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The Economy
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American Enterprise Institute for Public Policy Research
AEI
Workers and Their Wages:
Changing Patterns in the United States
Edited by Marvin H. Kosters
This volume of essays analyzes relationships
class and persistent poverty because too
between schooling levels, achievement trends,
many jobs paid wages too low to support
and workers' wages in the 1980s. The editor is
middle-class living standards. Policies that
resident scholar and director of Economic
were proposed for consideration generally
Policy Studies at AEI. The following summary
emphasized programs that could provide
Book Summary
is taken from the book's foreword.
more high-wage employment opportunities
for less-skilled workers or more direct
Trends in real wages for different groups
approaches to raising their wages and
of workers were very uneven during the
incomes.
1980s. This uneven performance contrasted
The essays in this book describe and ana-
with that of the 1950s and 1960s, when the
lyze the major, broad changes in wage rela-
trend of average wages was a fairly reliable
tionships during the 1980s. The analyses
indicator of how well most workers were far-
examine the influence of changes in the sup-
ing. The strong increases in real wages that
ply and demand for workers' skills, as mea-
most workers experienced then may have
sured primarily by years of schooling and
muted concerns about the poorer relative
work experience. A major goal of the re-
performance of some groups of workers.
search was to identify and to explain the
Differences among groups remained small
underlying causes of these changing relative
when real wages stagnated in the 1970s. The
wage patterns. The studies attempted to
large increase in earnings of high-wage work-
develop explanations that are more unified
ers in the 1980s dramatically shifted relative
and comprehensive than those that empha-
wages-a change that was striking in both its
size many separate, particular circumstances
size and its direction compared with the
influencing the changes.
gradual earlier changes.
The focus on the role of education pro-
The remarkable changes in wage patterns
vides a useful framework for structuring the
that emerged in the 1980s gave rise to con-
analyses. The most pervasive change in wage
siderable public discussion about their caus-
relationships that is apparent in all the stud-
es and consequences and about policies to
ies is the increase in wage differentials for
offset them. Among the proximate causes
workers with different levels of schooling.
suggested were employer offers of mainly
During the 1980s the wage premiums for
low-wage jobs, declining union bargaining
additional schooling increased across the
power, and federal government policies that
entire schooling spectrum to levels much
were too market-oriented to protect work-
larger than experienced earlier.
ers' wages or to prop them up. Suggested
Schooling levels for the work force as a
consequences included a shrinking middle
whole were upgraded less rapidly during the
1150 Seventeenth Street, N.W., Washington, D.C. 20036, 202/862 5800
- 2 -
1980s than in the 1970s, and this slowdown
work experience categories can also be ex-
in the growth of the supply of workers with
pected to increase. Chinhui Juhn, Kevin
more schooling was one factor influencing
Murphy, and Brooks Pierce examine the
schooling wage premiums. The big increase
slowdown in convergence of wages of black
in schooling wage premiums in the 1980s
male workers toward those of white males
emerged, however, when significant upgrad-
by taking increased wage dispersion into
ing occurred. One of the most significant
account in establishing appropriate bench
general conclusions in these studies, docu-
marks for comparisons. Their analysis indi-
mented in detail by Kevin Murphy and Finis
cates that wage differences associated with
Welch, is that changes in the relative supply
differences in years of schooling account for
of skilled workers-resulting from changes
about half the slowdown in black-white
in the schooling of the work force-cannot
wage convergence in the 1980s. Differences
be the only factor that influenced relative
in schooling quality apparently account for a
wage patterns in the 1980s. Evidently
substantial portion-possibly all-of the
demand changes were also at work.
remaining slowdown in black progress.
The influence of changes in demand on
Evidence on deficiencies in schooling
relative wage patterns in the 1980s was
quality, especially at the elementary and sec-
closely linked to changing international trade
ondary level, received a great deal of public
patterns. The influence of trade on wage
attention in the 1980s. John Bishop's review
trends was reflected by measures of the size
of evidence from test scores shows a decline
and composition of changes in the trade bal-
in achievement levels during the late 1960s
ance, as shown by Murphy and Welch, and
and 1970s, followed by a recovery to earlier
by indirect evidence on shifts of production
levels during the 1980s. The influence on rel-
operations abroad, as shown by John Bound
ative wages of differences in years of school
and George Johnson. The influence of the
completed was much more important than
pronounced change in trade patterns that
differences in achievement levels that pre-
emerged in the 1980s, however, is difficult to
vailed when workers obtained their school-
distinguish from competing explanations,
ing. Changes over time in schooling quality
such as a surge in skill demands induced by
seem to have contributed to changes in
more rapid technological change. A more
schooling wage premiums, but schooling
definitive judgment about the characteristics
quality, as measured by high school achieve-
of demand changes primarily responsible for
ment tests, is apparently also influenced by
the changes in wage patterns experienced in
changes in the college wage premium. Both
the 1980s, and about the extent to which their
achievement levels and years of schooling
effects might be temporary, would probably
are endogenous, and they can be expected
require more direct measures than were
to adjust in response to changes in wage dif-
available for these studies.
ferentials generated in the labor market.
Workers with more schooling earn higher
The pronounced rise in schooling wage
wages on average than those with less school-
premiums in the 1980s, concurrent with a
ing, and widening wage differentials be-
substantial upgrading of schooling levels, is
tween schooling levels consequently pro-
evidence of a strong growth in demand for
duce increased wage dispersion. The under-
skilled workers. The high wage premiums
lying skills valued by employers are closely
for schooling that emerged can be expected
associated with years of school completed,
to lead to increased investment in schooling
but workers with comparable years of
and skills. Further upgrading of the school-
schooling and work experience do not nec-
ing and skills of the work force would help
essarily have the same marketable skills. If
to raise average wages and living standards
demand for these underlying skills increases,
for the work force as a whole, to stabilize or
dispersion in wages within schooling and
perhaps even to reduce the size of wage dif-
- 3 -
ferentials between workers with different
book were presented at a conference held at
average schooling and wage levels, and to
the American Enterprise Institute, Washing-
bring about a resumption of convergence
ton, D.C., on November 3, 1989. The confer-
toward average wages for workers in groups
ence was organized to promote discussion
with below-average schooling and skills. Im-
and better understanding of the pronounced
proving education and skills would contri-
changes in relative wage relationships during
bute to a more productive work force with
the 1980s. The essays were prepared for pub-
smaller disparities in wages and living
lication to make them available to a broader
standards.
audience.
The analyses and commentaries in this
Workers and Their Wages:
Changing Patterns in the United States
Edited by Marvin H. Kosters
ISBN 0-8447-3747-X, cloth, $27.50; 224 pages.
Add $2.50 handling charge first book, $0.50 each additional book;
Maryland residents add 5% sales tax.
Send check payable to University Press of America to:
THE AEI PRESS, 4720-A Boston Way, Lanham, MD 20706.
To order by phone (Visa or MasterCard only),
call 800/462-6420 Monday-Friday, 9 a.m.-5 p.m. Eastern time.