Earnings dynamics and inequality among Canadian men, 1976-1992: Evidence
from longitudinal income tax records
by Michael Baker and Gary Solon
Business and Labour Market
Analysis Division
Analytical Studies Branch research paper series, No. 130
Concern
about the impact of a number of structural changes in the economy on the creation
of "good" and "bad" jobs (i.e., high and low paying) has surfaced
in recent years. It is speculated that the shift in employment to the services
sector, technological change, the changing demographic composition of the workforce,
contracting out and other effects are resulting a polarization of the distribution
of wages and earnings; that is, more workers and jobs at the bottom and top of
the distributions and fewer in the middle.
Using data on employment earnings
of full-time, full-year workers from 1967 to 1986, this paper examines the degree
to which polarization occurs, and whether the changing age and sex composition
of the work force accounts for this polarization.
It is found that the
earnings distribution has become more polarized for this population since 1967,
and that much of it remains after accounting for demographic effects. During the
1970s, after eliminating the effect of the changing age and sex mix, all of the
shift was towards the top of the earnings distribution. During the late 60s and
1980s there was a shift towards both the top and bottom of the earnings distributions.
In the 1980s demographic effects were less pronounced, but polarization continued
and if anything accelerated. The changing industrial and occupational composition
of jobs (e.g. the shift to the services) accounts for little of the observed polarization
in the 1980s. Rather, a decline in the relative wages of young people is behind
much of the observed change, at least to 1986.
The degree to which the
polarization of the earnings distribution is due to changes in hourly wage rates
or changes in hours worked is also examined, and it is found that in the 1980s,
both contributed about equally to earnings polarization.
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