Institutions and U.S. Wage Inequality

Other External Scholars:
Peter Temin, Massachusetts Institute of Technology
Project Date:
Nov 2006
Award Amount:
Project Programs:
Social, Political, and Economic Inequality

In the thirty years after World War II, widespread income growth lifted vast numbers of American households into the middle class. Since the mid-1970s, however, income inequality has steadily risen as wage growth has stalled for workers without a college degree. The conventional explanation for this shift points to the proliferation of computer technology and the advent of globalization, both of which increased demand for educated, skilled labor. This view suggests that ordinary workers will begin to share in the benefits of economic growth as they upgrade their skills.


MIT economists Frank Levy and Peter Temin question this dominant explanation of contemporary inequality, which is unable to explain why even educated workers are failing to benefit from productivity gains. Instead, Levy and Temin argue that institutional changes brought an end to the age of equitable growth, including the decline of unions, the erosion of corporate responsibility norms, and the rollback of labor regulations and the welfare state. The investigators will explore this alternative hypothesis through an historical analysis of quantitative and qualitative evidence on wages, productivity, and institutional change. Using data from the Census, Current Population Reports, and Current Population Surveys, they will plot time series graphs of the ratio of median earnings to productivity rates for various categories of workers since 1946, to explore changes in workers’ bargaining power. Levy and Temin will also construct historical narratives to illustrate the decline of labor institutions over the same period, examining specific union negotiations, changes in industry structure, and policy statements by corporations.


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