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Tyler Currie, Mitch Emerson, Dillon Emory, Tony Jones
Wages since 1970 have increased around the United States and millennials are earning more than baby boomers once did. There have been many variables that have influenced changes in wage differentials, therefore it is important to determine which variables have had the most significant effects dating back to 1970. This study is of interest because it allows us to understand the societal and economic changes as a result of millennials entering the economy, thus giving policymakers better insight into the future. Throughout analytical and literature research, we have concluded how gender, the labor force participation rate, returns to college, intergenerational mobility, and unions have affected wage differentials during this period.
Gender Wage Differentials
Gender wage gaps and whether or not this still exists is important when looking at the differences between the wages from the 1970s until now. Gender wage gaps have been around since women entered the workforce in the 1920s when there was legislation passed allowing women to work with their male counterparts. From this time until about 1960 differences in pay between men and women were apparent. Not until the 1960s was there legislation put in place that required equalized pay for both men and women that worked in the United States. But is there still a wage gap today? Discussed in this section of gender wage gaps we shed light on our findings of whether or not a wage gap still exists, the reversal of the education gap between males and females, and how the labor force participation rates of women have impacted wage differentials since the 1970s.
- Gender – Education
The wage gaps between men and women have been largely reduced between the 1970s until now. Female wages increased when new legislation was put into place by the US government. This legislation was implemented to try and equalize pay between men and women in the 1960s. It wasn’t until the 1980s when females made a bigger jump, closing the earnings gap between the two genders. “Specifically, gains in the female/male wage ratio were largest in the 1980s and occurred at a slower pace thereafter, with the ratio rising from 62 to 64 percent in 1980 to 72 to 74 percent in 1989, with a further increase to 79 to 82 percent by 2010” (Blau and Kahn, 793). The pay ratio between men and women is about par for women that are part of the lower or middle class in more recent decades, where it takes a little bit of a turn is for women who are towards the top-earning percentile, and this can happen for a number of reasons. The tightening of wages ratios can be linked to female investment in human capital and going to college. Over this time period between 1970 to the present more women have been pushing off having a family, and have been increasing the investment into college and learning. The percentage of undergraduate enrollment of females in the United States is now higher than that of males. Females are going to college more and increasing their commitment to studying areas in which were mainly dominated by their male counterparts in earlier years. There has been a significant reversal in the gender gap in the number of females now attending college. “In 1981, women had lower average levels of schooling than men and were less likely to have exactly a bachelor’s or an advanced degree.” (Blau and Kahn, 794). More females from the 1970s until now have taken an interest in studying STEM (science, technology, engineering, and mathematics) and business degrees while at school which was once all dominated by males. The increased interest and commitment to the school by females, from 1970 until now, has a lot to do with their increased wage ratios. “Over the period, women narrowed the education gap with men and, by 2011, women had higher average levels of schooling and were more likely to have an advanced degree than men” (Blau and Kahn 794).
In addition, where there still is a wage gap in the present, as mentioned before, is between males and females towards the top percentile of earners or those that hold MBA degrees or higher in the United States. We have identified that the main reason that this is happening is that females typically have more interruptions throughout their careers, and they are less likely to negotiate for higher-paying salaries. The main interruption throughout a female professional career is children. Because of this “MBA mothers seem to actively choose jobs that are family-friendly, and avoid jobs with long hours and greater career advancement possibilities” (Bertrand, Goldin, and Katz, 230). This leads females into career paths that don’t typically pay as much as say a CEO position that has a lot of responsibility and longer hours at the office. These positions that are more child friendly allow women to work fewer hours and attend to their children after work. Men, on the other hand, have more flexibility to stay at the office longer and this allows them to take on more responsibility. This means males are less inclined to have penalties, get higher-paying positions in the future quicker, and gain more experience by working longer hours. “The presence of children is the main contributor to the lesser job experience, greater career discontinuity, and shorter work hours for female MBAs” (Bertrand, Goldin, and Katz, 230). When it comes to negotiating salaries females are more risk-averse than their male counterparts, and this hinders them from asking for raises. “Women’s lower propensity to negotiate over salaries raises, or promotions could reduce their pay relative to men’s” (Blau and Kahn, 843). Meaning, when they get comfortable at a level of pay that satisfies them they are less likely to push for promotion compared to that of a male. Negotiation skills and being risk-averse are huge factors of why the wage gap between males and females that have MBA degrees or higher is still present today in the United States. Because more women have committed to increasing their human capital, are having children at an older age, and spending more time in the workplace has actually contributed to them increasing their wages in comparison to men. Thus “the gender pay gap in the United States fell dramatically from 1980 to 1989, with slower convergence continuing through 2010”, but it is still converging today allowing women more opportunity to reach the top percentile (Blau and Kahn, 852).
