Front Matter, INCOME INEQUALITY Regional Analyses Within a Human

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This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research

Volume Title: Income Inequality: Regional Analyses within a Human Capital Framework

Volume Author/Editor: Barry R. Chiswick

Volume Publisher: NBER

Volume ISBN: 0-870-14264-X

Volume URL: http://www.nber.org/books/chis74-1

Publication Date: 1974

Chapter Title: Front matter, Income Inequality: Regional Analyses within a Human Capital Framework

Chapter Author: Barry R. Chiswick

Chapter URL: http://www.nber.org/chapters/c3668

Chapter pages in book: (p. -16 - 0) INCOME INEQUALITY Regional Analyses within a Human Capital Framework NATIONAL BUREAU OF ECONOMIC RESEARCH Human Behavior and Social Institutions 4

Ic Income Inequality RegionalAnalyses within a Human Capital Framework

BarryR. Chiswick National Bureau of Economic Research and Queens College, C.U.N.Y.

NationalBureau of Economic Research New York 1974 Distributed by Columbia University Press New York and London Copyright t 1974 by the National Bureau of Economic Research Al! Rights Reserved library of Congress card nO.: 73—88509 ISBN: O—87014—264—X Printed in the United States of America NATIONAL BUREAU OF ECONOMIC RESEARCH OFFICERS Arthur F. Burns, Honorary Chairman Edwin Kuh, Director. Computer Research Walter W. Heller,Chairman Center J. Wilson Newman, Vice Chairman Hal B. Lacy. Vice Preoident-Research John R. Meyer, President Robert E. Lipsey, Vice President-Research Thomas 0. Flynn, Treasurer Sherman J. Maisel, Co-director NBER. West Douglas H. Eldridge, Vice President. Geoffrey H. Moore, Vice President-Research ExecutiveSec retarv Edward K. Smith, Vice President VictorR. Fuchs, Vice President-Research: Co-director NBER-West DIRECTORS AT LARGE Atherton Bean, international Multifoods Corporation J. Irwin Miller. Cummins Engine Company. Joseph A. Beirne, Communications Inc. Workers of America Geoffrey H. Moore. National Bureau of Arthur F. Burns. Board of Governors of Economic Research the Federal Reserve System J. Wilson Newman, Dun & Bradotreel, Inc. Wallace J. Campbell, Foundation for James J. O'Leary. United States Trust Cooperative Housing Company of New York Erwin D. Canham, Christian Science Alice M. Rivlin, Brookings Institution Monitor Robert V. Roosa, Brown Brothers Harriman & Cs. Emilio C. Collado, Exxon Corporation Eli Shapiro. The Travelers Corporation Solomon Fabricant. New York University Boris Shishkin, Washington. D.C. Eugene P. Foley, Montrose Securities, foe. Arnold M. Soloway, Jamaicaway Tower. David L. Grove, international Business Boston. Massachusetts Machines Corporation Lazare Teper, International Walter W. Heller, University of Minnesota Workers' Union Vivian W. Henderson, Clark College Donald B. Woodward, Riverside, Connecticut John B. Meyer, Harvard University Theodore 0. Yntema, Oakland University DIRECTORS BY UNIVERSITY APPOINTMENT Moses Abramovitz. Stanford Maurice W. Lee, North Carolina Gardner Ackley, Michigan Almarin Phillips, Pennsylvania Charles H. Berry. Princeton Lloyd C. Reynolds, Yale Francis M. Boddy, Minnesola Robert M. Solow, Massachusetts Institute of Otto Eckstein, Harvard Technology Walter D. Fisher, Northwestern Henri Theil. Chicago R. A. Gordon, California William S. Vickrey. Columbia Robert J. Lampman, Wisconsin Thomas A. Wilson, Toronto DIRECTORS BY APPOINTMENT OF OTHER ORGANIZATIONS Esgene A. Birnhaum, American Management Philip M. Klutznick. Committee for Association Economic Development Thomas 0. Flynn. American Institute of Roy E. Moor. National Association of Certified Public Accounlanlo Business Economists Nathaniel Goldfinger, American Federation Douglass C. North, Economic History of Labor and Congress of Industrial Association Organizations Willard L. Thorp. American Economic Harold G. Halcrow, American Agricultural Association Economics Association W. Allen Wallis, American Statistical Walter E. Hoadley. American Finance Association Association Robert M. Will, Canadian Economics Association DIRECTORS EMERITI Percival F. Brundage Albert J. Hettisger. Jr. Murray Shields Frank W, Fetter George B. Roberts Joseph H. Willits Gotttried Haberler SENIOR RESEARCH STAFF Gary S. Becker Raymond W. Goldsmith Hal B. Lary M. Ishoq Nadiri Charlotte Boschan Michael Cart Robert E. Lipsey Nancy Ruggles Philtip Cagan Michael Grossman Sherman J. Mabel Richard Ruggles Stanley IJiller F. Thomas Jsster Benoit B. Mandelbrot Anna J. Schwartz Solomon Fabricant John F. Kuin John R. Meyer Robert P. Shay Milton Friedman John W. Kendrick Robert T. Michael Edward K. Smith Gary Fromm Irving B. Kravis Jacob Mincer George J. Stigler Victor B. Fuchs Edwin Nub Ilse Mintz Victor Zarnowitz J. Royce Gino William M. Landes Goeffrey H. Moore

