Inequality, incentives, and opportunity

Social Philosophy and Policy

Volumn 19, Issue 1, 2002, Pages 84-107

  Deere, Donald R ^a   Welch, Finis ^a  

^a NONE

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EID: 0039484276     PISSN: 02650525     EISSN: None     Source Type: Journal    
DOI: 10.1017/S0265052502191059     Document Type: Article

References (32)

1. See Donald R. Deere, "Trends in Wage Inequality in the United States," in Finis Welch, ed., The Causes and Consequences of Increasing Inequality (Chicago: University of Chicago Press, 2001).
2. See Finis Welch, "Wages and Participation," Journal of Labor Economics 15, no. 1 (1997): S77-S103.
3. See Kevin Murphy and Finis Welch, "Inequality and Relative Wages," American Economic Review 83, no. 2 (1993): 104-9.
4. See Chinhui Juhn and Kevin Murphy, "Wage Inequality and Family Labor Supply," Journal of Labor Economics 15, no. 1 (1997): 72-97.
5. See James P. Smith, "Why Is Wealth Inequality Rising?" in Welch, ed., The Causes and Consequences of Increasing Inequality.
6. According to the 1996 General Social Survey (GSS) administered by the National Opinion Research Center (NORC), over two-thirds of those responding indicated that they either agreed or strongly agreed with the statement, "Differences in income in America are too large." See National Opinion Research Center, "Codebook Variable: INCGAP," available on-line at http://www.icpsr.umich.edu/GSS/rndl998/merged/cdbk/incgap.htm.
7. The 1996 GSS also indicates that fewer than one-third of those responding agreed or strongly agreed with the statement, "It is the responsibility of the government to reduce the differences in income between people with high incomes and those with low incomes." See National Opinion Research Center, "Codebook Variable: EQINCOME," available on-line at http://www.icpsr.umich.edu/GSS/rnd1998/merged/cdbk/eqincome.htm.
8. Witness the popular attempts to eliminate the so-called "marriage" and "death" taxes. Of course, other popular reforms, such as proposed changes to increase accountability for student performance, ought to be equalizing in the long run.
9. The 1993 GSS (the question was not asked in 1996) indicates that over 86 percent of those responding favored "promoting equal opportunity" over "promoting equal outcomes." See National Opinion Research Center, "Codebook Variable: OPOUTCME," available on-line at http://www.icpsr.umich.edu/GSS/rnd1998/merged/cdbk/opoutcme.htm.
10. Stock ownership has become more widespread at all income levels. Stock ownership increased by about 50 percent between 1989 and 1998 for all families, and doubled for families with incomes below $25,000 (in 1998 dollars). See Arthur B. Kennickell, Martha Starr-McCluer, and Brian J. Surette, "Recent Changes in U.S. Family Finances: Results from the 1998 Survey of Consumer Finances," Federal Reserve Bulletin 86, no. 1 (2000): 1-29.
11. This puts to the side labor supply, or quantity of work, considerations.
12. We assume that the tendency to rationalize more often than not results in compatible interests and abilities.
13. At the same time, education levels have increased even more rapidly for women than for men, but part of the increase seems to have resulted from the shift from working inside the home to working elsewhere, and therefore we cannot say whether the incentive response of women to the increased wage premium outstripped that of men.
14. Kevin Murphy and Finis Welch, "Wage Differentials in the 1990s: Is the Glass Half-Full or Half-Empty?" in Welch, ed., The Causes and Consequences of Increasing Inequality.
15. This calculation ignores effects of investments in skills other than education, and also ignores the value of further increases in the demand for skills.
16. See Gary Solon, "Mobility within and between Generations," in Welch, ed., The Causes and Consequences of Increasing Inequality.
17. 2. The probability that this difference is greater than zero can be recovered from a cumulative standard normal probability table; it is 63.9 percent. For grandsons, the calculation uses .2025 for .45, and the resulting probability that the economic status of A's grandson is higher than that of B's grandson equals 55.8 percent.
18. See James P. Smith and Finis Welch, "Affirmative Action and Labor Markets," Journal of Labor Economics 2, no. 2 (1984): 269-301. Concentrating on the 1960-80 wage convergence between black and white men, Smith and Welch observed that the gains by black men were pervasive throughout the economy and were not concentrated disproportionately in those parts of the economy where government contractors were monitored by the Office of Federal Contract Compliance Program or where larger firms (which report to the Equal Employment Opportunity Commission) were concentrated.
