Monday, February 28, 2011

Ineffective Educational System Responsible For Increasing US Wage Inequality

From "The Wage Premium Puzzle and the Quality of Human Capital" by Milton H. Marquis, Florida State University, Bharat Trehan, Federal Reserve Bank of San Francisco, and Wuttipan Tantivong, Department of Labor, Thailand, February 2011, Working Paper 2011-06:
The wage premium in the United States, which can be defined as the ratio of the wages paid to high-skilled workers relative to wages paid to low-skilled workers, underwent dramatic changes during the 1980s....using two separate data sources: the CPS May/ORG and the State of Working America....the data can be be broken down into three separate periods, characterized as low, transition, and sources suggest a low wage premium period from 1973 to 1980, with the 90-10 wage premium approximately equal to 3.45 and 3.62 respectively. The next few years can be regarded as a transition period. The CPS May/ORG suggests this period extended from 1981 to 1985 while the State of Working America suggests it extended from 1981 to 1988, with the average 90-10 wage premium equal to 3.98 and 4.08, respectively. For the high wage premium period, CPS May/ORG indicates a period from 1986 to 2005 and State of America from 1989 to 2005, with the average 90-10 wage premium equal to 4.36 and 4.35, respectively.
...relatively small changes in the skill distribution can have large effects on the wage premia. Such factors could include immigration, population growth, or deficiencies in the educational system in failing to provide job-relevant training. [Emphasis added]
The complete research paper is available here.

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