Manufacturing Jobs and Inequality: Why is the U.S. Experience Different?

Natalija Novta () and Evgenia Pugacheva ()

No 768, LIS Working papers from LIS Cross-National Data Center in Luxembourg

Abstract: We examine the extent to which declining manufacturing employment may have contributed to increasing inequality in advanced economies. This contribution is typically small, except in the United States. We explore two possible explanations: the high initial manufacturing wage premium and the high level of income inequality. The manufacturing wage premium declined between the 1980s and the 2000s in the United States, but it does not explain the contemporaneous rise in inequality. Instead, high income inequality played a large role. This is because manufacturing job loss typically implies a move to the service sector, for which the worker is not skilled at first and accepts a low-skill wage. On average, the associated wage cut increases with the overall level of income inequality in the country, conditional on moving down in the wage distribution. Based on a stylized scenario, we calculate that the movement of workers to low-skill service sector jobs can account for about a quarter of the increase in inequality between the 1980s and the 2000s in the United States. Had the U.S. income distribution been more equal, only about one tenth of the actual increase in inequality could have been attributed to the loss of manufacturing jobs, according to our simulations.

JEL-codes: D31 D63 E25 J31 L60 O33 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2019-07
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in IMF Working Paper No. 2019/191. ISBN/ISSN: 9781498320450/1018-5941. https://www.imf.org/en/Publications/WP/Issues/2019/09/13/Manufacturing-Jobs-and-Inequality-Why-is-the-U-S-47001

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