- Labor Force Participation
In order to understand wage differentials a little better in the era of the Baby-Boomers (1970) and Millennials (present), the labor participation rates of both men and women are important to know. Over the course of many decades female and male labor force participation rates have changed. When referring to figure 4, male participation rates have dropped off, and female participation rates have climbed since the 1970s. Male participation rates dropped from about 80% in 1970 to about 70% today. Female participation rates have increased from about 43% in 1970 to about 57% today. Female participation rates started increasing substantially during the 1980s and have leveled off since the late 1990s. This increase in labor force participation of females can be linked to more women graduating from college as mentioned in the previous section. “By 1980, women had caught up to men in college graduation and subsequently they have surpassed them. As of 2011, women earned 57 percent of bachelor’s degrees and 62 percent of associate degrees (Blau and Kahn, 813).
Fig. 4. U.S. Bureau of Labor Statistics, Labor Force Participation Rate – Women [LNS11300002], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LNS11300002, April 16, 2020.
Labor force participation rates of men are still believed to be above that of women because they incur fewer career interruptions during their working life. Women are also less likely to work as many hours as men after graduation. This may be because of the presence of children. According to Bertrand, Goldin, and Katz “Three years after receiving their MBA, women work around 56 hours per week while men work around 60 hours; nine years out, women work around 51 hours per week, while men work around 57 hours” (235). Thus, because men can work more hours than that of women may be a big contributor to why their participation rates are higher. Women prolonging marriage and having kids later in life has led to an increase in their participation rates.
Returns to Education
Dating back to 1970, there have been many changes in what society values and what is required to become successful. Over the course of this time, education has become very important and tends to make an employee much more desirable. To better understand this, trends in the college wage premium over this course of time allow us to determine just how much more employers prefer their employees to have an education.
- College Wage Premium
The college wage premium (CWP) measures the wage differential between college graduates and high school graduates. A well-documented and seminal point in the economic history of the US is when the CWP suddenly rose in the 1980s and continued to rise throughout the 1990s and into the early 2000s (Ashworth and Ransom, 2). In order to determine if this trend had a major impact on evolving wage differentials, further CWP evidence is required. Based on the five major US household surveys, there was a substantial increase in the CWP in each of the surveys for birth cohorts 1950-1970 as it rose from 40% to 70%, followed by a slow growth thereafter (Ashworth and Ransom, 2). Following that, there was a slight decline in the CWP for birth cohorts 1980-1984. To demonstrate the reliability of the study, data was taken from all five major US household surveys to see if demographics or employment variables played a role in the returns to education. The study concluded that there were no major discrepancies due to the variables as each household survey provided consistent results. Overall, the return on educational investment has risen substantially in the past 30 years (James, 1). The premiums for “some” college experience has remained constant around 1.1, while the premiums for bachelor’s degree or higher increased from 1.4 in 1977 to 1.8 in 2010 (James, 1). Therefore, based on the overall trends of the college wage premium, educated employees have seen a larger increase to their wages compared to the less-educated. It can be concluded that the college wage premium has increased wage differentials dating back to 1970.
- Returns to Education by Gender
While the overall college wage premium trends have had an impact on wage differentials from 1970 compared to 2020, there are more specific variables that can be measured to further understand the returns to education trends. As previously mentioned, more women in the United States attend and graduate from college than men, which is a drastic increase from previous decades (Francine and Lawrence, 4). As a result of that, the returns to education based on gender have also seen changes. The gender wage gap portion of the paper concluded that the gender wage gap today is much lower than it was in 1970, indicating that the return to education has increased more for females since 1970 compared to males. In other words, the opportunity cost of women foregoing a college education began to grow as their potential future wages grew.