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The Committee on the Distribution of Income is in process of organization to meet a growing demand for a scientific determination of the distribution of national income among individuals. A knowledge of thisdistributionis of vital consequence in the consideration of almost every important political and social problem... June 4, 1917 memorandum of the Committee on the Distribution of Income, which evolved into the Na- tional Bureau of Economic Research in 1920.

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Contents

Page Acknowledgments xv Part A: Introduction 1. Introduction and Summary 3 Outline of the Bodk 5 Summary of Findings 7 2. A Nontechnical Analysis of the Distribution of Income 11 Equalizing Wage Differentials and Nonmoney Aspects of Jobs 11 Seasonality and Annual Income 15 Human Capital 16 One Period of Training 18 Schooling Model of Income Inequality 21 Migration and the Rate of Return from Schooling 22 Postschool Training and Income Distribution 23 Postschool Training and Employment 24 Analysis of Level of Income 26 Analysis of Inequality of Income 28 Part B: Income as a Function of Schooling 3. The Schooling Model 33 The Theoretical Model 35 Statistical Implementation of the Model 40 4. Interregional Applications 48 The United States 49 South versus Non-South 51 Interstate Analysis 55 Canada 73 The Netherlands 77 Summary 79 x Contents

Page 5. International Applications 83 A Four-Country Analysis 83 Earnings Inequality and Economic Growth 89 Mass Migration and Income Inequality in Israel 97 Great Britain versus the United States 101 Part C: Income as a Function of Schooling and Market Experience 6. The Expanded Human Capital Model 107 Investment in Training 107 Weeks Worked 109 Empirical Formulation 111 Racial Differences in the Age-Income Profile 116 7.The Level of Income 119 Statistical Implementation of the Model 120 Empirical Application 120 U.S. Males 128 U.S. White Males 133 U.S. Nonwhite Males 135 Canada 138 Summary 139 8.The Dispersion of Income 143 Statistical Implementation of the Model 144 Empirical Application 158 U.S. Males 158 U.S. White Males 163 U.S. Nonwhite Males 168 Canada 173 Summary 175 Appendix A: Data Sets 179 A-i: Data for Part B: United States and Canada 179 A-2: Data for Part C: United States and Canada 188 A-3: Mexican Wage Earners Sample 193 Appendix B: Comparative Empirical Results 194 B-i: Effect of Including Nonwhites on Intrastate and Interstate Parameters 194 B-2: Effect of Including the Aged and Property Income on the U.S. Parameters 196 Bibliography 199

