Wage inequality and demand for skill: Evidence from five decades

Using the 1940-90 Censuses, the author examines long-run changes in male wa ge inequality and skill premiums and investigates the extent to which shift s in observable measures of skill supply and demand can account for relativ e wage fluctuations across decades. A simple supply and demand framework is reasonably successful in accounting for movements in the education premium but is less successful in explaining changes in overall wage inequality. W hile the difference between the 90th and 10th percentiles of the log wage d istribution fell sharply in the 1940s and grew at an accelerating rate in t he 1980s, relative demand for the most versus the least skilled workers ros e steadily throughout the period. The pace of industrial change and, in par ticular, the expansion of medium-skilled sectors such as blue-collar manufa cturing appear to have been inversely related to overall wage inequality gr owth.