Pryor, Frederic L.

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Swarthmore College Works Economics Faculty Works Economics 4-1-2001 Review Of "Rising Wage Inequality: The 1980s Experience in Urban Labor Markets" By T. Hyclak Frederic L. Pryor Swarthmore College, fpryor1@swarthmore.edu This work is brought to you for free and open access by . It has been accepted for inclusion in Economics Faculty Works by an authorized administrator of Works. For more information, please contact myworks@swarthmore.edu. Follow this and additional works at: https://works.swarthmore.edu/fac-economics  Part of the Economics Commons Let us know how access to these works benefits you  Recommended Citation Frederic L. Pryor. (2001). "Review Of "Rising Wage Inequality: The 1980s Experience in Urban Labor Markets" By T. Hyclak". Southern Economic Journal. Volume 67, Issue 4. 1024-1025. https://works.swarthmore.edu/fac-economics/221   Southern Economic Association is collaborating with JSTOR to digitize, preserve and extend access to Southern EconomicJournal.http://www.jstor.orgReview Author(s): Frederic L. Pryor Review by: Frederic L. Pryor Source:   Southern Economic Journal, Vol. 67, No. 4 (Apr., 2001), pp. 1024-1025Published by:  Southern Economic AssociationStable URL:  http://www.jstor.org/stable/1061586Accessed: 29-04-2015 14:10 UTCYour use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at  http://www.jstor.org/page/info/about/policies/terms.jspJSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of contentin a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship.For more information about JSTOR, please contact support@jstor.org.This content downloaded from 130.58.65.20 on Wed, 29 Apr 2015 14:10:00 UTCAll use subject to JSTOR Terms and Conditions1024 Book Reviews Rising Wage Inequality: The 1980s Experience in Urban Labor Markets By Thomas Hyclak. Kalamazoo, MI: W. E. Upjohn Institute, 2000. Pp. x, 157, $14.00 (paper). This analysis, which is primarily empirical, provides a useful addition to the literature on the determinants ofwages and wage inequalities. It is based on a careful mining of panel data from the Area Wage Surveys of wages of 41 occupations in 20 urban areas for the period from the mid 1970s to the late 1980s. Hyclak's major conclusions are that the wage patterns in local labor markets roughly parallel those for the nation as a whole, that returns to skills are increas- ing, and that institutional variables have roughly equal explanatory power to supply and demand elements in the labor market for explaining changes in the wage structure. The book is organized in a straightforward fashion. The various chapters deal with the structure of wages in local labor markets, the extent and pattern of changes in wage inequalities, the relation of the availability of benefits to change in the wage structure, the wage returns on skills, and the importance of institutional variables uch as changes in union contract coverage and in the minimum wage for explaining changes in the structure of wages. In the initial chapter, Hyclak lucidly summarizes trends in employment of four large oc- cupational classes, in median real hourly wage rates, and in the variance in hourly wages. He also decomposes the variance of wages to show that, in contrast to differences inwages between occupational groups, differences occurring within these groups account for about 70% of the total wage variance. Although the data sets allow analysis of nonwage benefits only between plant and office workers, they do permit attention to specific types of benefits. The author looks separately at holidays, vacation days, health and pension insurance coverage, and, finally, five additional types of insurance benefits. The pattern of change of the recipients of these various benefits is somewhat mixed, but, in general, benefit coverage shifted from plant to office workers, who also received relatively higher wages. As a result, wage inequalities were reinforced by changes in benefits. He also shows that union coverage generally had, as expected, a positive impact on the share of workers receiving nonwage benefits. The serious econometric analysis begins with his analysis of the returns to skills at a single point in time for the late 1970s and also for the late 1980s, using various measures of skills taken from the Dictionary of Occupational Titles. The author shows that most skills received higher real wage returns in the latter year, holding a number of other determinants such as unemployment and union contract coverage constant. The returns for particular skills, however, have had different payoffs for men and women, an interesting result hat is difficult to explain. With this groundwork covered, the author then turns to an explanation of these trends, looking separately at changes in wages, in the variance of wages, and the wage gap between those in the 25th and 50th percentiles of the distribution. A major purpose of his analysis is to determine the relative impact of traditional market variables and of his two institutional