Rising Wage Inequality: The 1980s Experience in Urban Labor Markets.

• Author: Pryor, Frederic L.
• Position: Review

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 of wages 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 increasing, 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 such 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 occupational 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 in wages 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...