The document discusses factors that have led to increased wage inequality in the United States over time. It examines the shape of the wage distribution and how it has become more positively skewed. It analyzes changes in returns to observable skills like education and experience, as well as increases in residual wage dispersion. The document explores demand-side explanations like technological change and trade, as well as supply-side factors and the roles of declining unions and falling real minimum wages on the growing wage gap.

1. The Wage Structure

4. Distribution of Ability Worried? http://www.iqtest.com/

8. Percent Change in Weekly Wage by Percentile, 1963-1995

9. Percent Change in Weekly Wage by Percentile, 1963-1995

10. Timing of Increasing Inequality

11. International Comparisons

13. Trend in Educational Wage Gap

14. Wage Growth by Demographic Group, 1963-1995 25.1 College 4.5 Some college 5.7 High school -4.4 Less than high school Education 17.1 Women 0.9 Men Percent Change in Real Wage Group

15. Changes in the Returns to Experience

16. What are residual wages? Education (X) Log Wage Regression Line Slope= β wage residual (u) α

17. Increasing Residual Wage Dispersion Education Log Wage Education Log Wage Over time, we have seen increasing residual wage dispersion.

18. Changes in Residual Wage Gap Residual Wage : wage after controlling for age, education, experience and region of residence.

23. Shifts in Supply and Demand Relative Employment Of Skilled Workers Relative Wage Of Skilled Workers S 0 D 0 e 0 w 0 D 1 w* Demand shifts must outweigh supply shifts e* S 1