vari- ables, namely, the union contract coverage and the real minimum wage. And, at this point, certain difficulties arise in his analysis because almost all of his market variables specify de- mand-side factors, such as changing skill requirements. The only supply-sized factor is a local unemployment rate of workers in four large occupational classes. The importance of supply-side variables is shown in other labor market studies demon- strating that, during the 1980s, employment inoccupations requiring many years of education This content downloaded from 130.58.65.20 on Wed, 29 Apr 2015 14:10:00 UTCAll use subject to JSTOR Terms and ConditionsBook Reviews 1025 increased more slowly than the number of workers with the requisite education. As a result, college-educated workers experienced considerable downward occupation mobility such that many took jobs previously held primarily by those with much less formal education. Such downwardly mobile college graduates generally had lower cognitive skills than those occupying occupations commensurate with their education. The increasing wages went to those in occu- pations requiring high cognitive skills, regardless of the training required. Those who were unemployed, therefore, did not necessarily pull down the wages of those in the same occupation who were employed and, moreover, most of the unemployed in a given occupation included many who had not yet taken the step of taking a job requiring less education than they possessed. Hyclak's supply-side variable does not capture these various effects, particularly cognitive skills unrelated to training. Although e does find that the lagged unemployment rate in one of the four large occupational groups did have an inverse impact on wages and a positive impact on the variance in wages, the interpretation of the impact of this unemployment variable may not be as straightforward as he argues. His results also give rise to other puzzles, for instance, why an increasing skill level within an occupation should lead to a decrease, rather than an increase, in the variance of wages in that occupation. Hyclak also shows how a rising minimum wage and coverage of the union wage contract reduce wage variance. Although the former esult can be argued from theory, it is gratifying to see such a clean empirical verification. The latter result provides another demonstration f a proposition that has been generally investigated using quite different data sets. The author also argues that the major factors underlying the rising wage inequality in the 1980s was the rising unemployment and the falling ratio of the minimum to the average wage. The major merit of this book lies in the author's disaggregative approach, his careful construction ofexplanatory variables (e.g., his use of real, rather than nominal, wage rates), and his exploration of a variety of nonwage benefits and the payoffs to a variety of skill measures. Although is result showing a parallelism between local and national abor markets may relieve the conscience of those focusing on the national level, such a cross-sectional approach allows exploration of a number of different causal variables than in other labor market studies. Frederic L. Pryor Swarthmore College An Introduction to Classical Econometric Theory By Paul A. Ruud. New York: Oxford Press, 2000. Pp. xxiv, 951. $85.00. An Introduction to Classical Econometric Theory is one of several recent entries into the PhD- level econometrics market.' Ruud has distinguished his text from these competitors in a number of ways, the most notable of which are its organizing principles of mathematical projection and latent-variable models. The former is used to develop the geometry of ordinary least squares (OLS), which is extended to generate theoretical insights into the properties of a variety of other estimators. The latter is adopted as a unifying approach to model specification, empha- sizing the dependence of observables on unobservables. A successful graduate econometrics text will be a well-written a d reasonable comprehen- 1 These include Baltagi (1998), Davidson (2000), Hayashi (2000), and Mittelhammer, Judge, and Miller (2000). Greene (2000), the fourth edition of this popular text, was also published this year. This content downloaded from 130.58.65.20 on Wed, 29 Apr 2015 14:10:00 UTCAll use subject to JSTOR Terms and Conditions

Review Of  Rising Wage Inequality: The 1980s Experience in Urban Labor Markets  By T. Hyclak

Swarthmore College 
Works 
Economics Faculty Works Economics 
4-1-2001 
Review Of "Rising Wage Inequality: The 1980s Experience in 
Urban Labor Markets" By T. Hyclak 
Frederic L. Pryor 
Swarthmore College, fpryor1@swarthmore.edu 
Follow this and additional works at: https://works.swarthmore.edu/fac-economics 
 Part of the Economics Commons 
Let us know how access to these works benefits you 
 
Recommended Citation 
Frederic L. Pryor. (2001). "Review Of "Rising Wage Inequality: The 1980s Experience in Urban Labor 
Markets" By T. Hyclak". Southern Economic Journal. Volume 67, Issue 4. 1024-1025. 
