The Changing Nature of Wage Inequality

The paper reviews recent developments in the literature on wage inequality, with a particular focus on why inequality growth has been particularly concentrated in the top end of the wage distribution over the last 15 years. Several possible institutional and demand-side explanations are discussed for the secular growth in wage inequality in the United States and other advanced industrialized countries. The paper concludes that three promising explanations for the growth in top-end wage inequality are de-unionization, the increased prevalence of pay for performance, and changes in the relative demand for the types of tasks performed by workers in high-paying occupations.

Incentive Effects of Social Assistance: A Regression Discontinuity Approach

We examine the incentive effects of transfer programs using a unique policy episode. Prior to 1989, social assistance recipients without children in Quebec who were under age 30 received benefits 60 percent lower than recipients older than 30. We use this sharp discontinuity in policy to estimate the effects of social assistance on various labour market outcomes and on living arrangements using a regression discontinuity approach. We find strong evidence that more generous social assistance benefits reduce employment, and more suggestive evidence that they affect marital status and living arrangements. The regression discontinuity estimates exhibit little sensitivity to the degree of flexibility in the specification, and perform very well when we control for unobserved heterogeneity using a first difference specification. Finally, we show that commonly used difference-in-difference estimators may perform poorly when control groups are inappropriately chosen.

Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis

Although the college-high school wage gap for younger men has doubled over the past 30 years, the gap for older men has remained nearly constant. We argue that these shifts reflect changes in the relative supply of highly-educated workers across age groups. Cohorts born in the first half of the century had steadily rising educational attainments that offset rising demand for better-educated workers. This trend ended abruptly in the early 1950s and has only recently resumed. Using a model with imperfect substitution between similarly-educated workers in different age groups, we show that a slowdown in the rate of growth of educational attainment across cohorts will lead to a rise in the return to college for young workers that eventually works its way through the age distribution. This prediction is remarkably consistent with data for the U.S. over the period from 1959 to 1995. Estimates based on a version of the model with two education groups high school equivalent and college equivalent workers suggest that the elasticity of substitution between different age groups is large but finite (around 5) while the elasticity of substitution between the two education groups is about 2.5. We also examine data for the United Kingdom and Canada: both countries experienced similar slowdowns in the rate of growth of educational attainment. Results from these countries are comparable to the U.S. findings, and underscore the importance of cohort-specific relative supplies in interpreting movements in education-related wage differentials.

Why are the Relative Wages of Immigrants Declining? A Distributional Approach

In this paper, we show that the decline in the relative wages of immigrants in Canada is far from homogenous over different points of the wage distribution. The well-documented decline in the immigrant-Canadian born mean wage gap hides a much larger decline at the low end of the wage distribution, while the gap hardly changed at the top end of the distribution. Using standard OLS regressions and new unconditional quantile regressions, we show that both the changes in the mean wage gap and in the gap at different quantiles are well explained by standard factors such as experience, education, and country of origin of immigrants. Interestingly, the most important source of change in the wages of immigrants relative to the Canadian born is the aging of the baby boom generation that has resulted in a relative increase in the labour market experience, and thus, in the wages, of Canadian born workers relative to immigrants.Canada; Immigration; Wages distribution; Unconditional quantile regression

Dropout and Enrollment Trends in the Post-War Period: What Went Wrong in the 1970s?

Over most of the 20th century successive generations of U.S. children had higher enrollment rates and rising levels of completed education. This trend reversed with the baby boom cohorts who attended school in the 1970s, and only resumed in the mid-1980s. Even today, the college entry rate of male high school seniors is not much higher than it was in 1968. In this paper, we use a variety of data sources to address the question What went wrong in the 1970s?' We focus on both demand-side factors and on a particular supply-side variable the relative size of the cohort currently in school. We find that tuition costs and local unemployment rates affect schooling decisions, although neither variable explains recent trends in enrollment or completed education. We also find that larger cohorts have lower schooling attainment, and that aggregate enrollment rates are correlated with changes in the earnings gains associated with a college degree. For women, our results suggest that the slowdown in education in the 1970s was a temporary response to large cohort sizes and low returns to education. For men, however, the decline in enrollment rates in the 1970s and slow recovery in the 1980s point to a permanent shift in the inter-cohort trend in educational attainment that will affect U.S. economic growth and trends in inequality for many decades to come.

Adapting to Circumstances: The Evolution of Work, School, and Living Arrangements Among North American Youth

We use comparable micro data sets for the U.S. and Canada to study the responses of young workers to the external labor market forces that have affected the two countries over the past 25 years. We find that young workers adjust to changes in labor market opportunities through a variety of mechanisms, including changes in living arrangements, changes in school enrollment, and changes in work effort. In particular, we find that poor labor market conditions in Canada explain why the fraction of youth living with their parents has increased in Canada relative to the U.S. recently. Paradoxically, this move back home also explains why the relative position of Canadian youth in the distribution of family income did not deteriorate as fast as in the U.S.