Businessweek Archives

Good News On Wage Inequality


Economic Trends

GOOD NEWS ON WAGE INEQUALITY

For some groups, it's been waning

The general perception is that wage inequality in the U.S. has widened significantly in recent decades. And that's certainly true when one considers the gap between those with college degrees and those with high school diplomas or less. From 1979 to 1995, the average difference between the earnings of high school and college graduates expanded from about 33% to 50%.

As economist Robert I. Lerman of the Urban Institute notes in a recent analysis, however, this trend doesn't necessarily mean that overall earnings inequality is rising sharply. For as the evolving economy has placed increasing emphasis on skills, the behavior of both workers and employers has inevitably changed.

On the supply side of labor markets, rising wage premiums attached to education have encouraged workers to expand their skills and training. Fewer students have been dropping out of high school, and more have gone beyond high school. And the share of college graduates in the U.S. workforce has climbed from 18% in 1979 to 25% in 1995.

Some of this educational upgrading has tempered overall inequality. Since 1979, for example, the percent of total hours worked in the economy by high school dropouts has fallen from 21% to 11%, but this decline was offset by a similar rise in hours worked by those with a few years of college. Because dropouts' wages run far below average while wages of those with some college are close to average, this shift tended to reduce wage inequality in the workforce.

Meanwhile, on the demand side of labor markets, many employers in need of workers with skills have found that other characteristics such as gender or race no longer matter as much as they once did. Lerman's data indicate that the overall male-female wage differential shrank from 37% in 1984 to 24% in 1995 (though it is still about 32% among high school dropouts). At the same time, the wage gap between white and black males narrowed from 26.7% to 18%, and that between white and black females fell from 8.7% to 6%.

Indeed, Lerman's analysis suggests that overall wage inequality in the workforce hardly increased from 1984 to 1995. Although a rising educational wage gap tended to boost inequality, this effect was nearly offset by the tendency of employers to discriminate less on the basis of sex and race.

None of this means that wage inequality is an insignificant problem. Lerman notes that it grew appreciably from 1979 to the mid-1980s and that his analysis excludes those who have dropped out of the workforce entirely, especially a rising number of poorly educated black males. What his findings do suggest, however, is that an era of declining wage inequality may be closer at hand than many people believe--if America decides to make the investments in education and job training that could bring it about.BY GENE KORETZReturn to top

Return to top

THE HAZARDOUS TRADE DEFICIT

It could be trouble if stocks slide

Since the stock market's October pratfall, both it and the economy have done remarkably well. In fact, many experts say, even a significant correction would be unlikely to deflect the ongoing expansion. After all, the 30% market drop in October, 1987, hardly affected the economy and was followed by three years of growth. And, pace 1987, there's growing confidence that Alan Greenspan can keep things on an even keel.

Economist Nicholas S. Perna of Fleet Financial Group is dubious, however. Without deprecating the Federal Reserve's role in 1987, he points out that the economy then was benefiting from a falling dollar. After soaring by more than 80% from 1980 to 1985, the greenback had dropped close to its 1980 level. As a

result, the trade deficit was already shrinking rapidly, and it shrank by an additional 47% over the next two years--accounting for 22% of real growth from late 1987 to late 1989.

This time around, notes Perna, the trade winds are unfavorable. From mid-1995 to mid-1997, the dollar appreciated by 20%, and the trade deficit has already surged from a $75 billion pace in late 1995 to a $130 billion rate. If the stock market were to fall significantly in the coming months, he warns, any weakness it causes will be compounded by the trade sector--not offset by it. In other words, "the Fed will face a far greater challenge than it did in 1987."BY GENE KORETZReturn to top


Steve Ballmer, Power Forward
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus