Regional Wage Divergence and National Wage Inequality

Throughout much of the 1980s, wage inequality increased in the United States. Previous research has found that a rise in earnings by educational level and increased wage dispersion across occupations were important factors in the rise in wage inequality. Researchers, however, have noted that much of the rise in wage inequality was left unexplained by the demographic and industry factors that they examined. In this study, Keith R. Phillips extends the analysis by examining the impact on wage inequality of a divergence in regional wages that occurred during the 1980s. ; The author finds that regional shocks, such as the recessions in the oil and farm belts, pushed wages lower in these below-average-wage areas, and increased defense spending pushed up wages in many above-average- wage areas. While these regional shocks increased overall wage inequality, Phillips finds that regional wage divergence accounted for only 2.1 percent to 5 percent of the rise in national wage inequality. Other factors, such as increased wage dispersion across educational and occupational groups and a reduction in the male-female wage gap, played larger roles.