G = A/(A+B)
A
B
20%
4%
20%
Perfect equality = O < G < 1 = Perfect inequality
World Development Report 2006: Equity and Development
World Development Report 2006: Equity and Development
Gini coefficients in the world
World Development Report 2006: Equity and Development
Wage ratios
WR =
20%
W80
W20
20%
W20
W80
Wage
Wages rising at upper tail,
falling at lower tail
Acemoglu, Daron “Technical Change, Inequality, and the Labor
Market” Journal of Economic Literature, March 2002
W = βX + e; X = vector of measured skills; e = residual
Residual inequality: wage
differences holding
constant education,
experience
Acemoglu, Daron “Technical Change, Inequality, and the Labor
Market” Journal of Economic Literature, March 2002
Wage dispersion: ratio of the 90th
percentile to the 10th percentile wage
19801984
1995
1999
Δ 19991980
Australia
2.88
2.94
0.06
Finland
2.49
2.36
-0.13
France
3.18
3.07
-0.11
Germany
2.88
2.87
-0.01
Japan
3.08
2.99
-0.09
Netherlands
2.47
2.85
0.38
New Zealand
2.89
3.28
0.39
Sweden
2.01
2.23
0.22
UK
3.09
3.45
0.36
USA
3.91
4.59
0.68
Source: OECD Employment Outlook, 2004
Stylized facts regarding earnings inequality
1) Inequality has been increasing steadily in
the U.S. since the 1980s for both men and
women
2)Inequality has been rising in other
industrialized economies
3) Until 1980, inequality had been rising
across countries
4) Conclusions are not sensitive to measure
of inequality used
Rising inequality not due to gender discrimination
Source: Bureau of Labor Statistics
Rising inequality not due to
race discrimination
Source: Bureau of Labor Statistics
Ratio of Women's to Men's Hourly Earnings by Country, 1970-2002
Source: Blau, Ferber, and Winkler, The Economics of Women, Men and Work 2006.
0.95
0.9
0.85
Australia
0.8
Ratio
France
Germany
0.75
Norw ay
0.7
Sw eden
UK
0.65
USA
0.6
0.55
0.5
1970
1975
1980
1985
1990
Year
1995
2000
2005
Stylized facts regarding earnings inequality
5) Women are gaining relative to men
6) Minorities gained relative to whites before
the 1980s, but relative earnings for
minorities stabilized thereafter
7) Wage inequality between women
increased, as did wage inequality between
men
8) Residual inequality began to increase for
both men and women in the 1970s
Relative wages of males 25-54 versus males 20-24, 1973-1998
Ratio (1973=1)
1.4
1.3
1.2
CANADA
1.1
JAPAN
FRANCE
USA
1
UK
0.9
0.8
1970
1975
1980
1985
Year
1990
1995
2000
Estimated Returns to Schooling Relative to High School
Graduates: 1976-1998
0.8
0.7
0.6
Post Graduate
education
0.5
0.4
Bachelor's Degree
Recipients
0.3
0.2
0.1
0
1976
1981
1986
1991
1996
Acemoglu, Daron “Technical Change, Inequality, and the Labor
Market” Journal of Economic Literature, March 2002
Stylized facts regarding earnings inequality
9) There have been coincident increases in
returns to schooling over that period
10) There have been rising returns to
experience over that time frame
11) Young college graduates have gained
the most, especially in the 1990s
12) Rising returns to college even as relative
supply has increased tremendously
Econ 1 Test
Has to be a demand side reason for
Rising relative employment
Rising relative wages
Cause must be common across industrialized
economies
Acemoglu, Daron “Technical Change, Inequality, and the Labor
Market” Journal of Economic Literature, March 2002
Estimated own and cross price elasticities between capital,
labor and human capital per worker
Price of
Demand for
Physical Capital
Numbers of
Workers
Human Capital
per Worker
Red: Complements;
Physical
Capital
Human
Numbers of Capital per
Workers
Worker
-0.45
1.07
-0.11
0.66
-1.44
0.15
-0.15
0.35
-0.13
Blue: Substitutes
Note: Based on share-weighted elasticities of substitution reported in Table 6 of Huang.
Hallam, Orazem and Paterno, "Empirical Tests of Efficiency Wage Models."Economica
65 (February 1998):125-143.
ln(WR)= β0 + β1* NR + β2* r + e
WR= relative college to high school wage
NR = relative weeks worked of college educated to high school educated
r = relative price of equipment capital
Acemoglu, Daron “Technical Change, Inequality, and the Labor
Market” Journal of Economic Literature, March 2002
Stop here
Other issues
Economic policy to limit inequality and labor
market performance
Tax and Transfer policies and inequality
Inequality within occupations
Scatterplot of Changes in wage dispersion and unemployment rates, 19902000
Change in 90-10 wage ratio
0.5
Tradeoff between rising inequality
and employment stability
0.4
New Zealand
USA
0.3
Netherlands
0.2
UK
Australia
Sweden
0.1
Germany
0
-6
-4
2
0
-2
4
6
-0.1
France
-0.2
Japan
Change in unemployment rate
Finland
8
Weinberg, Daniel. Alternative Measures of Income Poverty and. the Anti-poverty
Effects of Taxes and Transfers
www.welfareacademy.org/pubs/poverty/Weinberg_Alt_Measures.pdf
http://www.census.gov/hhes/www/poverty/effect2004/effectofgovtandt2004.pdf
Buckley, John. “Rankings of Full-Time Occupations, by Earnings, 2000.”
Monthly Labor Review 125 (March 2002): 46-57.
Buckley, John. “Rankings of Full-Time Occupations, by Earnings, 2000.”
Monthly Labor Review 125 (March 2002): 46-57.
CPS: Current Population Survey
MINT: Social Security Administration data
B. Bosworth, G. Burtless and C. Sahn “The Trend in Lifetime Earnings Inequality and Its Impact on the Distribution
of Retirement Income” August 2001
All workers
Restricted to Full-time workers
CPS: Current Population Survey
MINT: Social Security Administration data
B. Bosworth, G. Burtless and C. Sahn “The Trend in Lifetime Earnings Inequality and Its Impact on the Distribution
of Retirement Income” August 2001
Economic Freedom Index
High
Medium
Low
Returns to Education and Experience among Full-Time, YearRound Workers, Selected Ages, 1975–2003 (in 2003 dollars)