In 1970, many females avoided obtaining a college education as their shorter expected work-life reduced their gains to investing in large amounts of formal school (Francine and Lawrence, 16). As society progressed, birth control became more prevalent which reduced the burden of childbearing, and Title IX began to be enforced, which resulted in women gaining respect in the workplace. This allowed women to increase their expected work life, making investment in school much more worthwhile. With a longer expected work life, the cumulative return to education became much higher as women spent more time pursuing their careers (Francine and Lawrence, 16). Furthermore, businesses became much more willing to hire educated women as their work-life expectancy rose, which led to women with college degrees seeing their wages rise. Therefore, the return to education trends for women has compressed the wage differentials between men and women from 1970 to 2020.
- Returns to Education by Ethnicity
Dating back to 1970, there have been many advancements in social equality, such as less racism, which has allowed minorities to pursue opportunities that previously were not available to them. Similar to the national demographic trends, undergraduate school enrollment has become much more diverse. In 1980, Blacks, Hispanics, Native Americans, and Asians combined accounted for 17% of undergraduate enrollment, but by 2010, their combined shares approached 40% (Tienda and Zhao, 1).
While increased schooling can provide many benefits to these minority groups, the topic in question is the returns they receive from additional schooling compared to white Americans. Based on a study using the U.S. Decennial Census, the National Longitudinal Surveys of Young Men and Women, and the National Survey of Youth 1979, the return to schooling is relatively constant across racial and ethnic groups (Barrow and Rouse, 15). For each additional year of school, the percentage of additional income increased rapidly until 1989 for each of the six ethnicity groups before leveling off. As a whole, the return from each additional year of schooling hadn’t differed by more than 4% for each ethnicity over the period of 1979 to 1999. The returns to education for women based on ethnicity was relatively similar, as it didn’t differ by more than 5% for each ethnicity over the period of 1980 to 1999. Lastly, the returns to education for men based on ethnicity was essentially identical from 1980 to 1989 before Asian/Pacific Islander ethnicity began to see higher returns to education than the 5 other ethnicities (Barrow and Rouse, 20). Overall, the return to education based on ethnicity has been constant dating back to 1970. Due income inequality and increasing wages, recent policymakers and researchers have aimed policies towards increasing educational attainment, which will likely decrease any educational disadvantages minorities may have (Barrow and Rouse, 23).
Based on these trends, the return to education by ethnicity has had a limited impact on the wage differentials between millennials and baby-boomers. There is not enough data that supports the claims that changes in wage differentials can be attributed to the returns to education by ethnicity from 1970 to 2020.
- Returns to Education by Education Level
Graduate education has grown rapidly in the United States as the ratio of new master’s degrees awarded relative to the number of 24-year-olds in the US has increased from 5.5% in 1985 to 14.7% in 2013. Over the same period, the ratio of new master’s degrees to new bachelor’s degrees rose from nearly 27% to 37% (Altonji and Zhong, 2). Additionally, wage gaps between BA and advanced degree recipients rose from 11% to 30% between 1970 and 2013, with the largest growth after 2000. While it is suggested that the “relative growth in jobs requiring non-cognitive skills, such as management, medicine, law, and engineering, drove the higher wage gains of advanced degree holders”, there is still evidence of individuals with graduate degrees being compensated more than undergraduate degree holders for similar jobs (Tienda and Zhao, 1).
To understand the returns to higher education, the average earnings by occupation and education has been calculated based on sample data consisting of full-time workers between the age of 30 and 50 years old. Based on this data, blue-collar jobs were the only profession that had bachelor degree holders earning more than graduate degree holders. In addition to that, health professionals, educational employees, sales, and office employees, as well as managers and professionals have seen the largest return to graduate degrees (Oreopoulos and Petronijevic, 44). It is also important to note that in all cases, the return on a bachelor’s degree compared to highschool education is higher than the return on a graduate degree compared to a bachelor’s degree (Oreopoulos and Petronijevic, 44).
While this data demonstrates the recent trends in the returns to education based on education level, it is important to note the trends prior to 2000. Leading up to 1970, the estimation of private rates of return for graduate schooling was limited as a result of Census data classifications (Maxwell, 1). Although estimations were limited, economists were still able to determine that the private rate of return for males with doctor’s degrees and females with master’s degrees were positive, but the private rate of return for males with master’s degrees was negative (Maxwell, 1). As a result of this trend, it can be concluded that the returns to higher education have increased since 1970, allowing individuals to earn a higher relative wage based on increased schooling now compared to 1970. This concludes that the returns to education based on education level have increased the wage differentials for millennials compared to baby-boomers.
