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Wage Inequality in the U.S. during the 1980s: Rising Dispersion or Falling Minimum Wage?

Author

Listed:
  • David S. Lee

    (Princeton University)

Abstract

Inequality in the unconditional distribution of observed wage rates in the U.S. rose substantially during the 1980s, mostly in the lower tail of the distribution. The causes of this rising wage inequality are obscured by the fact that concurrent decreases in the federal minimum wage tend to increase observed wage inequality, regardless of its effect on employment. This study uses regional variation in the relative level of the federal minimum wage to separately identify the impact of the minimum wage from nation-wide growth in latent wage dispersion during the 1980s. CPS wage data show a tight empirical relation between the relative level of the federal minimum wage and dispersion in the lower tail of the wage distribution, across states and over time. After accounting for the diminishing impact of the minimum wage during the 1980s, the evidence points to little or no increase in wage dispersion in the lower tail of the wage distribution.

Suggested Citation

  • David S. Lee, 1998. "Wage Inequality in the U.S. during the 1980s: Rising Dispersion or Falling Minimum Wage?," Working Papers 778, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:399
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    Citations

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    Cited by:

    1. John W. Budd & Brian P. McCall, 2001. "The Grocery Stores Wage Distribution: A Semi-Parametric Analysis of the Role of Retailing and Labor Market Institutions," ILR Review, Cornell University, ILR School, vol. 54(2A), pages 484-501, March.
    2. Neumark, D. & Schweitzer, M. & Wascher, W., 1999. "The Effect of Minimum Wages Throughout the Wage Distribution," Papers 9919, London School of Economics - Centre for Labour Economics.
    3. Lawrence F Katz, 1998. "Reflections on US Labour Market Performance," RBA Annual Conference Volume (Discontinued), in: Guy Debelle & Jeff Borland (ed.),Unemployment and the Australian Labour Market, Reserve Bank of Australia.

    More about this item

    Keywords

    wage inequality; minimum wage; wage structure; within-group inequality;
    All these keywords.

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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