Declining inter-industry wage dispersion in the US

Industrial effects have long been significant factors in wage inequality. Previous research indicates that wage differentials across industries were increasing through the mid 1980s. Using more recent data, however, we find that the level of inter-industry wage dispersion declined by 36% from 1986 to 2002 despite the continued trend towards increasing inequality in the labor force. This decline in inter-industry wage dispersion is evident across gender and educational groups. Using multilevel growth curve models, our multivariate results indicate that the decline is only weakly related to industrial changes in education, occupation or even productivity despite the fact that the latter variable had been a critical factor in the prior period. Indicators of globalization and downsizing also do not appear to explain this decline. For the more recent period, the most important factors associated with the narrowing of inter-industry wage dispersion are reduced unionization rates and the higher proportion of casual workers. We interpret these results as suggesting that firms may now be less economically obliged to pass on a portion of their rents to broad groups of workers and may instead be engaged in more idiosyncratic processes of negotiation with individual workers based on micro-level sources of bargaining power.