https://works.swarthmore.edu/fac-economics/221 
This work is brought to you for free by Swarthmore College Libraries' Works. It has been accepted for inclusion in 
Economics Faculty Works by an authorized administrator of Works. For more information, please contact 
myworks@swarthmore.edu. 
  Southern Economic Association is collaborating with JSTOR to digitize, preserve and extend access to Southern Economic
Journal.
http://www.jstor.org
Review 
Author(s): Frederic L. Pryor 
Review by: Frederic L. Pryor 
Source:   Southern Economic Journal, Vol. 67, No. 4 (Apr., 2001), pp. 1024-1025
Published by:  Southern Economic Association
Stable URL:  http://www.jstor.org/stable/1061586
Accessed: 29-04-2015 14:10 UTC
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at 
 http://www.jstor.org/page/info/about/policies/terms.jsp
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content
in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship.
For more information about JSTOR, please contact support@jstor.org.
This content downloaded from 130.58.65.20 on Wed, 29 Apr 2015 14:10:00 UTC
All use subject to JSTOR Terms and Conditions
1024 Book Reviews 
Rising Wage Inequality: The 1980s Experience in Urban 
Labor Markets 
By Thomas Hyclak. 
Kalamazoo, MI: W. E. Upjohn Institute, 2000. Pp. x, 157, $14.00 (paper). 
This analysis, which is primarily empirical, provides a useful addition to the literature on the 
determinants ofwages and wage inequalities. It is based on a careful mining of panel data from 
the Area Wage Surveys of wages of 41 occupations in 20 urban areas for the period from the 
mid 1970s to the late 1980s. Hyclak's major conclusions are that the wage patterns in local 
labor markets roughly parallel those for the nation as a whole, that returns to skills are increas- 
ing, and that institutional variables have roughly equal explanatory power to supply and demand 
elements in the labor market for explaining changes in the wage structure. 
The book is organized in a straightforward fashion. The various chapters deal with the 
structure of wages in local labor markets, the extent and pattern of changes in wage inequalities, 
the relation of the availability of benefits to change in the wage structure, the wage returns on 
skills, and the importance of institutional variables uch as changes in union contract coverage 
and in the minimum wage for explaining changes in the structure of wages. 
In the initial chapter, Hyclak lucidly summarizes trends in employment of four large oc- 
cupational classes, in median real hourly wage rates, and in the variance in hourly wages. He 
also decomposes the variance of wages to show that, in contrast to differences inwages between 
occupational groups, differences occurring within these groups account for about 70% of the 
total wage variance. 
Although the data sets allow analysis of nonwage benefits only between plant and office 
workers, they do permit attention to specific types of benefits. The author looks separately at 
holidays, vacation days, health and pension insurance coverage, and, finally, five additional 
types of insurance benefits. The pattern of change of the recipients of these various benefits is 
somewhat mixed, but, in general, benefit coverage shifted from plant to office workers, who 
also received relatively higher wages. As a result, wage inequalities were reinforced by changes 
in benefits. He also shows that union coverage generally had, as expected, a positive impact on 
the share of workers receiving nonwage benefits. 
The serious econometric analysis begins with his analysis of the returns to skills at a single 
point in time for the late 1970s and also for the late 1980s, using various measures of skills 
taken from the Dictionary of Occupational Titles. The author shows that most skills received 
higher real wage returns in the latter year, holding a number of other determinants such as 
unemployment and union contract coverage constant. The returns for particular skills, however, 
have had different payoffs for men and women, an interesting result hat is difficult to explain. 
