The Price of Work: Understanding Wage Inequality by Estimating Task Prices
Final Report Abstract
Developed countries' labor markets have seen a strong increase in wage inequality over the past decades, perhaps driven by factors such as technological changes, international trade, and policies or institutions. The aim of my project was to investigate the role of occupations in this trend, given the fact that the distribution of employment across occupations has drastically changed during the same period, too. I started by developing a new method to estimate market prices per constant units of skill in occupations, which would help me investige the above economic question. A substantial part of the work was on this methodological part. I then applied this new method to German panel data with detailed long-running information about workers' occupations and skills. My empirical results reveal that the prices for high- as well as low-paying occupations have increased compared to traditionally middle-paying occupations in the manufacturing or crafts sectors. At the same time the employment in these latter occupations has deteriorated and the skill composition across occupations has changed quite drastically (i.e., new and relatively low-skilled workers have entered the rising occupations at the fringes of the wage distribution). Finally, these occupational trends are linked back to the overall wage distribution. I find that occupational prices explain a clear majority of increasing wage inequality in the upper half of the wage distribution whereas the also rising lower-half inequality is mainly driven by changes of the employment composition across occupations as well as aging of the workforce. Overall, these results are able to explain a large share of the rising wage inequality in Germany. I hope that future research may find it useful to apply the methods developed in this project when studying other skill-selection problems over time e.g., in areas such as structural transformation across industries or the role of firms for wages.
Publications
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“Top Earnings Inequality and the Gender Pay Gap: Canada, Sweden, and the United Kingdom,” Labour Economics, August 2017, Vol. 47, p107-123
Fortin, N. M., B. Bell, and M. Böhm