Figure 4.1 demonstrates the earning trends between highschool graduates, bachelor degrees, and graduate degrees. Based on Figure 2.1 there is evidence that additional schooling provides increasing rates of return compared to the next highest level.
Fig 4.1. U.S. Bureau of Labor Statistics, Employed full time: Median usual weekly nominal earnings (second quartile): Wage and salary workers: Advanced degree: 25 years and over [LEU0252919700Q], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LEU0252919700Q, April 17, 2020.
Intergenerational Mobility
Society views the degree of international mobility as a measure of the extent to which economic opportunities or life chances are equal. It measures the degree to which the conditions of a person during childhood are mirrored in their later life success, or on the flip-side, the degree to which individuals can do it by means of their own skills, determination, and chance. The most intuitive way to see the degree of intergenerational inequality is to see whether children from more or less wealthy households end up as adults in the distribution of wages or profits. A transition matrix that demonstrates changes in income distribution through generations may illustrate this (Blanden and others 4).
- Inequalities in the Labor Market and Access to Human Capital
Since the late 1970s and early 1980s, labor market conditions have been more unequal in the US and many other high-income countries. This trend is now very well known, as were many of the underlying causes of skill biases in technological change, its relationship with globalization, and the willingness of skilled workers to meet demand. It compares the elasticity of the intergenerational earnings to the premium earnings a college graduate has over a graduate of high school. The income premium is calculated as the average employment income of men 25 to 34 years old in 2009 with a college degree compared to the average income of their high school diploma counterparts (OECD 2011b, Table A8.1). In the United States, the premium is higher than any other nation included in the figure: a college graduate receives approximately 70 percent more than a high school graduate, compared to approximately 30% in Canada. The link between a higher premium of skills and lower earnings stability across generations also persists over time. Aaronson and Mazumder (2008) derive estimates of the intergenerational elasticity of earnings for the United States from around 1940 to around 2000 and compare them with the history of the Goldin and Katz (1999) recorded return to education. The elasticity of the father-son earnings moves over the decades in parallel with the transition of education — the most noticeable improvements since 1980. The growth in college returns from 9 percent in 1980 to about 13 percent two decades later was balanced by a substantial improvement in the elasticity of intergenerational profits, from 0.38 to about 0. This disparity is the product of much of the rise in labor market disparities and represents higher incomes at the very top of the distribution. Wage growth was higher for those with a college degree in the United States but slower for those with graduate and professional qualifications among college students. Such trends would likely reinforce the correlation between parents’ and children’s economic outcomes at the top (Blanden and others 4).
- The Impact of Public Policy
Public policy can affect the investments made into children over the distribution of income. The way families communicate with labor markets may also be affected. The United States is unique in the degree to which government services support the advantaged comparatively more. As such, they are more likely to exacerbate rather than blunt the extent to which inequalities in the labor market are passed on across generations. In terms of individual freedoms, Americans understand the value of individual obligations and want an “equality of outcomes” to be a possibility for all. Americans view the government as doing more harm than good in achieving the American Dream; at the same time, they regarded a whole host of possible public-policy initiatives as being successful in fostering economic mobility. From this, I believe they were less optimistic than their federal, state and local government could introduce and maintain successful policy changes. As a result, the wider social conditions in which children are born in the United States to reveal major variations. Carasso, Reynolds, and Steuerle (2008) are attempting to estimate the global incidence of U.S. federal government expenditure on services that facilitate mobility, such as education, putting them within a wider sense of overall government expenditure. They find that the U.S. government spends large sums in this way, up to 1.6% of GDP in 2006, but only about one-quarter of these expenses support people with lower to moderate-income (Blanden and others 95).
The American education system does not foster mobility to the degree it should, as its educational spending is more likely to help those more well-off. The demand for high-quality college education among the reasonably well-off ones is reflected in the demand for high-quality primary and secondary schooling that provides a path to a good college education. Although America also spends more on primary education per pupil than many other countries, the framework of the program reflects substantial differences in parental capital, leading to disparities in funding, quality, and access in a way that does nothing to level the playing field. The OECD (2012, p. 30) sums up its work on this subject in this way: “Currently the United States is one of only three OECD countries that on average spend less on students from disadvantaged backgrounds than on other students. . . . Moreover, the ablest teachers rarely work in disadvantaged schools in the United States, the opposite of what occurs in countries with high-performing education systems” (Blanden and others 96). In other words, education investment is distributed to make higher education comparatively more of a priority, and in a way that benefits those who are already comparatively advantaged even more.
