Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?
Lemieux, Thomas. 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?."
American Economic Review,
This paper shows that a large fraction of the 1973-2003 growth in residual wage
inequality is due to composition effects linked to the secular increase in experience
and education, two factors associated with higher within-group wage dispersion.
The level and growth in residual wage inequality are also overstated in the March
Current Population Survey (CPS) because, unlike the May or Outgoing Rotation
Group (ORG) CPS, it does not measure directly the hourly wages of workers paid
by the hour. The magnitude and timing of the growth in residual wage inequality
provide little evidence of a pervasive increase in the demand for skill due to
skill-biased technological change. (JEL J31)
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