Table Of ContentCONTRIBUTIONS
TO
ECONOMIC ANALYSIS
223
Honorary Editor:
J. TINBERGEN
Editors:
D. W. JORGENSSON
J. -J. LAFFONT
T. PERSSON
NORTH-HOLLAND
AMSTERDAM · LONDON · NEW YORK · TOKYO
THE CHANGING DISTRIBUTION
OF INCOME IN AN
OPEN U.S. ECONOMY
Edited by
Jeffrey H. BERGSTRAND
Department of Finance and Business Economics
Thomas F. COSIMANO
Department of Finance and Business Economics
John W. HOUCK
Department of Management
Richard G. SHEEHAN
Department of Finance and Business Economics
College of Business Administration
University of Notre Dame
Notre Dame, Indiana
U.S.A.
1994
NORTH-HOLLAND
AMSTERDAM · LONDON · NEW YORK · TOKYO
ELSEVIER SCIENCE B.V.
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RO. Box 211, 1000 AE Amsterdam, The Netherlands
ISBN: 0-444-81559-7
© 1994 ELSEVIER SCIENCE B.V. All rights reserved.
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INTRODUCTION TO THE SERIES
This series consists of a number of hitherto unpublished studies, which are intro
duced by the editors in the belief that they represent fresh contributions to economic
science.
The term "economic analysis" as used in the title of the series has been adopted
because it covers both the activities of the theoretical economist and the research
worker.
Although the analytical methods used by the various contributors are not the same,
they are nevertheless conditioned by the common origin of their studies, namely
theoretical problems encountered in practical research. Since for this reason, busi
ness cycle research and national accounting, research work on behalf of economic
policy, and problems of planning are the main sources of the subjects dealt with, they
necessarily determine the manner of approach adopted by the authors. Their
methods tend to be "practical" in the sense of not being too far remote from appli
cation to actual economic conditions. In additon they are quantitative.
It is the hope of the editors that the publication of these studies will help to stimulate
the exchange of scientific information and to reinforce international cooperation in
the field of economics.
The Editors
Preface
The year 1992 marked the 150th anniversary of the University of
Notre Dame. As one dimension in honoring the sesquicentennial, Rev.
Edward A. Malloy, the university's president, invited and encouraged each
of the university's colleges to hold one or more academic symposia. With
the active support of John G. Keane, dean of the College of Business
Administration and former director of the U.S. Bureau of the Census, the
editors of this volume embarked on organizing a symposium to reflect on
the emergence of dramatic changes in the distribution of earnings and
income in the United States during the 1980s, the possible causes of these
changes, and potential implications of and policy recommendations for such
changes. On September 17-18, 1992, several of the nation's most
prominent scholars on this topic and related areas gathered to present and
discuss the original papers included in this volume. The list of contributors
is on pages xxv-xxvi.
The editors are deeply grateful to numerous people. First and
foremost, we thank Dean John G. Keane for his early support and
encouragement of a conference addressing important issues in the changing
character of the U.S. economy's earnings and income. As former director
of the Census Bureau, he actively fostered the interaction of academics and
policymakers, which contributed to the stimulating discussion at the
symposium.
We are very indebted to the Chase Manhattan Bank for providing
financial support for this conference. In honor of Rev. Theodore M.
Hesburgh, C.S.C., former president of the university, the Chase Manhattan
Bank generously donated a gift to the College of Business Administration,
part of which was used to fund the conference.
Numerous individuals in academia and government contributed
significant time and ideas toward the organization of this conference. We
are grateful to Barry Bluestone, John Coder, Gordon Green, Robert
Haveman, Enrique Lamas, Charles Nelson, Tom Scott, and Dan Slottje for
numerous planning discussions which contributed to the conference's
success.
Several scholars (whose names are among those on pp. xxv-xxvi)
provided rich, thoughtful, and detailed discussions of the papers in this
volume. We are deeply grateful for their time, efforts, and talents, which
improved the quality of these papers significantly.
Madeline Day, executive coordinator of the Notre Dame Center for
Ethics and Religious Values in Business, did an excellent job coordinating
viii Preface
the conference. We are indebted for her careful, professional, and cheerful
handling of logistics. We thank Harriet Baldwin of the university's Center
for Continuing Education for exceptional work in supporting the
conference's activities in collaboration with Madeline Day.
Several people contributed their talents toward the preparation of
this volume. We are indebted to Sonia Grant and Anthony Sindone for
excellent assistance in the editing of this volume. Diane Bandurski and
Tammi Chapman provided outstanding technical typing; we are deeply
grateful for their patience in this volume's preparation. We thank Assistant
Dean Sam Gaglio for providing support for the manuscript's completion,
and Joyce Happee for her prompt and clear editorial suggestions.
December 1993 The Editors
List of Figures
Page
Figure 2.1 Shares of Aggregate Household Income, by
Quintile: 1970, 1980, and 1990 33
Figure 2.2 Percent of Persons with Low, Middle, and High
Relative Income: 1964-1989 37
Figure 2.3 Median Relative Income of Persons 25-64 Years
Old, by Years of School Completed 40
Figure 3.1 First Order Dominance Comparisons of Three
Hypothetical Income Distributions: X X, X 70
l5 2 3
Figure 3.2 Lorenz Dominance of U.S. Income Distributions,
1978 and 1989 72
Figure 3.3 First Order Dominance Comparisons of U.S.
Income Distributions, 1980 and 1982 73
Figure 3.4 Second Order Dominance Comparisons of U.S.
