Accounting for Wage and Employment Changes in the U.S. from 1968-2000: A Dynamic Model of Labor Market Equilibrium

This paper presents a unified treatment of and explanation for the evolution of wages and employment in the U.S. over the last 30 years. Specifically, we account for the pattern of changes in wage inequality, for the increased relative wage and employment of women, for the emergence of the college wage premium and for the shift in employment from the goods to the service-producing sector. The underlying theory we adopt is neoclassical, a two-sector competitive labor market economy in which the supply of and demand for labor of heterogeneous skill determines spot market skill-rental prices. The empirical approach is structural. The model embeds many of the features that have been posited in the literature to have contributed to the changing U.S. wage and employment structure including skill-biased technical change, capital-skill complementarity, changes in relative product-market prices, changes in the productivity of labor in home production and demographics such as changing cohort size and fertility.gender wage differential, college wage premium, sectoral changes

Intersectoral Labor Mobility and the Growth of the Service Sector

One of the most striking changes in the U.S. economy over the past 50 years has been the growth in the service sector. In 1950, 57 percent of workers were employed in the service sector, by 1970 that figure had risen to 63 percent and by 2000 to 75 percent. While service sector employment grew by 2.2 percent per year faster than employment in the goods sector between 1968 and 2000, the real hourly wage in the service sector grew only by 0.23 percent more per year over the same period. In this paper, we assess whether or not the essential constancy of the relative wage implies that individuals face small costs of switching sectors and quantify the relative importance of labor supply and demand factors in the growth of the service sector. We specify and estimate a two-sector growth model with idiosyncratic and aggregate shocks that allows us to address these empirical issues in a unified coherent framework. Our estimates imply that there are large mobility costs; output in both sectors would have been double their current levels if these mobility costs had been zero. In addition, we find that demand side factors, that is, technical change and movements in product and capital prices, were responsible for the growth of the service sector.labor mobility, service sector growth, labor market equilibrium

Accounting for Wage and Employment Changes in the U. S. from 1968-2000: A Dynamic Model of Labor Market Equilibrium

In this paper, we present a unified treatment of and explanation for the evolution of wages and employment in the U.S. over the last 30 years. Specifically, we account for the pattern of changes in wage inequality, for the increased relative wage and employment of women, for the emergence of the college wage premium and for the shift in employment from the goods to the service-producing sector. The underlying theory we adopt is neoclassical, a two-sector competitive labor market economy in which the supply of and demand for labor of heterogeneous skill determines spot market skill-rental prices. The empirical approach is structural. The model embeds many of the features that have been posited in the literature to have contributed to the changing U.S. wage and employment structure including skill-biased technical change, capital-skill complementarity, changes in relative product-market prices, changes in the productivity of labor in home production and demographics such as changing cohort size and fertility.Male-Female Wage Differential, Wage Inequality, College Wage Premium