Melissa Schettini Kearney

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.

Rising Wage Inequality: The Role of Composition and Prices

During the early 1980s, earnings inequality in the U.S. labor market rose relatively uniformly throughout the wage distribution. But this uniformity gave way to a significant divergence starting in 1987, with upper-tail (90/50) inequality rising steadily and lower tail (50/10) inequality either flattening or compressing for the next 16 years (1987 to 2003). This paper applies and extends a quantile decomposition technique proposed by Machado and Mata (2005) to evaluate the role of changing labor force composition (in terms of education and experience) and changing labor market prices to the expansion and subsequent divergence of upper- and lower-tail inequality over the last three decades We show that the extended Machado-Mata quantile decomposition corrects shortcomings of the original Juhn-Murphy-Pierce (1993) full distribution accounting method and nests the kernel reweighting approach proposed by DiNardo, Fortin and Lemieux (1996). Our analysis reveals that shifts in labor force composition have positively impacted earnings inequality during the 1990s. But these compositional shifts have primarily operated on the lower half of the earnings distribution by muting a contemporaneous, countervailing lower-tail price compression. The steady rise of upper tail inequality since the late 1970s appears almost entirely explained by ongoing between-group price changes (particularly increasing wage differentials by education) and residual price changes.

Subsidized contraception fertility and sexual behavior.

We examine the impact of recent state-level Medicaid policy changes that expanded eligibility for family planning services to higher-income women and to Medicaid clients whose benefits would expire otherwise. We show that the income-based policy change reduced overall births to non-teens by about 2 and to teens by over 4; estimates suggest a decline of 9 among newly eligible women. The reduction in fertility appears to have been accomplished via greater use of contraception. Our calculations indicate that allowing higher-income women to receive federally funded family planning cost on the order of 6,800 for each averted birth.

Income Inequality and Early Nonmarital Childbearing

Using individual-level data from the United States, we empirically investigate the role of lower-tail income inequality in determining rates of early nonmarital childbearing among low socioeconomic status (SES) women. We present robust evidence that young low-SES women are more likely to have a nonmarital birth when they live in places with larger lower-tail income inequality, all else held constant. We calculate that differences in the level of inequality are able to explain a sizeable share of the geographic variation in teen fertility rates. We propose a model of adolescent decision-making that facilitates the interpretation of our results.

Investigating recent trends in the U.S. teen birth rate

We investigate trends in the U.S. rate of teen childbearing between 1981 and 2010, focusing specifically on the sizable decline since 1991. We focus on establishing the role of state-level demographic changes, economic conditions, and targeted policies in driving recent aggregate trends. We offer three main observations. First, the recent decline cannot be explained by the changing racial and ethnic composition of teens. Second, the only targeted policies that have had a statistically discernible impact on aggregate teen birth rates are declining welfare benefits and expanded access to family planning services through Medicaid, but these policies can account for only 12.6 percent of the observed decline since 1991. Third, higher unemployment rates lead to lower teen birth rates and can account for 16 percent of the decline in teen birth rates since the Great Recession began.

Income Inequality, Social Mobility, and the Decision to Drop Out of High School

It is widely documented that places with higher levels of income inequality have lower rates of social mobility. But it is an open question whether and how higher levels of inequality actually lead to lower rates of mobility. We propose that one channel through which higher rates of income inequality might lead to lower rates of upward mobility is lower rates of human capital investment among low-income individuals. Specifically, we posit that greater levels of income inequality could lead low-income youth to perceive a lower rate of return on investment in their own human capital. Such an effect would offset any potential “aspirational” effect coming from higher educational wage premiums. The data are consistent with this prediction: Individuals from low socioeconomic backgrounds are more likely to drop out of school if they live in a place with a greater gap between the bottom and middle of the income distribution. This finding is robust in relation to a number of specification checks and tests for confounding factors. This analysis offers an explanation for how income inequality might lead to a perpetuation of economic disadvantage, and it has implications for the types of interventions and programs that would effectively promote upward mobility among youth of low socioeconomic status.

Male Earnings, Marriageable Men, and Nonmarital Fertility: Evidence from the Fracking Boom

We investigate whether an increase in the potential earnings of men leads to an increase in marriage and a reduction in nonmarital births by exploiting the positive economic shock associated with fracking in the 2000s. A reduced-form analysis reveals that in response to local-area fracking production, which increased wages and jobs for non-college-educated men, both marital and nonmarital birth rates increase, but marriage rates do not. The pattern of results is consistent with positive income effects on births but no associated increase in marriage. We contrast our findings to the Appalachian coal boom experience of the 1970s and 1980s.

Explaining the Decline in the U.S. Employment-to-Population Ratio: A Review of the Evidence

This paper first documents trends in employment rates and then reviews what is known about the various factors that have been proposed to explain the decline in the overall employment-to-population ratio between 1999 and 2018. Population aging has had a large effect on the overall employment rate over this period, but within-age-group declines in employment among young and prime age adults also have played a central role. Among the factors whose effects the evidence allows us to quantify, labor demand factors, in particular increased import competition from China and the penetration of robots into the labor market, are the most important drivers of observed within-group declines in employment. Labor supply factors, most notably increased participation in disability insurance programs, have played a less important but not inconsequential role. Increases in the real value of state minimum wages and in the share of individuals with prison records also have contributed modestly to the decline in the aggregate employment rate. In addition to the factors whose effects we roughly quantify, we identify a set of potentially important factors about which the evidence does not yet allow us to draw clear conclusions. These include the challenges associated with arranging child care, improvements in leisure technology, changing social norms, increased use of opioids, the growth in occupational licensing, and declining labor market fluidity. Our evidence-driven ranking of factors should be useful for guiding future discussions about the sources of decline in the aggregate employment-to-population ratio and consequently the likely efficacy of alternative policy approaches to increasing employment rates.