TY  - JOUR
AU  - Guvenen, Fatih
AU  - Kuruscu, Burhanettin
TI  - A Quantitative Analysis of the Evolution of the U.S. Wage Distribution: 1970-2000
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13095
PY  - 2007
Y2  - May 2007
DO  - 10.3386/w13095
UR  - http://www.nber.org/papers/w13095
L1  - http://www.nber.org/papers/w13095.pdf
N1  - Author contact info:
Fatih Guvenen
Department of Economics
University of Minnesota
4-101 Hanson Hall
1925 Fourth Street South
Minneapolis, MN, 55455
Tel:  612-6250767
E-Mail: guvenen@umn.edu

Burhanettin Kuruscu
University of Toronto
Deparment of Economics
Toronto, ON M5S 3G7
E-Mail: kuruscu@gmail.com
M1  - published as Fatih Guvenen, Burhanettin Kuruscu. "A Quantitative Analysis of the Evolution of the U.S. Wage Distribution, 1970-2000," in Daron Acemoglu, Kenneth Rogoff and Michael Woodford, editors, "NBER Macroeconomics Annual 2009, Volume 24" University of Chicago Press (2010)

AB  - In this paper, we construct a parsimonious overlapping-generations model of human capital accumulation and study its quantitative implications for the evolution of the U.S. wage distribution from 1970 to 2000. A key feature of the model is that individuals differ in their ability to accumulate human capital, which is the main source of wage inequality in this model. We examine the response of this model to skill-biased technical change (SBTC), which is modeled as an increase in the trend growth rate of the price of human capital starting in the early 1970s. The model displays behavior that is consistent with several important trends observed in the US data, including the rise in overall wage inequality; the fall and subsequent rise in the college premium, as well as the fact that this behavior was most pronounced for younger workers; the rise in within-group inequality; the stagnation in median wage growth; and the small rise in consumption inequality despite the large rise in wage inequality. We consider different scenarios regarding how individuals' expectations evolve during SBTC. Specifically, we study the case where individuals immediately realize the advent of SBTC (perfect foresight), and the case where they initially underestimate the future growth of the price of human capital (pessimistic priors), but learn the truth in a Bayesian fashion over time. Lack of perfect foresight appears to have little effect on the main results of the paper. Overall, the model shows promise for explaining a diverse set of wage distribution trends observed since the 1970s in a unifying human capital framework.
ER  -