With this groundwork covered, the author then turns to an explanation of these trends, 
looking separately at changes in wages, in the variance of wages, and the wage gap between 
those in the 25th and 50th percentiles of the distribution. A major purpose of his analysis is to 
determine the relative impact of traditional market variables and of his two institutional vari- 
ables, namely, the union contract coverage and the real minimum wage. And, at this point, 
certain difficulties arise in his analysis because almost all of his market variables specify de- 
mand-side factors, such as changing skill requirements. The only supply-sized factor is a local 
unemployment rate of workers in four large occupational classes. 
The importance of supply-side variables is shown in other labor market studies demon- 
strating that, during the 1980s, employment inoccupations requiring many years of education 
This content downloaded from 130.58.65.20 on Wed, 29 Apr 2015 14:10:00 UTC
All use subject to JSTOR Terms and Conditions
Book Reviews 1025 
increased more slowly than the number of workers with the requisite education. As a result, 
college-educated workers experienced considerable downward occupation mobility such that 
many took jobs previously held primarily by those with much less formal education. Such 
downwardly mobile college graduates generally had lower cognitive skills than those occupying 
occupations commensurate with their education. The increasing wages went to those in occu- 
pations requiring high cognitive skills, regardless of the training required. Those who were 
unemployed, therefore, did not necessarily pull down the wages of those in the same occupation 
who were employed and, moreover, most of the unemployed in a given occupation included 
many who had not yet taken the step of taking a job requiring less education than they possessed. 
Hyclak's supply-side variable does not capture these various effects, particularly cognitive 
skills unrelated to training. Although e does find that the lagged unemployment rate in one of 
the four large occupational groups did have an inverse impact on wages and a positive impact 
on the variance in wages, the interpretation of the impact of this unemployment variable may 
not be as straightforward as he argues. His results also give rise to other puzzles, for instance, 
why an increasing skill level within an occupation should lead to a decrease, rather than an 
increase, in the variance of wages in that occupation. 
Hyclak also shows how a rising minimum wage and coverage of the union wage contract 
reduce wage variance. Although the former esult can be argued from theory, it is gratifying to 
see such a clean empirical verification. The latter result provides another demonstration f a 
proposition that has been generally investigated using quite different data sets. The author also 
argues that the major factors underlying the rising wage inequality in the 1980s was the rising 
unemployment and the falling ratio of the minimum to the average wage. 
The major merit of this book lies in the author's disaggregative approach, his careful 
construction ofexplanatory variables (e.g., his use of real, rather than nominal, wage rates), and 
his exploration of a variety of nonwage benefits and the payoffs to a variety of skill measures. 
Although is result showing a parallelism between local and national abor markets may relieve 
the conscience of those focusing on the national level, such a cross-sectional approach allows 
exploration of a number of different causal variables than in other labor market studies. 
Frederic L. Pryor 
Swarthmore College 
An Introduction to Classical Econometric Theory 
By Paul A. Ruud. 
New York: Oxford Press, 2000. Pp. xxiv, 951. $85.00. 
An Introduction to Classical Econometric Theory is one of several recent entries into the PhD- 
level econometrics market.' Ruud has distinguished his text from these competitors in a number 
of ways, the most notable of which are its organizing principles of mathematical projection and 
latent-variable models. The former is used to develop the geometry of ordinary least squares 
(OLS), which is extended to generate theoretical insights into the properties of a variety of 
other estimators. The latter is adopted as a unifying approach to model specification, empha- 
sizing the dependence of observables on unobservables. 
A successful graduate econometrics text will be a well-written a d reasonable comprehen- 
1 These include Baltagi (1998), Davidson (2000), Hayashi (2000), and Mittelhammer, Judge, and Miller (2000). Greene 
(2000), the fourth edition of this popular text, was also published this year. 
This content downloaded from 130.58.65.20 on Wed, 29 Apr 2015 14:10:00 UTC
All use subject to JSTOR Terms and Conditions


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Review Of Rising Wage Inequality: The 1980s Experience in Urban Labor Markets By T. Hyclak

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