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NOVEMBER 22, 1999


Why the Wage Gap Widened
And why it has been narrowing

 
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What's behind the growing gap between the earnings of those at the top of the income ladder and those near the bottom? Because rising wage inequality in recent decades has occurred in many countries besides the U.S. and in a variety of industries, economists have favored explanations that cut across national and industrial borders.

The most likely culprit, claim the experts, is changing technology, which has presumably boosted the demand for better-educated workers, while depressing the job opportunities and wages of the less skilled. However, a recent study presented at a conference at the Jerome Levy Economics Institute at Bard College points to another suspect: the decline in manufacturing employment.

In the study, Andrew B. Bernard of Dartmouth College's Tuck School of Business and J. Bradford Jensen of the Census Bureau analyzed the changing wage gaps in all 50 states during the 1970s and 1980s. While wage inequality in the U.S.--measured by the ratio of the wages of high-wage earners to those of low-wage earners--rose by nearly 12% over those two decades, they found that it actually fell in seven states and rose by 18% to 25% in eight others.

To explain such differences, Bernard and Jensen looked at such developments as changing technology, international trade, immigration, and falling minimum wage levels. Although their analysis implicated several, they found that changes in industrial composition played the most significant role--accounting for 30% to 55% of state changes in inequality.

Specifically, states that lost manufacturing jobs, such as those in the Northeast and Midwest, had the biggest rises in inequality, while those that gained manufacturing jobs, such as states in the South, tended to post either decreases in inequality or very modest increases. (Wyoming and Oregon also had widening wage gaps, apparently due to shocks sustained by the oil and lumber industries.)

Although it focuses on past decades, the study may shed light on recent reports that the trend toward rising wage inequality has slowed appreciably. After posting big losses in the 1980s, notes Bernard, ''manufacturing jobs appear to have more or less stabilized in the 1990s.''


By GENE KORETZ

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