Lawrence F. Katz

Changes in the Wage Structure and Earnings Inequality

This chapter presents a framework for understanding changes in the wage structure and overall earnings inequality. The framework emphasizes the role of supply and demand factors and the interaction of market forces and labor market institutions. Recent changes in the US wage structure are analyzed in detail to highlight crucial measurement issues that arise in studying wage structure changes and to illustrate the operation of the supply-demand-institution framework. The roles of skill-biased technological change, globalization forces, changes in demographics and relative skill supplies, industry labor rents, unions, and the minimum wage in the evolution of the US wage structure are examined. Recent wage structure changes are placed in a longer-term historical perspective, and differences and similarities in wage structure changes among OECD nations are assessed.

Trends in U.S. Wage Inequality: Revising the Revisionists

A recent revisionist literature characterizes the pronounced rise in U.S. wage inequality since 1980 as an episodic event of the first half of the 1980s driven by nonmarket factors (particularly a falling real minimum wage) and concludes that continued increases in wage inequality since the late 1980s substantially reflect the mechanical confounding effects of changes in labor force composition. Analyzing data from the Current Population Survey for 1963 to 2005, we find limited support for these claims. The slowing of the growth of overall wage inequality in the 1990s hides a divergence in the paths of upper-tail (90/50) inequalitywhich has increased steadily since 1980, even adjusting for changes in labor force compositionand lower-tail (50/10) inequality, which rose sharply in the first half of the 1980s and plateaued or contracted thereafter. Fluctuations in the real minimum wage are not a plausible explanation for these trends since the bulk of inequality growth occurs above the median of the wage distribution. Models emphasizing rapid secular growth in the relative demand for skillsattributable to skill-biased technical changeand a sharp deceleration in the relative supply of college workers in the 1980s do an excellent job of capturing the evolution of the college/high school wage premium over four decades. But these models also imply a puzzling deceleration in relative demand growth for college workers in the early 1990s, also visible in a recent polarization of skill demands in which employment has expanded in high-wage and low-wage work at the expense of middle-wage jobs. These patterns are potentially reconciled by a modified version of the skill-biased technical change hypothesis that emphasizes the role of information technology in complementing abstract (high-education) tasks and substituting for routine (middle-education) tasks.

The Polarization of the U.S. Labor Market

This paper analyzes a marked change in the evolution of the U.S. wage structure over the past fifteen years: divergent trends in upper-tail (90/50) and lower-tail (50/10) wage inequality. We document that wage inequality in the top half of distribution has displayed an unchecked and rather smooth secular rise for the last 25 years (since 1980). Wage inequality in the bottom half of the distribution also grew rapidly from 1979 to 1987, but it has ceased growing (and for some measures actually narrowed) since the late 1980s. Furthermore we find that occupational employment growth shifted from monotonically increasing in wages (education) in the 1980s to a pattern of more rapid growth in jobs at the top and bottom relative to the middles of the wage (education) distribution in the 1990s. We characterize these patterns as the %u201Cpolarization%u201D of the U.S. labor market, with employment polarizing into high-wage and low-wage jobs at the expense of middle-wage work. We show how a model of computerization in which computers most strongly complement the non-routine (abstract) cognitive tasks of high-wage jobs, directly substitute for the routine tasks found in many traditional middle-wage jobs, and may have little direct impact on non-routine manual tasks in relatively low-wage jobs can help explain the observed polarization of the U.S. labor market.

The impact of the potential duration of unemployment benefits on the duration of unemployment

Abstract This paper examines the impact of the potential duration of unemployment insurance (UI) benefits on unemployment in the United States. First, we use a large sample of household heads to examine differences in the unemployment spell distributions of UI recipients and nonrecipients. Sharp increases in the escape rate from unemployment both through recalls and new job acceptances are apparent for UI recipients around the time of benefits exhaustion. Such increases are not apparent at similar points of spell duration for nonrecipients. Second, our analysis of accurate administrative data from 12 states indicates that a one week increase in potential benefit duration increases the average duration of the unemployment spells of UI recipients by 0.16 to 0.20 weeks.

