Rising Earnings Disparity and Technological Change

This Note, a dissertation for a Ph.D. in policy analysis from the RAND Graduate School, empirically examines the relative merits of the demographic and industrial restructuring hypotheses that have been advanced to explain rising individual earnings disparity over the past two decades. The research shows that (1) job quality has increased during the past two decades, and (2) almost the entire rise in individual earnings disparity appears to result from changes in the structure of wages. Of these changes, the most important has been the substantial increase in the price of skill, an increase that can be traced to a faster growth in the demand for skilled labor relative to the supply of skilled labor; the reverse is true for unskilled labor. Thus, earnings of skilled labor have increased while earnings of unskilled labor have declined, leading to an increase in individual earnings disparity.