The Structure of Wages

TLDR

Traditional wage patterns by schooling and age have remained stable over three decades, but the magnitude of wage differentials by education or experience has fluctuated two‑to‑one. The authors analyze wage structures of white men by age and schooling from 1963 to 1989, compare distributional shifts and employment changes, and argue that demand‑side factors—not just employment—drive observed wage changes, illustrating this with trend, cycle, and trade deficit examples. Wage patterns are non‑monotonic, yet skill premiums have risen over time.

Abstract

Although surveys show that traditional orderings of average wage—i.e., higher earnings with higher schooling and concave age-wage profiles—have not changed during the past three decades, the actual size of the wage differentials measured by education or by work experience has varied from peak to trough by a factor of two-to-one. The patterns are not monotone, but there is a trend toward increased skill premiums. We first examine the structure of wages among white men distinguished by age and schooling for the period from 1963 to 1989. We then compare shifts in the distribution of wages and employment among the age x schooling categories to show in reference to a stable demand structure that employment alone cannot account for observed changes in relative wages. Finally, we describe the characteristics required of candidate demand shifters and offer examples using linear trend, business cycle shocks, and recent patterns of deficits in international trade.