GUITARRISTAS CON SONIDO LATINO

Explanations of between-group inequality are usually concerned with changing earnings differentials among groups of workers defined by education levels, gender, race, immigration, industry and age. Each of these factors is discussed below, with reference to findings in the international and Australian literature.

Educational level or attainment

The analysis of educational attainment stems from standard human capital theory. This states that, ceteris paribus, investment in human capital should eventually lead to higher wages in the form of a return to the human capital created. In other words, an employee with more years of education or training is more likely to earn a higher wage rate than their counterpart who does not possess the same years of education or training. At a time of increasing wage inequality, many economists have investigated changes to the returns to education. Machin (1996) in reviewing the experiences of Canada, Japan, Sweden, the UK, and the US reported that in the 1970s all these countries experienced a fall in the education premium, as a result of an increase in the supply of educated labour. In the 1980s, the picture changed considerably as the supply of educated workers ‘continued to rise but, contrary to neoclassical price-theoretic responses, this went hand-in-hand with rising returns to education’ or increases in wages to individuals who possessed higher educational qualifications (Machin, 1996, p. 53). For example, the percentage of men having a degree rose from 8 to 11 per cent and the percentage of men with no qualifications fell from 46 to 32 per cent in the UK. What appears to explain this increase in the returns to education in the UK and the US is that the demand for educated workers must have been increasing faster than its corresponding supply. Studies in the US conducted by Topel (1997) and Levy and Murnane (1992) report that returns to a college education trended downwards until 1979, as college enrolments expanded sharply. The share of college graduates slowed in the 1980s, and this led to rising returns to education in the US. Topel (1997) reports a decline in the return to educated workers in the 1970s. This was driven by a strong and rapid expansion of the supply of educated workers which outstripped the demand, leading to a decline in the wage rate. Returns to college education stopped falling and began to rise in the 1980s, as the demand for educated workers had risen at a much faster rate than its corresponding supply. Sweden showed a similar pattern of flat or falling returns to university education during the 1970s, followed by rising returns during the 1980s, and this was also the case in many other developed economies (Topel, 1997, p. 66). This picture appears to have continued well into the 1990s. Card and Lemieux (2001) show that the college-high school wage gap continued to increase for young US men, and that little change was seen in the wage gap for older men. A similar trend could be found in

the UK and Canada, where the college-high school wage gap increased for young men relative to older men (Card and Lemieux, 2001, p. 739).

The link between wages outcomes and educational attainment has also been subject to close scrutiny in Australia. Borland (1996b) examined the education structure of earnings. His main findings were that overall earnings differentials between groups narrowed between the late 1960s and early 1980s. However, these remained steady or widened slightly between the early and late 1980s. For male workers with a degree, relative annual earnings declined from 1968-1969 until 1985-1986, but increased slightly between 1989 and 1990. Female workers with a degree experienced relative declines between 1973 and 1974 and 1978 and 1979. Preceding this period, relative earnings remained stable. In short, Borland’s study indicates that Australia has not seen a strong trend in returns to education, as has been the US experience.

More recent work on the returns to education in Australia has adopted a different approach. Borland (2002) studies the impact of the introduction of the Higher Education Contribution Scheme (HECS).8 His estimates of the rate of return from the post-HECS period are lower than those found in studies undertaken in the pre-HECS period. He concludes that the difference is due to the introduction of HECS.

Methods of analysis that look at the increases in the relative demand for college educated male and female workers can provide further insights into the reasons for increasing earning inequality both overseas and in Australia. These methods have been used in a number of studies that point to the fact that the relative demand for skilled workers has been consistently increasing over the last three decades.

Increased demand for educated workers has been widely seen as impacting negatively on the relative position of less skilled workers (Johnson, 1997; Murphy and Welch, 1993; Blackburn et al., 1990). Johnson (1997) arrives at the conclusion that the relative demand function for educated workers experienced rightward shifts during the 1980s and this ‘holds for every method of aggregating different types of labour in a production function context’ ( p. 43). Murphy and Welch (1993) take the argument further, finding

8 _{The introduction of HECS is likely to affect the supply rather than the demand of educated workers. If}

HECS fees imposed by government are too high, these may deter people from undertaking further study and they may choose to join the labour force sooner as less skilled workers.

that the demand for skilled or educated workers increased over the 1940-1990 period. Their estimates imply that the demand for men in the bottom wage decile fell by between 30 and 50 per cent, while the demand for men in the top decile rose by between 50 and 70 per cent. Katz and Murphy (1992) find that women’s earnings in the 1963 to 1987 period increased by 9 per cent relative to those of men. Their earnings increased relative to men in almost all experience-education areas in the 1980s. The narrowing of the gender gap in wages began earlier for college graduates than for high school graduates, and the increase in the male/female wage ratio was much more substantial in the 1980s for high school graduates (Katz and Murphy, 1992, p. 41). Overall, the authors conclude:

residual weekly wage inequality for both men and women (as measured by the 90- 10 log wage differential) were [sic] stable during the 1960s and then increased by almost 30 per cent from the late 1960s to 1987. The increase in residual inequality has been quite steady since the early 1970s, while the growth in overall inequality accelerated in the 1980s. … male/female wage differentials narrowed substantially from 1979 to 1987. (Katz and Murphy, 1992, p. 46)

