Changes in the Structure of Wages during the 1980s: An Evaluation of Alternative Explanations

Between 1979 and 1987 there were three significant changes in the wage structure in the United States. The pecuniary returns to schooling increased by about a third; the wages of older relative to younger workers with relatively low education increased to some extent; and the wages of women relative to men rose by almost ten percent. It is important for policy purposes to know why these changes occurred and whether they are temporary or permanent. The paper investigates several alternative explanations of these wage structure phenomena, including the most popular ones that their principal causes were shifts in the structure of product demand, skilled-labor saving technological change, and changes in the incidence and level of rents received by lower skilled workers. Our reading of the evidence suggests that the major cause of the dramatic movements in the wage structure during the 1980's may have been some combination of changes in both production technology and the average relative unobserved quality of different labor groups.