- Families and Intellectual Capital Investment
On one hand, the effect of educational returns on intergenerational mobility can be viewed as representing a significant role in the level of skill transfer that is naturally obtained between parents and children. When this form of the endowment is heavily inherited, its effect on earnings will be increased when returns to school are higher: as a consequence, when the returns are higher, resilience is lower. Yet this definition still needs to account for nonlinear trends in returns to schooling as well as in income transfer through generations. Nonlinearities may appear to suggest that top earners are either especially skilled and have more of the labor market’s attractive characteristics to pass on to their children in some way, or that these characteristics are more deeply shared between higher-earned parents and their children than in middle- and lower-income households. Endowments, on the other hand, should not be regarded as fixed characteristics that are automatically transferred through generations. Something that increases wealth limits choice, as it affects the conditions and motivation for families to engage in their children differently. The more human-capital families tend to have allows them to invest more in their children. Surely these investments are motivated by money: high-income parents have more scope to improve the skills and attitudes of their children and to enrich their daily experiences especially during the early years. However the related investments are often non-monetary, representing the growth of attitudes, motivation, and expectations and the prospect of high-income families being able to offer their children access to selective schools and even to quality employers. A college education is increasingly a pathway to higher incomes, but this impact is especially strong in a selective college for a higher-level education in the US. During the last two to three decades, the difference in college completion among children from low- and high-income families has increased significantly. Bailey and Dynarski (2011) show that, relative to their peers born in the early 1960s, the college graduation rate increased by about 4 percentage points among a generation of young people born to low-income parents in the early 1980s. Nevertheless, the rate of college graduation increased by nearly 20 percentage points among the cohorts born to relatively high-income parents. Kids that come from families of higher-income would more than likely have an easier time finding a college to be affordable. Belley and Lochner (2007) investigate in more depth the relationship between family income and educational outcomes and find that, even when adjusting for cognitive ability, the strength of the relationship between family income and college attendance has increased dramatically over this time, about doubling in its impact. That trend also persists when looking at the standard of the attended college instead. Researchers say that the families of children who come of age in a period of growing deprivation, those born in the 1980s, are more likely to be limited in borrowing than those who raise children born in the 1960s and 1970s (Corak 89-90).
Unions and the Wage Gap
A labor union or trade union is an organized association of workers in a trade or profession formed to further their common rights and interests. Unions are beneficial to members for many reasons; such as the protection of workers due to discrimination of race or gender, better workplace conditions, better benefits, higher pay, and more. Unions were originally intended to bridge the gap of inequality that existed in society. For the first half of the 20th century, unions were successful in bridging the gap and low-skilled workers were able to enjoy the wage premium that existed. One of the main reasons many people join unions is because of the premium of wages that union members receive compared to non-union members. This premium arises due to the collective bargaining power of union members. This wage gap between high-income earners and low-income earners was able to be narrowed thanks to unions absorbing low-skilled workers. However, since the 1970s (Baby Boomer Generation), there has been a reversal in this narrowing gap. The gap is gradually expanding due to the decline in union membership rates. Relatively high-skilled workers continue to enjoy the wage premium given to union members but in recent years it has been more difficult to join unions as low-skilled workers are not absorbed anymore. There is a higher requirement of skill than earlier in the 20th century and this change has led to an increase in inequality. Freeman and Medoff estimated the union premium using individual-level data to be around 16%. In 2014 however, Labor Secretary Thomas Perez estimated the union premium to be about 26% on average (Jacobson). Although Perez said that on a talk show and we do not know how accurate it was, what to take away is there is a large wage gap today. Before breaking down why this is the case, we must first examine unions and how they affect income inequality.