They explain the narrowing of the male/female wage differential for high school workers as a result of a decline in demand for high paying production jobs in the manufacturing sector, which were commonly held by high school educated males. Levy and Murnane (1992), on the other hand, highlight the magnitude of the impact of a changing economy. For example, in 1979, 38 per cent of 25-34 year old high school graduates were employed in the relatively high paying manufacturing sector. This had declined to 29 per cent in 1987. In contrast to this, the low paying wholesale and retail trade sector experienced an increase from 18 to 23 per cent of total employment of male high school graduates aged between 25 and 34 years. The authors believe that the shift in employment may have been due to either a decline or a stagnation of job opportunities in the manufacturing sector, forcing these workers to search for employment opportunities in other sectors where wages were lower and where they may have faced competition from women (Levy and Murnane, 1992, p. 1361). Haskel (1996), in a study into the decline of employment in UK manufacturing, found that changes in skill in employment were significant. He assembled a new data set to analyse the fall in unskilled employment. In this study he used data on relative skills, rather than the manual/non-manual distinction commonly used in UK studies. Haskel finds that between 1981 and 1989 the ratio of skilled to unskilled employment grew by

4.4 per cent and the numbers of non-manual workers rose by 6.7 per cent, indicating a positive shift in demand for more skilled labour.

Gender

A common feature of the last 25 years for most developed economies has been the increase in the participation of women in the labour market. This has been the experience of most OECD countries, including the US, the UK, Canada and Australia. The male/female wage differential remained almost constant during the 1970s despite the increase in the average work experience of women. Over the last 30 years, in the US, the UK and other European advanced economies, the gender pay gap has narrowed considerably as women have entered traditionally male occupations. The entry of highly educated women into the labour force in the late 1970s, which continued right through to the 1990s, continues to contribute to the fall in earnings inequality between men and women (Levy and Murnane, 1992). Nevertheless, it is important to recognise that the narrowing of the wage gap is likely to be a function of how large it was at the beginning.

Topel (1997, p. 67) argues that there is some evidence that the rising labour supply of women may have been an important contributor to an increase in male inequality. However, he states that the findings are only suggestive and that further research is required. More recent research concludes that the narrowing in the US gender pay gap decelerated in the 1990s. The reasons for the slowdown in this convergence are attributed to gender specific factors, but these are not explicitly stated, and further research is required (Blau and Kahn, 2000, p. 98).

Weinberger (1998, pp. 79-81) analysed the performance of college graduate women of different ethnic backgrounds in the US labour market. She found that women of all ethnic backgrounds faced a 10 to 15 per cent relative wage disadvantage against white males. White college graduate women experienced a 9 per cent disadvantage. Hispanic college graduate women faced a 6 per cent gap relative to white men who graduated from the same college, while black women experienced the most disadvantage as they were more likely to attend colleges whose graduates were least valued by the labour market. Overall, black women’s relative wage earning capacity was 16 per cent below that of their white male counterparts. Finally, Asian men and women tended to face the

same 10 to 15 per cent wage disadvantage as white women, black women and black men relative to white male graduates who attended the same institution or college. Australia experienced steady increases in the overall labour force participation rate between 1966 and 1996 (Borland, 1997, p. 5). The interesting feature of this is that male participation rates declined, whereas for females they increased steadily. The main cause for a higher aggregate participation rate has been the increased influx of women entering the labour force:

Supply-side factors which are likely to have been associated with increasing participation by married females and higher wage rates for females following the 1969 and 1972 Equal Pay Case decisions, higher levels of educational attainment of females, increased availability and lower cost of childcare services, changing attitudes to female labour market participation, a reduction in the average number of children per family, extra labour saving devices for undertaking household tasks and changes in access to unemployment benefits for married females. (Borland, 1997, p. 11)

Gregory (1993) documented changes to the gender composition of employment and found that women performed ‘absolutely and relatively better than men in obtaining employment in the middle of the male pay distribution’ (p. 67) between 1976 and 1990, when seven out of every ten non-managerial jobs went to women. For males, unemployment increased four-fold and the male full-time employment-population ratio declined by 25 per cent. In an earlier study Gregory (1991) highlighted the loss of jobs in the manufacturing sector, affecting mostly male blue-collar workers. Job creation has manifested itself in the services sector, where the demand has been predominantly for white-collar, female and well-educated labour. Gregory’s study shows that most of the fall in full-time employment between 1968 and 1988 was concentrated on men, of which half was as a result of job losses and the other half as a result of decreased male participation in the labour market. Preston (1997) used the competitive wage model to analyse the differences in the human capital endowments of men and women to explain differences in wages by gender. Her study found that, in spite of recent gains, women were still paid on average 85 per cent of the male wage rate. More recent work by Preston (2000) found that the wage gap of males and females in the private and public sectors showed signs of convergence between 1981 and 1991.

