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Skill Differentials in Canada in an Era of Rising Labor Market Inequality

In: Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States

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  • Richard B. Freeman
  • Karen Needels

Abstract

This paper examines educational earnings differentials in Canada in the 1980s and compares changes in differentials to those in the United States. Our major finding is that the college/high school differential increased much less in Canada than in the United States. We also find that within educational groups the distribution of earnings widened, gender pay gaps narrowed, and age pay gaps increased in Canada as in the United States. The greater growth of the college graduate proportion of the work force in Canada than in the United States is one important reason why differentials rose more modestly in Canada than in the United States. The greater strength of Canadian unions in wage-setting, and the faster growth of real national output, and better trade balance in Canada may also have contributed to the lesser rise in differentials. Because Canada and the United States have so many characteristics in common, we interpret our results as indicating that the massive rise of skill differentials in the United States was not the result of some inexorable shift in the economic structure of advanced capitalist countries, but rather reflected specific developments in the U.S. labor market and the way in which the country's decentralised wage-setting system adjusted to these developments.
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Suggested Citation

  • Richard B. Freeman & Karen Needels, 1993. "Skill Differentials in Canada in an Era of Rising Labor Market Inequality," NBER Chapters, in: Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, pages 45-68, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:11145
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    References listed on IDEAS

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    1. Orley Ashenfelter & David Card, 1986. "Why Have Unemployment Rates in Canada and the U.S. Diverged?," Working Papers 584, Princeton University, Department of Economics, Industrial Relations Section..
    2. Jacob Mincer, 1991. "Human Capital, Technology, and the Wage Structure: What Do Time Series Show?," NBER Working Papers 3581, National Bureau of Economic Research, Inc.
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    4. McWatters, C.G. & Beach, C.M., 1989. "The Changes Behind Canada's Income Distribution: Cause for Concern?," Papers 1989-1, Queen's at Kingston - Sch. of Indus. Relat. Papers in Industrial Relations.
    5. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-442, June.
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