There is the classical view of labor unions in how they are monopoly sellers of labor to the firm, which lowers employment in exchange for higher wages. This view of unions supports that unions create a deadweight loss and the decline in unions will result in greater efficiency (Rees). The argument for unions is that they induce firms to share economic gains, as a result of product market power, with workers. Recent literature suggests that labor markets are monopsonistic and if this is the case then the collective bargaining power of unions could raise workers’ wages to an efficient level. The union premium is very difficult to determine because of two different theoretical situations that arise. The first is that if there are high union wages, there will be excess demand for union jobs and union-sector employers will pick the highest quality union members. This could result in a higher unobserved skill which results in the union premium being overstated. The other situation is that if there is a high union wage premium for less-skilled workers combined with union protections against firing, it will attract more lower-skilled workers. The selection issues that arise is why the union premium is difficult to measure if it is efficient compared to non-union workers. In theory, if unions were to select from the lowest earners of non-union workers, this premium will narrow the wage gap between union workers and non-union workers. This is an argument by DiNardo and Firpo of how unions lower the inequality between union workers and non-union workers. To illustrate an example of this take a non-union worker A who is earning $20 an hour and a non-union worker B who is earning $15 an hour. Let’s assume that the union worker is earning $25 an hour. If unions were selective and chose only workers with lower earnings, then worker B will be chosen. Even in this case, the difference in wages will be $5 still but the inequality overall is reduced because worker B gained $10 of efficiency on wages. Another argument for unions on how they reduce inequality is the “threat” effect. If a firm is worried about non-union workers joining the union, then they will raise the wages of non-union workers. So, in theory, unions should reduce the amount of inequality and wage differentials.
Expanding on the previous paragraph the union premium is highest for low-skilled individuals. Because of this, in the mid-20th-century unions successfully contributed to narrowing the wage gap. However, as unions became more selective with declining union membership rates mostly relatively high-skilled workers remain and enjoy the wage premium. This reversal of unions originally reducing the wage gap began in the 1970s and the wage premium of union workers has gradually increased since. This statement is on the average wage premium across all industries. There are cases in some industries that support this statement and some cases that showed a decline in wage premium across this time period. We will examine the changes in the wage premium of registered nurses and workers in the construction industry.
The findings of numerous economic studies show that there is a wage gap for registered nurses between union and non-union workers in the healthcare industry. There is evidence that a positive wage gap for nurses as experience increases. There is also a wage premium that exists in both the private and public sectors, although more evident in the private sector. Even in hospitals, unionized registered nurses enjoy a higher wage compared to non-union workers. A decline in the number of unions in recent years, as well as strong collective bargaining power, has followed with higher wages of unionized workers. Coombs addresses some of the externalities of unions and the spillover effects of unionization. There is evidence that there are a 1.3% and 1.2% increase in private and public sector non-union wages respectively due to the threat of unionization (Coombs). Firms will pay more to non-union workers because of the threat of the workers unionizing. With the decline of unions in recent years, however, the threat premium of non-union workers has declined. Since there are fewer people joining and leaving unions, there is less of a spillover effect on the non-union market for labor. With similar skills and backgrounds, in 2008 there was an 8.8% for union RNs in the private sector when compared with non-union RNs in the private sector (Coombs). There was also evidence of a higher increase in wages with experience With their collective bargaining power, the decline of unions, higher-skilled workers, and a decline of wages relative to union workers due to a lower threat of unionization they enjoy a wage premium that’s relatively large and appears to be increasing in recent years. In 1992-1994 the estimated premium for unionized RNs was 5% compared to 2-3% in the years before (Hirsch and Schumacher). Compare this to Coombs’s study wherein 2008 the effective wage premium was about 15%. This shows a negative correlation between the number of unions in the healthcare industry with the wage gap. This is due to the lower threat premium of non-union workers as well as higher wages for union workers because of higher skill requirements and more selectiveness.
The union wage gap differs among different industries. In the construction industry, instead of a growing union wage premium, there has actually been a reduction. Bilginsoy estimates that with adjusted workforce characteristics there has been a reduction in the union wage premium of 23% since 1980, based on evidence from 2007. The changes in the industry offset the impact of the declining union effect on the union wage premium. One change in the industry that affected unionization is the open-shop sector. An open-shop is where one establishment, like a business or factory, represents all employees when making agreements with the employer but union membership is not required. This sector saw expansion in residential, small commercial, and remodeling. The political and legal environment also favored the open-shop sector compared to unionization. Unions work best when there is no competition and they have a monopoly on labor. With the competition of open-shop contractors unions, workers are forced to take lower wages than without the open-shop contractors. On the legal and political side, provisions in the law allowed termination of collective bargaining agreements to have a lower cost. This combined with the prevailing wage laws of 1979, these higher rates favored open-shop contractors and led to a lower union wage premium in this industry. Even with all of this, the union wage premium in the contracting industry is still extremely high. The real wage premium in the period of 1983-88 was 86.8% while the real wage premium of 2002-2007 was 78.2% (Bilginsoy). Because of changes in this industry, unlike the healthcare industry, the union density (amount of unions) is positively correlated with the union wage premium. In the construction industry, as the unions faced competition from the open-shop contractors the number of unions declined and so did the union wage premiums. The effect of unionization in the construction industry was greatly affected by changes in the workforce environment and although the union premium remains incredibly high you can clearly see the decrease in union wage premium over time.
