Recession and Recovery: Men’s Earnings Through the 1980's

This paper examines changes in the distribution of men’s earnings over 1979-1990. The paper employs two recent methodological innovations regarding distributional inferences: social welfare ranking criteria based on stochastic dominance principles and statistical inference procedures. The relative importance of cyclical versus trend factors over the 1980s is identified. Using annual CPS microdata, it is found that (1) we can rank in terms of social welfare changes each year’s change in earnings distribution based simply on first-order stochastic dominance with a significant reduction in social welfare judged to have occurred over the decade; (2) highly significant trend and cyclical effects are identified with separate polarizing effects on the earnings distribution; and (3) while cyclical effects are quite dramatic toward the lower end of the distribution (and among the less educated and young workers), a marked trend emerges over the entire distribution that indicated progressively widening skill differentials.