Skill Differentials in Canada in an Era of Rising Labor Market Inequality

Abstract

The pay of college graduates, of professionals and managers, and of other white-collar workers increased relative to the pay of less-educated and blue-collar workers; joblessness increased among the less-educated but not among college graduates. Dispersion of earnings within educational groups increased. The rise in earnings and employment differentials was greatest among younger men: from the early 1970s through the 1980s the real earnings of 25-34-year-old men with high school or less education fell by some 20 percent. Their employment-population rate dropped by over 10 percentage points, while college graduates suffered no such losses. What happened to earnings and employment differentials between moreand less-educated workers in Canada in this era of rising economic inequality in the United States? Did supply and demand for labor shift in the same way in Canada as in the United States? Did Canadian wage-setting institutions respond "more gently" to the market twist against the less skilled than those of the United States? What does the Canadian experience tell us about the causes of the 1980s rise in skill differentials in the United States? To answer these questions we analyze data from the Canadian Survey of

Trade Unions and the Dispersion of Earnings in British Establishments, 1980-90

“…Card (1991) uses a more sophisticated approach, based on quintile regressions, to reach much the same conclusion, namely that over the period 1973-87, 21% of the increase in the variance of earnings can be accounted for by changes in the level and distribution of unionisation. A third study of interest is Freeman and Needels' (1993) comparison of changes in labour market inequality in the US and Canada. They find that declining unionisation has played an important role in the rise in inequality in the US, whilst…”

Technical Change, Inequality, and the Labor Market

“…Unions often compress the structure of wages and reduce skill premia (see, for example, Reynolds, 1951, or Freeman andMedo¤, 1984). Throughout the postwar period in the U.S. economy, unions negotiated the wages for many occupations, even indirectly in ‡uenced managerial salaries (see DiNardo, Hallock and Pischke, 2000).…”

“…Unions could never attract skilled workers unless they provide some bene…ts to them. Here I simply assume that they provide a bene…t¯to all workers, for example, because unions increase productivity (e.g., Freeman andMedo¤, 1984, andFreeman andLazear, 1995), or because they encourage training. Alternatively,¯could be part of the rents captured by the union.…”

What effect do unions have on wages now and would freeman and medoff be surprised?

“…Freeman's other post-F&M work on union wage effects includes an international comparative paper with one of the authors (Blanchflower and Freeman, 1992), and the impact of union decline on rising wage inequality in the United States -see for example Freeman, (1993Freeman, ( , 1995; Freeman and Katz (1995); Freeman and Needels (1993);and Freeman and Revenga (1998). For a discussion of the issues involved see Blanchflower (2000a).…”