Wage Differentials in the 1990s: Is the Glass Half-Full or Half-Empty?

Abstract

There are many wrinkles and complexities that have been brought to our attention by the huge volume of research that addresses the growth in wage inequality during the last three decades. While not all of the facts fit a relatively simple story, we believe that many of them do; it is a story of supply and demand, a story of increasing opportunity, of opportunities for sustained economic growth. After sketching the main ingredients of change, we suggest a simple model and explore its implications. As a dynamic demand and supply story, it can accommodate swings in inequality as well as their rates of growth. If our interpretation is correct, the supply responses to the shifts in demand, that produced increasing wage inequality, will ultimately produce increasing equality; and both parts of the process, the demand growth and the supply response, will have contributed to increased productivity in the aggregate.