Sources of Increasing Inequality in Wages and Salaries, 1960-80

Article excerpt

W. Norton Grubb is professor of education at the University of California, Berkeley. Robert H. Wilson is associate professor of public affairs at the Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin.

Intersectoral employment shifts appear to be much more important than regional and demographic shifts in the increase in inequality; however, the trend seems to be driven chiefly by developments within labor force groups, rather than movements among them

Interest in the distribution of income waxes and wanes. Concern intensified during the 1960's with the "rediscovery" of poverty and the initiation of the War on Poverty. It diminished during the 1970's, as other economic difficulties commanded the Nation's attention. Evidence that the distribution of income had been relatively stable during the post-World War II period tended to make the issue even less pressing.

During the 1980's, however, distributional questions have become more prominent. According to some analysts, evidence has accumulated that the distributions of income and earnings have become more unequal. The possible consequences-increasing poverty, more demands on government programs, a growing underclass, the decline of the middle class, political instability, a generation of children with inadequate education -would be serious, and would affect almost every public and private institution in the country.

An overview

In examining inequality, it is important to distinguish inequality among individuals from inequality among families or households, which is affected by marriage, separation or divorce, and changes in labor force participation, as well as inequality among individuals; and earnings must be distinguished from income, which includes government transfers. In this article, we explore changes in the distribution of one important component of total income-the pretax wages and salaries of individuals-between 1960 and 1980,1 using data from the decennial census. The strategy we take is similar to that of other researchers -to examine a series of possible explanations of increasing inequality, rejecting some as unimportant and finding others responsible for some part of increases in inequality.

Many previous analyses have concentrated on the earnings distributions among men or have compared men and women.' To develop a broader analysis, we examine the effects of both gender and race on the distribution of wages and salaries. The effects of gender are of particular interest, because the increasing labor force participation of women during the study period, together with the generally lower earnings of women compared to men, could increase overall inequality.

In addition, most analyses have concentrated on national patterns. However, the two decades chosen for study were periods of important sectoral and regional shifts-from manufacturing to services, and from the Snowbelt to the Sunbelt-which increased employment in low-wage positions and could be responsible for increasing inequality. Therefore, we examine the potential effects of regional and sectoral employment shifts. 3

Finally, we use a measure of inequality-one developed by Henri Theil, which we refer to as Theil's T- that is in several ways superior to the conventional measures of inequality (such as the Gini coefficient and the variance of log income), especially in its decomposition properties.

Decomposing patterns of inequality

One substantial and much-discussed change in the U.S. economy that might explain any deterioration of the eamings distribution involves sectoral composition. If as is sometimes claimed,4 well-paid manufacturing positions have been replaced by poorly paid positions in the service sector, then the distribution of earnings might have become more unequal. Alternatively, because high paying industries (often those heavily unionized) tend to show less variation in earnings,5 it may be that the decline in unionized heavy manufacturing has caused a shift from sectors with greater equality of wages to sectors with greater inequality. …