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Have Macroeconomic Forces Contributed to Rising Earnings Inequality in the United States?
Unformatted Document Text:  uniform manner across the distribution than it would not necessarily result in increased inequality. In actuality, the results of the reduced and full decile level models for earnings suggests that earnings at the top of the distribution are more substantially reduced than those at the bottom. The mechanism driving this is effect is unclear and beyond the scope of this investigation. Real Exchange Rate In a manner similar to the effects of unemployment, the real exchange rate of the dollar significantly increases inequality in all models except that of the earnings Gini coefficient. Again this is assumed to be a result of this factor having more of an impact on workers at the bottom of the earnings distribution. In both wage and earnings decile analyses higher real exchange rates significantly reduce wages and earnings at the bottom of the distribution. Additionally, within the earnings models wages & salaries at the 90 th decile are significantly increased by appreciation of the dollar. This is consistent with the suggestion by Galbraith that low-wage import competing industries are hit hardest by increase in the exchange rate of the dollar and that idea that exporters of advanced goods may even benefit from such increases. Overall, these macroeconomic factors appear to contribute substantially to our understanding of fluctuations within the wage and earnings distributions. These factors appear to be particularly consequential for earnings in the lower end of the distribution as indicated by the dramatically larger proportions of variance explained within the wage models as opposed to the earnings models. This suggests again that a methodological factor may have mitigated against more attention to these factors. Specifically, focusing primarily on summary inequality indexes, particularly the Gini coefficient, may have obscured the impact of these macroeconomic factors. Institutional Factors State Minimum Wage The state minimum wage appears to reduce inequality across models, but at a more substantial magnitude at the lower end of the earnings distribution as expected. An increase in the state minimum wage particularly reduces the level of inequality between the middle and top of the earnings distribution 8

Authors: Bentele, Keith.
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uniform manner across the distribution than it would not necessarily result in increased inequality. In
actuality, the results of the reduced and full decile level models for earnings suggests that earnings at the
top of the distribution are more substantially reduced than those at the bottom. The mechanism driving
this is effect is unclear and beyond the scope of this investigation.
Real Exchange Rate
In a manner similar to the effects of unemployment, the real exchange rate of the dollar
significantly increases inequality in all models except that of the earnings Gini coefficient. Again this is
assumed to be a result of this factor having more of an impact on workers at the bottom of the earnings
distribution. In both wage and earnings decile analyses higher real exchange rates significantly reduce
wages and earnings at the bottom of the distribution. Additionally, within the earnings models wages &
salaries at the 90
th
decile are significantly increased by appreciation of the dollar. This is consistent with
the suggestion by Galbraith that low-wage import competing industries are hit hardest by increase in the
exchange rate of the dollar and that idea that exporters of advanced goods may even benefit from such
increases.
Overall, these macroeconomic factors appear to contribute substantially to our understanding of
fluctuations within the wage and earnings distributions. These factors appear to be particularly
consequential for earnings in the lower end of the distribution as indicated by the dramatically larger
proportions of variance explained within the wage models as opposed to the earnings models. This
suggests again that a methodological factor may have mitigated against more attention to these factors.
Specifically, focusing primarily on summary inequality indexes, particularly the Gini coefficient, may
have obscured the impact of these macroeconomic factors.
Institutional Factors
State Minimum Wage
The state minimum wage appears to reduce inequality across models, but at a more substantial
magnitude at the lower end of the earnings distribution as expected. An increase in the state minimum
wage particularly reduces the level of inequality between the middle and top of the earnings distribution
8


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