Rising Inequality In A Salary Survey: Another Piece Of The Puzzle

Studies of wage inequality based solely on the Bureau of Labor Statistics’ Current Population Survey have concluded that the recent rising trend has made family income less equally distributed. To investigate the sources of rising wage variance, this paper examines data from a private salary survey conducted for a panel of firms and occupations in Cleveland, Cincinnati, and Pittsburgh over a 33-year period. These data allow examination, for the first time, of the role of occupational distinctions and employer compensation practices in the recent rise in wage inequality.

The results confirm the existence of rising inequality and reject one important hypothesis. Because wage disparity among nonproduction workers rises even when companies and occupations are held constant over time, the increase is not solely attributable to the direct effects of industrial restructuring (i.e., the net creation of unusually unequal jobs).

During the 1960s, inequality rose mainly as a result of increasing occupational wage differentials and internal labor market variations, and this pattern continued throughout the 1970s. In addition, wage differences among employers underwent a large, apparently permanent increase in dispersion as union and industry wage differentials expanded in the late 1970s. During the 1980s, the only evident source of rising inequality was the widening of occupational wage differentials, a phenomenon that can be linked to increased returns to general education. Finally, despite reports suggesting otherwise, growing use of merit raises had no noticeable impact on wage variation during the 1980s or before.