In summary, the international evidence shows that the wage differential between males and females in most industrialised countries has shown signs of decline. The US, for

example, has shown declines in wage disparities during the 1980s, whereas for Australia the stronger signs were seen in the 1970s, with continuing signs of convergence since 1981 (Preston, 2000, p. 49).

Age and experience differentials

Another between-group effect considered in this literature review is age/experience- related wage differentials. According to Machin (1996, pp. 52-55) these widened in Canada, Japan, Sweden, the UK and the US during the 1980s. Katz and Murphy (1992, p. 46) provide further evidence of the widening gap between experience groups. Between 1963 and 1987 experience differentials grew substantially in the US; the most pronounced increase was educated males in the 1979-1987 period.

Three major trends have impacted on the supply of labour in Australia: a slowdown of growth in the working age population, the importance of immigration, and the ageing population. Since 1966, Australia has experienced a downward trend in the rate of growth in the working age population. The proportion of younger persons in the population has decreased from 1976 onwards, with corresponding increases in the proportions aged 25-34 and 35-44 years.

In regard to earnings differentials, Gregory (1993) finds that older, more experienced workers have increased their earnings relative to those who are younger and less experienced. Between 1976 and 1990 median real earnings fell 15 per cent for 20-24 year olds and 5 per cent for 35-44 year olds. Since 1976 all age groups lost between 11 and 22 per cent of their middle income jobs. What this means is that employment in the middle level occupations and at middle level earnings is not being created. For example:

The loss of middle level jobs for the 20-24 year olds has been associated with a 14 percentage point increase in the proportion of low paid jobs in this age group and there has been little change to their small share of high paid jobs. A similar effect has occurred for 25-34 year olds … The process at work among prime age groups is different. For them the loss of middle jobs has been associated with a similar increase in low and high paid jobs … and the driving force is a widening of the earnings dispersion.(Gregory, 1993, p. 75)

These findings are echoed by McGuire (1994, p. 43) who found that mean earnings for workers aged under 25 declined by almost 12 per cent for males and 15 per cent for

females relative to older workers. He also found that real earnings among the young declined by between 5 and 11 per cent between 1976 and 1992. Earnings dispersion within age groups also rose. For men aged 35 to 44, the inter-quartile ratio (i.e. the ratio of earnings for full-time employees at the third quartile to earnings of full-time employees at the first quartile) increased from 158 per cent in 1975 to 167 per cent in 1992. For women of the same age group, the increase was from 137 to 166 per cent. Over the last three decades, participation in the Australian labour market has increased steadily. Of interest is the decrease in the participation rate of males over the long run, whereas for single females the increase has been steady, and for married women the increase has been quite rapid. The main cause of the fall in the participation rate by males has been the decrease among those aged 60-64 between 1966 and 1986, and aged 45-54 and 55-59 between 1976 and 1986 (Borland, 1997, pp. 6-7).

Both the international and Australian evidence points to increasing dispersion of earnings between age cohorts. These changes were more pronounced during the 1980s, when both increases in age and experience differentials were recorded in the US. Borland and Kennedy (1998b) decompose the sources of changes in overall earnings inequality. For Australia, earnings inequality occurred mainly as a result of large increases in wage differentials between age groups. On these findings, a note of caution needs to be made. Since the late 1970s and 1980s, younger workers enter the workforce much later, due to staying at school longer. As a result, comparisons with the older cohorts who entered the labour market before the 1980s may not be appropriate as the earnings gap would be substantial.

Immigration

Changing patterns of immigration may also contribute to a supply-related explanation for the increase in earnings inequality. It can be argued that an increase in the supply of low-skilled labour will result in a decline in wages of low-skilled workers, leading to an increase in inequality. To estimate changes in the supply of labour as a result of increased immigration levels, the new arrival of immigrants has often been treated as an exogenous shift in the supply of labour curve. Changes in wages among native workers depend on the size of immigrant inflows as well as on the own-price elasticity of demand for immigrant labour and the cross-elasticity of demand for native labour

compared to immigrant labour, in other words, the substitution effects between immigrant and native labour (Topel, 1997, p. 62).

During the 1970s, the US labour force increased by 2 million as a result of immigration, while 20 million US-born Americans entered the labour force because of the ‘baby boom’ and the increased participation of women (Meinsenheimer, 1992). The size of these increases shows that migrants’ impact on the distribution of wages is quite small. A counter-argument is that immigrant populations show a tendency to congregate in particular geographic areas and among less skilled workers, particularly in the US. The size of these changes suggests that immigration may substantially affect local labour markets. Nevertheless, the weight of the empirical evidence is that immigration has not contributed much either to reducing wages for low-skilled US-born workers or to changes in overall wage inequality (Topel, 1997, p. 63).

For Australia, the majority of studies of the impact of earnings inequality have focused on how it affects migrants who are of non-English-speaking background (NESB) and those of English-speaking background (ESB). Preston (1997) catalogues a number of studies which show that ESB migrants enjoy similar or better wage levels than their