9%

www.skope.ox.ac.uk

Distribution of jobs

• Result: increasingly heterogeneous occupational groups

Low pay Middle pay High pay

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

Professionals Managerial

Intermediate Manual routine

Admin routine Service

Chan

ge in

em

ploy

men

t sha

re, 1

994-

2007

www.skope.ox.ac.uk

Distribution of jobs

• Graduates only:

Low pay Middle pay High pay

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

Professionals Managerial

Intermediate Manual routine

Admin routine Service

Chan

ge in

em

ploy

men

t sha

re, 1

994-

2007

www.skope.ox.ac.uk

Conclusion• Policymakers tend to work with a ‘room at the top’ mindset focus on

supply of skills through increasing educational attainment• Higher wage jobs are more scarce that this suggests – limits the ability of

education to reduce labour market inequalities• The problem may be a different sort of ‘demand for skill’ problem to the

one the UK has often faced – not a market failure or a problem of short-termism.

• In the mean time, should leads to a great concern about intergenerational inequalities

www.skope.ox.ac.uk

Contact Details

Craig Holmes

ESRC Centre on Skills, Knowledge and Organisational Performance (SKOPE),

Email: craig.holmes@pmb.ox.ac.uk