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Decomposing Changes in the Distribution of Real Hourly Wages in the US

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Document pages: 52 pages

Abstract: We analyze the sources of changes in the distribution of hourly wages in theUnited States using CPS data for the survey years 1976 to 2019. We account forthe selection bias from the employment decision by modeling the distribution ofannual hours of work and estimating a nonseparable model of wages which uses acontrol function to account for selection. This allows the inclusion of allindividuals working positive hours and provides a fuller description of thewage distribution. We decompose changes in the distribution of wages intocomposition, structural and selection effects. Composition effects haveincreased wages at all quantiles but the patterns of change are generallydetermined by the structural effects. Evidence of changes in the selectioneffects only appear at the lower quantiles of the female wage distribution.These various components combine to produce a substantial increase in wageinequality.

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