Wage inequality and demand for skill: Evidence from five decades

Using the 1940-90 Censuses, the author examines long-run changes in male wage inequality and skill premiums and investigates the extent to which shifts in observable measures of skill supply and demand can account for relative wage fluctuations across decades. A simple supply and demand framework is reasonably successful in accounting for movements in the education premium but is less successful in explaining changes in overall wage inequality. While the difference between the 90th and 10th percentiles of the log wage distribution fell sharply in the 1940s and grew at an accelerating rate in the 1980s, relative demand for the most versus the least skilled workers rose steadily throughout the period. The pace of industrial change and, in particular, the expansion of medium-skilled sectors such as blue-collar manufacturing appear to have been inversely related to overall wage inequality growth.