Neighborhoods, Obesity, and Diabetes — A Randomized Social Experiment

BACKGROUND The question of whether neighborhood environment contributes directly to the development of obesity and diabetes remains unresolved. The study reported on here uses data from a social experiment to assess the association of randomly assigned variation in neighborhood conditions with obesity and diabetes. METHODS From 1994 through 1998, the Department of Housing and Urban Development (HUD) randomly assigned 4498 women with children living in public housing in high-poverty urban census tracts (in which ≥40% of residents had incomes below the federal poverty threshold) to one of three groups: 1788 were assigned to receive housing vouchers, which were redeemable only if they moved to a low-poverty census tract (where <10% of residents were poor), and counseling on moving; 1312 were assigned to receive unrestricted, traditional vouchers, with no special counseling on moving; and 1398 were assigned to a control group that was offered neither of these opportunities. From 2008 through 2010, as part of a long-term follow-up survey, we measured data indicating health outcomes, including height, weight, and level of glycated hemoglobin (HbA(1c)). RESULTS As part of our long-term survey, we obtained data on body-mass index (BMI, the weight in kilograms divided by the square of the height in meters) for 84.2% of participants and data on glycated hemoglobin level for 71.3% of participants. Response rates were similar across randomized groups. The prevalences of a BMI of 35 or more, a BMI of 40 or more, and a glycated hemoglobin level of 6.5% or more were lower in the group receiving the low-poverty vouchers than in the control group, with an absolute difference of 4.61 percentage points (95% confidence interval [CI], -8.54 to -0.69), 3.38 percentage points (95% CI, -6.39 to -0.36), and 4.31 percentage points (95% CI, -7.82 to -0.80), respectively. The differences between the group receiving traditional vouchers and the control group were not significant. CONCLUSIONS The opportunity to move from a neighborhood with a high level of poverty to one with a lower level of poverty was associated with modest but potentially important reductions in the prevalence of extreme obesity and diabetes. The mechanisms underlying these associations remain unclear but warrant further investigation, given their potential to guide the design of community-level interventions intended to improve health. (Funded by HUD and others.).

Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?

Recent work by David Lilien has argued that the positive correlation between the dispersion of employment growth rates across sectors (σ) and the unemployment rate implies that sectoral shifts in labor demand are responsible for a substantial fraction of cyclical variation in unemployment. This paper demonstrates that, under empirically satisfied conditions, traditional single-factor business-cycle models will produce a positive correlation between σ and the unemployment rate. Information on the job vacancy rate permits one to distinguish between a pure sectoral shift and a pure aggregate demand interpretation of this positive correlation. The finding that σ and the volume of help wanted advertising (a job vacancy proxy) are negatively related supports an aggregate demand interpretation.

The Effect of the Minimum Wage on the Fast-Food Industry:

Using a longitudinal survey of fast-food restaurants in Texas, the authors examine the impact of recent increases in the federal minimum wage on a low-wage labor market. Less than 5% of fast-food restaurants were using the new youth subminimum wage in July/August 1991, even though the vast majority paid a starting wage below the new hourly minimum wage immediately before it became effective. Although some restaurants increased wages beyond the level needed to comply with higher minimum wages in both 1990 and 1991, those federal minimum wage increases greatly compressed the distribution of starting wages in the Texas fast-food industry. Two findings at variance with conventional predictions are that (1) employment increased more in those firms likely to have been most affected by the 1991 minimum wage increase than in other firms and (2) price changes were unrelated to mandated wage changes.

Neighborhood Effects on the Long-Term Well-Being of Low-Income Adults

Location, Location, Location It seems obvious that a persons residential neighborhood will influence their sense of well-being, but it has been difficult to nail down cause and effect. Ludwig et al. (p. 1505; see the Perspective by Sampson) describe the analysis, 10 to 15 years onward, of a large-scale social experiment carried out in five U.S. cities in the mid 1990s. Several thousand residents of poor neighborhoods were given housing vouchers that could only be used if they moved into much less poor neighborhoods. In comparison to a similar group of individuals who did not move, those who did experienced substantial improvement in their subjective well-being. Moving from a poor to a less poor residential environment makes people feel good for a long time. Nearly 9 million Americans live in extreme-poverty neighborhoods, places that also tend to be racially segregated and dangerous. Yet, the effects on the well-being of residents of moving out of such communities into less distressed areas remain uncertain. Using data from Moving to Opportunity, a unique randomized housing mobility experiment, we found that moving from a high-poverty to lower-poverty neighborhood leads to long-term (10- to 15-year) improvements in adult physical and mental health and subjective well-being, despite not affecting economic self-sufficiency. A 1–standard deviation decline in neighborhood poverty (13 percentage points) increases subjective well-being by an amount equal to the gap in subjective well-being between people whose annual incomes differ by

What Can We Learn about Neighborhood Effects from the Moving to Opportunity Experiment

13,000—a large amount given that the average control group income is

Rising Wage Inequality: The Role of Composition and Prices

20,000. Subjective well-being is more strongly affected by changes in neighborhood economic disadvantage than racial segregation, which is important because racial segregation has been declining since 1970, but income segregation has been increasing.