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Title: Wage Dispersion, Returns to Skill, and Black-White Wage Differentials
Authors: Card, David
Lemieux, Thomas
Keywords: wage dispersion
human capital
black-white wage differentials
Issue Date: 1-Feb-1993
Citation: Journal of Econometrics ,October, 1996
Series/Report no.: Working Papers (Princeton University. Industrial Relations Section) ; 312
Abstract: During the 1980s wage differentials between younger and older workers and between more and less educated workers expanded rapidly. Wage dispersion among individuals with the same age and education also rose. A simple explanation for both sets of facts is that earnings represent a return to a one-dimensional index of skill, and that the rate of return to skill rose over the decade. We explore a simple method for estimating and testing ‘single index’ models of wages. Our approach integrates 3 dimensions of skill: age, education, and unobserved ability. We find that a one-dimensional skill model gives a relatively successful account of changes in the structure of wages for white men and women between 1979 and 1989. We then use the estimated models for whites to analyze recent changes in the relative wages of black men and women.
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