BPEA | 1994 No. 2

The Growth of Earnings Instability in the U.S. Labor Market

discussants: Lawrence F. Katz and William T. Dickens
William T. Dickens University Distinguished Professor of Economics & Social Policy - Northeastern University

1994, No. 2

THE WIDENING EARNINGS distribution in the U.S. labor market over the 1970s and 1980s has been one of the most remarkable shifts in the structure of labor compensation in recent history-the last major shift in this distribution having occurred during the 1940s. In the postwar period, earnings and income distributions have been regarded as stable bedrock—that is, until recently—with a common theme being the stability of those distributions in light of massive changes in labor markets and public spending on redistributive programs. Entire books were written on the subject. This view of long-term stability has been dramatically altered by an enormous, and still growing, series of investigations showing a widening of the income and wage distributions. As documented in an article by Frank Levy and Richard Murnane, the widening of the earnings distribution began gradually in the 1970s and accelerated in the 1980s. Earnings differentials by education and experience grew rapidly in the 1980s. A debate has now ensued concerning the causes of these trends whether they are the result of general shifts in supply or demand caused by skill-biased technological change, shifts in the pattern of international trade, changes in union rents or the minimum wage, or other factors-.