19. Wages for an individual are calculated as annual earnings (before taxes) in the previous year divided by the number of weeks worked during that year. The wage calculations thus refer to the years 1967-98. An important consideration when examining increases in inequality is what happened to the wage opportunities of men who do not work. In order to include all men in the calculations, we imputed the wages of those who worked fewer than 35 hours per week or who worked fewer than 14 weeks (including zero), using a regression based on various characteristics including age, education, marital status, race, and how much they did work (if working). For women, whose wages we compare to men's in Section V, the imputation of wages for those who do not work is a difficult issue and is not done; only women working full-time (at least 35 hours per week) for at least one week in a year are included in the calculations in Section V.
20. All of the wage calculations here include only white men, one to forty years out of school, in order to focus on wage changes for a relatively homogenous group. Section V compares the wages of black men and black and white women to the wages of white men.
21. The figure for transitory wage variation comes from noting that the distribution of a two-year average of wages has a variance that is about 80 percent as large as the variance of the distribution of a single year's wages.
22. One suspects that the opposite is probably true of job amenities, however. See Robert E. B. Lucas, "Hedonic Wage Equations and Psychic Wages in the Returns to Schooling," American Economic Review 67, no. 4 (1977): 549-58.
23. The wage premium for college graduates is calculated including solely those that only have a bachelor's degree. If those with a postgraduate education are included in the category of college graduates, the premium rises from 46 percent in 1979 to 89 percent in 1996.
24. While the average wage of college graduates is higher than, and has increased relative to, the average wage of high school graduates, education is not a guarantee of a higher wage. The significant inequality in wages among those with the same years of education implies that there is overlap between the wages of high school graduates and the wages of college graduates. In the late 1960s, the probability that a randomly selected high school graduate had a wage higher than a randomly selected college graduate was about 30 percent. After increasing slightly during the 1970s, this probability was again about 30 percent in the late 1990s.
25. The enrollment rate for all 18-to 24-year-olds (men and women) in postsecondary-education institutions shows a similar pattern - the rate was 25.7 percent in 1970, 25.7 percent again in 1980, 32.0 percent in 1990, and 36.5 percent in 1998. See U.S. Department of Education, National Center for Education Statistics, The Condition of Education 2000 (Washington, DC: U.S. Government Printing Office, 2000), 114.
26. James S. Coleman et al., Equality of Educational Opportunity (Washington, DC: U.S. Government Printing Office, 1966).
27. The wage distribution for all men includes wages imputed for those men who are not working. Thus, nonworking men can have wages at any percentile of the wage distribution, though the imputed wages of nonworking men are concentrated at the lower percentiles. See note 19 for a discussion of the wage-imputation procedure.
28. See Michael R. Darby, "Postwar U.S. Consumption, Consumer Expenditures, and Saving," American Economic Review 65, no. 2 (1975): 217-22.
29. Brown v. Board of Education, 347 U.S. 483 (1954), declared that state-sanctioned segregation of public schools was unconstitutional. The Civil Rights Act of 1964 prohibits employment discrimination based on race, color, religion, sex, or national origin. The Voting Rights Act of 1965 was designed to enforce the Fifteenth Amendment, which granted blacks the right to vote. The Equal Pay Act of 1963 prohibits sex-based wage discrimination between men and women working in the same establishment and performing under similar working conditions. Finally, Executive Order 11246, administered and enforced by the U.S. Department of Labor's Office of Federal Contract Compliance, prohibits federal contractors from discriminating, in employment decisions, on the basis of those characteristics listed in the description of the Civil Rights Act.
30. This data is taken from U.S. Social Security Administration, Social Security Bulletin Annual Statistical Supplement 2000 (Washington, DC: U.S. Government Printing Office 2000) tables 4.A6 and 7.A4.
31. These percentages are calculated from the same data used for Panel A of Table 6.
32. Recall that, unlike for men, there are no wage imputations for women - only women working at least 35 hours per week for at least one week in a year are included in these calculations. Also, there are three race categories in the calculations (white, black, and other), leading to a total of six race/gender combinations.