9.1.2Between Groups Inequality

The increase in the premium associated with labor market experience for males contributed to an increase in between groups earnings inequality in the 1980s, which offset the general decreasing trend in this type of inequality in the 1970s. Inequality also grew sharply in the 1980s because of a sharp increase in the education premium for all groups, and an increase in the age-related premium for high school educated workers. However, there was also the first sustained decline in the male/female wage differential, with the female median earnings increasing from 58% of the men median earnings in 1979 to 67% in 1987. This closing of the gender gap may be due to the fact that women’s educational achievement increased relative to men’s. Katz and Murphy (1992) concluded

‘Fluctuations over time both in education and age premiums can be explained by changes in the rates of growth of different labor force groups (supply shift), coupled with a stable rate of growth in the relative demand for college educated workers (demand shift) ’

Immigration also contributed to the supply-side explanation because immigrants were usually less educated and worked in low paid jobs. On the demand-side, one factor is the post-1982 increased value of the dollar, which increased the price of exports and thus reduced the demand for U.S. manufacturing goods. The gender gap was also reduced because of the diminishing demand for relatively high paying jobs in manufacturing that were held primarily by high school educated males. Finally, two macroeconomic factors reinforced the effects of supply and demand changes in inequalities. According to Levy and Murnane “inflation of the 1970s helped to camouflage production inefficiencies.” During this decade, firms could survive international competition by giving nominal wage increases just below the inflation rate. This was no longer possible in the 1980s when inflation decreased, leading to an increase in inequality and unemployment. Labor markets became very tight and for this reason the wage differential associated with education was less likely to increase.