The differences in the union wage premium have changed since the 1970s in different industries mainly based on external factors. Overall, however, the union premium has increased with the fall of unionization. With relatively higher-skilled workers remaining in unions there has been an increase in the wage gap. Union members get paid more than non-union members when performing similar jobs and even with similar skill sets. The effect of unions on income inequality is evident in today’s society when they were originally designed to narrow the gap. The gap has widened and continues to widen as the power of collective bargaining by workers gives unions a “monopoly” on labor and greater control of wages. Further research is necessary for the analysis of how unions will affect wages in the future and whether the continued decline in union density will be followed by an increase in union wage premiums.
Summary and Conclusion
Wage differentials have been the topic of many different economic and political debates. In order to understand the trend of wage differentials of millennials and baby-boomers, there are many key variables that have been studied. Gender and college attendance has had a significant impact on wage differentials between males and females from the 1970s until the present. In the 1970s it was more common for males to attend college and get a degree and today that is the opposite. More educated females are entering the workforce and this has caused wage differentials to decrease between lower and middle-class earners of different genders. Even though females are getting the same or better education then their male counterparts, where wage differentials are different between males and females are at the top percentile of earners in the US. Female labor force participation rates have also had a significant impact on the decrease in wage differentials between genders in the United States. Rates of females have increased, and rates of males have decreased. Additionally more women are educated and landing higher pay jobs now than in the 1970s. As a result because of education, and more women entering the labor force this had an overall decrease in wage differentials between genders since the 1970s.
Returns to education have played an important role in the trends of wage differentials from 1970 to the present. It has been determined that the college wage premium and the returns to education based on education level have increased, as more individuals have pursued higher education and have seen their compensation rise as a result. Therefore, both the college wage premium and returns to education based on education level have had a positive effect on wage differentials compared to 1970. While returns to education have played a role in increasing wage differentials dating back to 1970, the returns to education based on ethnicity have been consistent over the last 50 years and have not had a major impact on the wage differential trends. Lastly,
as women have experienced higher returns to education than men over this time period, the wage differential has been compressed
Intergenerational mobility has made significant contributions to the wage gap in the present compared to 1970. Success-relevant traits go far beyond cognitive growth both before and after school years. Families are helping their children through all the changes they have to make towards adulthood, including the transition to active and full-time labor market involvement. A more divided and segregated labor market makes this more of a threat to some than to others, which also means that family relations are going to matter much more. The cohort of American children raised between the 1980s and today, who have or will hit their peak years of employment in the coming decades, is likely to experience an average degree of intergenerational income mobility as low, if not lower, than previous generations raised in an era of less inequality. Intergenerational mobility shapes opportunity. It changes resources, rewards, and structures that shape, grow and distribute features and skills valued on the labor market; and shifts the balance of power so that other groups are able to organize policies or otherwise promote the achievement of their children independently of talent.
Unions successfully contributed to narrowing the wage gap in the mid 20th century but since the 1970s there has been a reversal in the trend. With the decline in union membership, the wage gap between union and non-union workers has grown as relatively higher-skilled workers remain in unions compared to non-union workers. Although this is not the same case for all industries that have union workers, because of changes in the workforce environment, this general trend shows an increase in the wage gap between union and non-union workers since the 1970s and contributes to the overall wage gap in society.
With our review of the literature, we have concluded that there is no definite movement toward whether wage differentials have increased or decreased since the 1970s overall. There are different results based on what industries you examine and what variables you choose to input. For example, there were different results on return to education between high class, and low and middle class. There were also a variety of different results when looking at different industries and how the union wage premium has changed. Further analysis is required to determine the movement in the overall wage differential but challenges arise due to different variables and changes in different industries. It might not be possible to come to a definite conclusion on how to wage differentials have changed since the 1970s and instead come to different conclusions based on different industries and what variables you use to compare wages.
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