The U.S. wage structure evolved across the last century: narrowing from 1910 to 1950, fairly stable
in the 1950s and 1960s, widening rapidly during the 1980s, and “polarizing” since the late 1980s.
We document the spectacular rise of U.S. wage inequality after 1980 and place recent changes into
a century-long historical perspective to understand the sources of change. The majority of the increase
in wage inequality since 1980 can be accounted for by rising educational wage differentials, just as
a substantial part of the decrease in wage inequality in the earlier era can be accounted for by decreasing
educational wage differentials.
Although skill-biased technological change has generated rapid growth in the relative demand for
more-educated workers for at least the past century, increases in the supply of skills, from rising educational
attainment of the U.S. work force, more than kept pace for most of the twentieth century. Since 1980,
however, a sharp decline in skill supply growth driven by a slowdown in the rise of educational attainment
of successive U.S. born cohorts has been a major factor in the surge in educational wage differentials.
Polarization set in during the late 1980s with employment shifts into high- and low-wage jobs at the
expense of the middle leading to rapidly rising upper tail wage inequality but modestly falling lower
tail wage inequality.