Sectoral Wage Convergence: A Nonparametric Distributional Analysis

The large shift of U.S. employment from goods producers to service producers has generated concern over future income distribution, because of perceived large relative pay differences. This paper applies a nonparametric density overlap statistic to compare the sectors? distribution of full-time, weekly wages at all wage levels. To counter problematic features of Current Population Survey data--sampling variation at infrequent wage rates and extensive rounding at common wage rates--we employ nonparametric density-estimation procedures to isolate the underlying shapes of the densities. The validity and accuracy of these two approaches when combined is supported by Monte Carlo simulations. Standard errors and confidence intervals indicate that our results are statistically significant.