Econometric studies of long-run earnings inequality.

Abstract

This dissertation contains three studies of long-run earnings inequality. Two studies are empirical analyses of long-run earnings inequality in the United States. The other study develops an econometric technique that is necessary to complete the empirical analyses. One chapter is entitled, Earnings Instability and Earnings Inequality of Males in the United States: 1967-91. Although much research has focused on recent increases in annual earnings inequality, the increases could be from either of two sources: the distribution of lifetime earnings could be more unequal or the receipt of lifetime earnings could be more unstable. Based on a descriptive and a parametric analysis of the 1968-92 Panel Study of Income Dynamics (PSID), my basic findings include: lifetime earnings inequality increased during the 1980's and earnings instability increased during the 1970's. To evaluate what may have caused these changes, I examine how the trends are related to changes in the distribution of wages and hours, the returns to education, and the business cycle. Another chapter is entitled, Generalized Method of Moments with Incomplete Data. Much of the theoretical work on generalized method of moments (GMM) presumes the availability of a data set with only complete observations. Previously proposed GMM estimation strategies with incomplete data have several drawbacks. In this paper, I develop an alternative GMM estimator that explicitly allows for incomplete data. The estimator is applicable whenever the incomplete data problem is ignorable. The final chapter is entitled, The Long-Run Earnings Inequality of Families. Very little research has examined changes in long-run earnings inequality at the family level. Using the PSID, I find that long-run family inequality increased and that most of the increase was due to the increasing inequality of husbands' earnings; I find a smaller role for an increase in the correlation of spousal earnings. After establishing these changes, I examine whether there were accompanying changes in the distribution of hours or wages. My findings indicate that increasing wage inequality accounted for over three-quarters of the change in family earnings inequality.