Trends in U.S. Wage Inequality: Analyzing Aggregate Effects on Within Cohort Group Earnings Dispersion

Abstract

This study examines trends in U.S. earnings inequality through changes in the distribution of log weekly earnings for full-time, fullyear workers in the U.S. labor market sampled by the March Supplement of the Current Population Survey from 1963-2014. A decomposition of inequality into components accounting for observable labor inputs (between-groups) and residual values (within-groups) evidences a large share of inequality resulting from changing returns to unobservables. Further, this study regresses within-group inequality measured across 150 labor cohort groups on a battery of aggregate economic variables in an effort to answer two questions: First, how does inequality in earnings measured by standard deviations, trend both between and within-groups during the period 1963-2013. And second, how do cyclical U.S. economic effects influence the phenomenon of within-group earnings dispersion.