urban institute nonprofit social and economic policy research

Meritocracy without Rising Inequality?

Wage Rate Differences Are Widening by Education and Narrowing by Gender and Race

Read complete document: PDF


PrintPrint this page
Share:
Share on Facebook Share on Twitter Share on LinkedIn Share on Digg Share on Reddit
| Email this pageE-mail
Document date: September 01, 1997
Released online: September 01, 1997

Brief #2 from the series "Economic Restructuring and the Job Market"

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Note: This report is available in its entirety in the Portable Document Format (PDF).

The text below is a portion of the complete document.


The rising demand for skill in the U.S. labor market is now well documented. New jobs are increasingly requiring both general and occupation-specific skills, are more demanding, involve more teamwork and worker participation, and are in occupations that allow people to think and be creative on the job. Jobs in professional, technical, and managerial occupations, for example, rose from 1 in 6 workers in 1950 to about 1 in 3 in 1995. 1 Over the most recent U.S. business cycle (1989-1995), an amazing 75 percent of the 7 million new jobs were in professional specialties or managerial occupations (Ilg, 1996). Not only are jobs moving toward high-skill occupations, but skill demands are apparently increasing in other occupations as well. 2

Perhaps the most convincing evidence of the rising demand for skill is the willingness of employers to pay increasing wage premiums for well-educated workers even as the supply of well-educated workers grows. For example, the differential in average earnings between workers with a college degree and workers with only a high school degree expanded from 33 percent to 50 percent over the 1979-1995 period, 3 as the supply of workers with college degrees grew from 18 to 25 percent of the workforce (U.S. Bureau of the Census, 1997).

This increasing emphasis on merit expands opportunities for workers to use their skills and encourages investment in education. But, are these positive developments generating the downside of growing wage inequality? Certainly, in one sense, rising wage differences across education categories represent more inequality between groups. However, the increased employer emphasis on skill ultimately could lessen wage differentials across all workers. As employers attach greater weight to skills, they may downplay other characteristics of workers (such as age, race, gender, family background, or where they live).

The impact of higher returns to education also depends on changes in the distribution of educational attainment. Since 1979, educational upgrading has gone together with an equalizing pattern of schooling. High school dropouts made up about 21 percent of hours worked in 1979, but only 11 percent of hours worked in 1995. Offsetting this 10-percentage-point decline was an increase in the share of hours worked by those with some postsecondary education but no four-year degree. The shift was equalizing since dropouts earning nearly 40 percent below overall mean wages were replaced by those with some college whose average wage rates are within 5 percent of the overall mean wage.

This brief uses data on wage rates and hours worked from the Survey of Income and Program Participation (SIPP) to look at two questions about wage inequality since the mid-1980s: Are wage differentials becoming more related to education and less related to gender and race? How have changes in average wage differences among education, gender, and race groups contributed to changes in overall wage inequality?

Notes from this section of the report

1. Author's tabulations from Statistical Abstract of the United States, U.S. Bureau of the Census, 1953; and Employment and Earnings, U.S. Bureau of Labor Statistics, January 1996.

2. Though rising skill demands within occupations are hard to document, the evidence from the experience of individual companies, from increasing levels of company training, and from business complaints about inadequate schooling is compelling. For a systemic finding about rising skills, see the study by Peter Capelli (1993), which found significant upgrading of skill requirements in an analysis of production workers.

3. Author's tabulations from the March 1980 and March 1996 Current Population Surveys.

Note: This report is available in its entirety in the Portable Document Format (PDF).



Topics/Tags: | Education | Employment | Race/Ethnicity/Gender


Usage and reprints: Most publications may be downloaded free of charge from the web site and may be used and copies made for research, academic, policy or other non-commercial purposes. Proper attribution is required. Posting UI research papers on other websites is permitted subject to prior approval from the Urban Institute—contact publicaffairs@urban.org.

If you are unable to access or print the PDF document please contact us or call the Publications Office at (202) 261-5687.

Disclaimer: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Copyright of the written materials contained within the Urban Institute website is owned or controlled by the Urban Institute.

Email this Page