Income Distributions, 1980 and 1982 80
Figure 3.5 Lorenz Distributions of Luxembourg Income
Study Per Capita Family Income Ordered by
Statistically Significant Differences 83
Figure 3.6 Pairwise Statistical Comparisons of Lorenz Curves
Across Countries 84
Figure 3.7 First Order Dominance Comparisons of Income
Distributions in Six Countries 85
Figure 3.8.a The Lorenz Curve of 1949 Income and the
Concentration Curve of the Distribution of
the Benefits of Growth of the 1950s 91
Figure 3.8.b The Lorenz Curve of 1959 Income and the
Concentration Curve of the Distribution of
the Benefits of Growth of the 1960s 91
Figure 3.8.C The Lorenz Curve of 1969 Income and the
Concentration Curve of the Distribution of
the Benefits of Growth of the 1970s 92
Figure 3.8.d The Lorenz Curve of 1979 Income and the
Concentration Curve of the Distribution of
the Benefits of Growth of the 1980s 93
Figure 3.9 Dominance Comparisons of the Distribution of the
Benefits of Economic Growth Among American
Families 94
xviii List of Figures
Figure 5.1 Trends in Real Earnings (1990 PCE-deflated) of
White Men, Ages 25-34 152
Figure 5.2 Trends in Real Earnings (1990 PCE-deflated) of
White Men, Ages 45-54 152
Figure 5.3 Interquartile Spreads in Annual Real Earnings of
White Men, Ages 25-34 and 45-54 153
Figure 5.4 Percent of White Men Working Full Time Year
Round (FTYR) by Age Group 154
Figure 5.5 Average Hours Worked Per Week for FTYR
Working White Men by Earnings Distribution
Location 155
Figure 5.6 Percent Working FTYR by Group, Ages 25-54 156
Figure 5.7 Relative Earnings of White Women to White Men,
Ages 25-34, by Annual Earnings Quartiles 157
Figure 5.8 Relative Earnings of Black Men to White Men,
Ages 25-34, by Annual Earnings Quartiles 158
Figure 5.9 Relative Earnings of Black Women to White Men,
Ages 25-34, by Annual Earnings Quartiles 159
Figure 5.10 College Graduates' Earnings Relative to High
School Graduates' Earnings Among Men, 1-10
Years Out of School, for Matched Centiles in
Respective Distributions 162
Figure 5.11 College Graduates' Earnings Relative to High
School Graduates' Earnings Among Men, 26-35
Years Out of School, for Matched Centiles in
Respective Distributions 163
Figure 5.12 High School Graduates' Earnings Average Centile
in College Graduates' Earnings Distribution, by
Years Out of School 164
Figure 5.13 Earnings for High School Graduates 26-35 Years
Out of School Relative to Earnings for High School
Graduates 1-10 Years Out of School, for Matched
Centiles in Respective Distributions 165
Figure 5.14 Earnings for College Graduates 26-35 Years Out
of School Relative to Earnings for College Graduates
1-10 Years Out of School, for Matched Centiles in
Respective Distributions 166
Figure 5.15 Relative Earnings of Young Men to Older Men, by
High School Graduates and College Graduates 167
List of Figures xix
Figure 5.16 Simulated Overlap Statistics 173
Figure 5.17 Trends in Real Earnings (1990 PCE-deflated) of
White Men, Ages 3 5-44 174
Figure 5.18 Trends in Earnings Inequality for White Men,
Ages 25-34 174
Figure 5.19 Trends in Earnings Inequality for White Men,
Ages 35-44 175
Figure 5.20 Trends in Earnings Inequality for White Men,
Ages 45-54 175
Figure 5.21 Rank Correlation of Hourly Earnings and Annual
Hours Worked Among FTYR Working White Men,
Ages 25-54 176
Figure 5.22 Average Hours Worked Per Week Among FTYR
Workers by Group, Ages 25-54 176
Figure 5.23 Relative Earnings of White Women to White Men,
Ages 35-44, by Annual Earnings Quartile 177
Figure 5.24 Relative Earnings of White Women to White Men,
Ages 45-54, by Annual Earnings Quartile 177
Figure 5.25 Relative Earnings of Black Men to White Men,
Ages 35-44, by Annual Earnings Quartile 178
Figure 5.26 Relative Earnings of Black Men to White Men,
Ages 45-54, by Annual Earnings Quartile 178
Figure 5.27 Relative Earnings of Black Women to White Men,
Ages 35-44, by Annual Earnings Quartile 179
Figure 5.28 Relative Earnings of Black Women to White Men,
Ages 45-54, by Annual Earnings Quartile 179
Figure 6.1 Inequality in Hourly Wages for Men By Census
Region 190
Figure 6.2 Inequality in Hourly Wages for Women By Census
Region 191
Figure 7.1 Trends in Returns to Skills, 1963-1988 221
Figure 7.2 Net Imports of Services as a Percent of GDP 223
Figure 7.3 Net Imports of Nondurable Goods as a Percent
of GDP 224
Figure 7.4 Net Imports of Durable Goods as a Percent of
GDP 224
Figure 7.5 Actual and Fitted Values using Regression of
College-High School Dropout Wage Premium
on Durable Imports and Exports 230
XX List of Figures
Figure 7.6 Compensation of Employees in Durable
Manufacturing (as a Percent of Aggregate
Compensation, Inverted Scale) 235
Figure 7.7 Compensation of Employees in Target Industries
(as a Percent of Aggregate Compensation,
Inverted Scale) 236
Figure 8.1.a The Lowest Income Quintile Over Time 247
Figure 8.1.b The Second Lowest Quintile Over Time 247
Figure 8.1.c The Middle Income Quintile Over Time 248
Figure 8.1.d The Second Highest Quintile Over Time 248
Figure 8.1.e The Highest Income Quintile Over Time 249
Figure 8.2 The Gini Coefficient Over Time 249
Figure 11.1 The Links from Global Competition to Growing
Inequality 335
