EconPapers    
Economics at your fingertips  
 

Wage Dynamics and Returns to Unobserved Skill

Lance Lochner (), Youngmin Park and Youngki Shin ()

Staff Working Papers from Bank of Canada

Abstract: Economists disagree about the factors driving the substantial increase in residual wage inequality in the U.S. over the past few decades. We identify and estimate a general model of log wage residuals that incorporates: (i) changing returns to unobserved skills, (ii) a changing distribution of unobserved skills, and (iii) changing volatility in wages due to factors unrelated to skills. Using data from the Panel Study of Income Dynamics, we estimate that the returns to unobserved skills have declined by as much as 50% since the mid-1980s despite a sizeable increase in residual inequality. Instead, the variance of skills rose over this period because of increasing variability in lifecycle skill growth. Finally, we develop an assignment model of the labor market and show that both demand and supply factors contributed to the downward trend in the returns to skills over time, with demand factors dominating for non-college men.

Keywords: Econometric and statistical methods; Labour markets (search for similar items in EconPapers)
JEL-codes: C23 J24 J31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lma
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.bankofcanada.ca/wp-content/uploads/2017/12/swp2017-61.pdf

Related works:
Working Paper: Wage Dynamics and Returns to Unobserved Skill (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:17-61

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada.
Bibliographic data for series maintained by ().

 
Page updated 2018-09-20
Handle: RePEc:bca:bocawp:17-61