ILR Impact Brief - The Sources of International Differences in Wage Inequality

Wage inequality in the U.S. exceeds that of Canada, Denmark, Finland, Italy, Netherlands, Norway, Sweden, and Switzerland. Some researchers have pointed to the higher relative rewards for higher cognitive skill and more education in the U.S. as an important cause of this difference; others emphasize the greater diversity of labor market skills within the American population. This paper uses recently collected international data on cognitive skills, earnings, age, and years of formal schooling to assess the relative importance of population heterogeneity and higher relative pay for more cognitive skill in explaining higher U.S. wage inequality

Do Cognitive Test Scores Explain Higher U.S. Wage Inequality?

Using microdata from the 1994-8 International Adult Literacy Survey (IALS) for nine countries, we examine the role of cognitive skills in explaining higher wage inequality in the United States. We find that while the greater dispersion of cognitive test scores in the United States plays a part in explaining higher U.S. wage inequality, higher labor market prices (i.e., higher returns to measured human capital and cognitive performance) and greater residual inequality still play important roles, and are, on average, quantitatively considerably more important than differences in the distribution of test scores in explaining higher U.S. wage inequality.

The Feasibility and Importance of Adding Measures of Actual Experience to Cross-Sectional Data Collection

We use Michigan Panel Study of Income Dynamics data and data from a 2008 telephone survey of adults conducted by Westat for the Princeton Data Improvement Initiative (PDII) to explore the importance and feasibility of adding retrospective questions about actual work experience to cross-sectional data sets. We demonstrate that having such actual experience data is important for analyzing women's post-school human capital accumulation, residual wage inequality, and the gender pay gap. Further, our PDII survey results show that it is feasible to collect actual experience data in cross-sectional telephone surveys like the March Current Population Survey annual supplement.gender, microeconomic data collection, work experience, human capital

Do Cognitive Test Scores Explain Higher US Wage Inequality?

Using microdata from the 1994-6 International Adult Literacy Survey (IALS), we examine the role of cognitive skills in explaining higher wage inequality in the US. We find that while the greater dispersion of cognitive test scores in the US plays a part in explaining higher US wage inequality, higher labor market prices (i.e., higher returns to measured human capital and cognitive performance) and greater residual inequality still play important roles for both men and women. And we find that, on average, prices are quantitatively considerably more important than differences in the distribution of test scores in explaining the relatively high level of US wage inequality. This finding holds up when we examine natives only and when we correct for sample selection.

Gender and Youth Employment Outcomes: The US and West Germany, 1984-91

This paper examines gender differences in labor market outcomes for hard-to-employ youth in the US and West Germany during the 1984-91 period. We find that young, less educated American men and especially women are far less likely to be employed than their German counterparts. Moreover, less educated young women and men in the United States have lower earnings relative to more highly educated youth in their own country, and also fare much worse than less educated German youth in absolute terms, correcting for purchasing power. The relatively high employment rates of less educated German youth combined with their relatively high wages raise the question of how they are successfully absorbed into the labor market. We present evidence that the large public sector in Germany in effect functions as an employer of last resort, absorbing some otherwise unemployable low skilled youth. Our findings also suggest that the US welfare system accounts for very little of the US-German difference in employment rates.

International Differences in Male Wage Inequality: Institutions versus Market Forces

While changes in the demand for skilled labor appear to have led to a widening of the wage structures in many countries during the 198Os,considerable differences in the level of wage inequality remain. In this paper, we examine the sources of these differences, focusing primarily on explaining the considerably higher level of wage inequality in the U.S. We find that the greater overall dispersion of the U.S. wage distribution reflects considerably more compression at the bottom of the distribution in the other countries, but relatively little difference in the degree of wage inequality at the top. While differences in the distribution of measured characteristics help to explain some aspects of the international differences, U.S. labor market prices--that is, higher rewards to labor market skills-are an important factor. Labor market institutions, chiefly the relatively decentralized wage-setting mechanisms in the U.S. compared to other countries, appear to provide the most persuasive explanation for these international differences in prices. In contrast, the pattern of cross-country differences in relative supplies of and demands for skills does not appear to be consistent with the pattern of observed differences in wage inequality.

Changes in the Labor Supply Behavior of Married Women: 1980-2000

Using March Current Population Survey (CPS) data, we investigate married women's labor supply behavior from 1980 to 2000. We find that their labor supply function for annual hours shifted sharply to the right in the 1980s, with little shift in the 1990s. In an accounting sense, this is the major reason for the more rapid growth of female labor supply observed in the 1980s, with an additional factor being that husbands' real wages fell slightly in the 1980s but rose in the 1990s. Moreover, a major new development was that, during both decades, there was a dramatic reduction in women's own wage elasticity. And, continuing past trends, women's labor supply also became less responsive to their husbands' wages. Between 1980 and 2000, women's own wage elasticity fell by 50 to 56 percent, while their cross wage elasticity fell by 38 to 47 percent in absolute value. These patterns hold up under virtually all alternative specifications correcting for: selectivity bias in observing wage offers; selection into marriage; income taxes and the earned income tax credit; measurement error in wages and work hours; and omitted variables that affect both wage offers and the propensity to work; as well as when education groups and mothers of small children are analyzed separately.

Substitution Between Individual and Cultural Capital: Pre-Migration Labor Supply, Culture and US Labor Market Outcomes Among Immigrant Woman

In this paper we use New Immigrant Survey data to investigate the impact of immigrant women's own labor supply prior to migrating and female labor supply in their source country to provide evidence on the role of human capital and culture in affecting their labor supply and wages in the United States. We find, as expected, that women who migrate from countries with relatively high levels of female labor supply work more in the United States. Moreover, most of this effect remains when we further control for each woman’s own labor supply prior to migrating, which itself also strongly affects labor supply in the United States. Importantly, we find a significantly negative interaction between pre-migration labor supply and source country female labor supply. We obtain broadly similar effects analyzing the determinants of hourly earnings among the employed in the United States, although the results are not always significant. These results suggest an important role for culture and norms in affecting immigrant women's labor supply, since the effect of source country female labor supply on immigrant women's US work hours is still strong even controlling for the immigrant’s own pre-migration labor supply. The negative interaction effects between previous work experience and source country female labor supply on women's US work hours and wages suggest that cultural capital and individual job-related human capital act as substitutes in affecting preparedness for work in the US.gender, immigration, labor supply, human capital