• Index 205

- Tables

Page 1-1 Means and Standard Deviations Across States of the Level and Inequality of Income and Earnings for Males 7 3-1 Annual Earnings during and after Training 34 4-1 Regression of Natural Log of Earnings on Schooling: Males, Twenty-five to Sixty-four, South versus Non- South, 1959 50 4-2 Calculated Rates of Return for Adult Males in the United States and Canada 53 4-3 Matrix of Correlation Coefficients for Fifty-one States 56 4-4 Regression Analysis of U.S. Data for Fifty-one States 58 4-5 The Explanatory Power of Schooling in the United States and Canada 59 4-6 Matrix of Correlation Coefficients, All Males, Seven- teen Southern States 60 4-7 Matrix of Correlation Coefficients, All Males, Thirty- four Non-Southern States 62 4-8 Matrix of Correlation Coefficients, Whites, Seventeen Southern States 63 4-9 Matrix of Correlation Coefficients, Whites, Thirty- four Non-Southern States 64 4-10Correlation Matrix for Males in Fifty-one States, In- come and Earnings Inequality, Regression and Over- taking Age Rates of Return 66 4-11Income Inequality and Average Level of Schooling for the United States and Canada 72 xii Tables

Page 4-12 Matrix of Correlation Coefficients, Eleven Provinces of Canada 76 4-13Netherlands:Cross-SectionalRegressions on Con- centration Ratio (C), by Region 78 4-14Netherlands: Cross-Sectional Regressions on Regional Mean Income per Taypayer T 80 5-1 Results from Regressing the Natural Log of Earnings on Schooling for Males, Twenty-five to Sixty-four, in the United States and Canada 84 5-2 Results fromRegressingthe Natural Log of In- come on Schooling for Males, Twenty-five and over, in Puerto Rico, the United States, and Canada 86 5-3 Results from Regressing the Natural Log of Earnings on Schooling and Experience for Males in Urban Mexico 87 5-4 International Explanatory Power of Schooling 89 5-5 Analysis ofP(5)andP(10) 95

5-6 Analysis of P(75) S 96 5-7 Distribution of the Labor Force by Years of School- ing in the United States and the United Kingdom 102 6-1 Income of Nonwhite Males as Percentage of Income of White Males, 1949, 1959, and 1969 118 7-1 Regression Results, Log of Geometric Mean of In- come or Earnings of All Males 129 7-2 Regression Results, Log of Geometric Mean of In- come or Earnings of All Males 131 7-3 Regression Results, Log of Geometric Mean of In- come or Earnings of White Males 133 7-4 Regression Results, Log of Geometric Mean of In- come or Earnings of Nonwhite Males 135 7-5 Mean Values of the Log of Geometric Means for In- come and Earnings, Observed versus Predicted, Thirty- nine States 137 7-6 Regression Results, Log of Geometric Mean of In- come in Canada 138 8-1 RegressionResults, Income Inequality, All Males, with Regression Estimate of Rate of Return (re) 159

'l Tables Xiii

Page 8-2 Effect of Including Race and Region Variables on the Unadjusted (R2) and Adjusted (R2) Coefficients of Determination for All Males 161 8-3 Regression Results, Income Inequality, All Males, with Overtaking Age Estimate of Rate of Return 162 8-4 Regression Results, Income Inequality, White Males 164 8-5 Regression Results, Income Inequality, White Males, with Race and Region Variables 166 8-6 RegressionResults,Income Inequality, Nonwhite Males 170 8-7 Predicted Values of Nonwhite Income Inequality under Alternative Assumptions 173 8-8 Regression Results, Income Inequality, Canada 174 8-9 Correlation Matrixfor Canada 175 A-i Results from Regressing the Natural Log of Income in 1959 on Schooling for Males of Twenty-five and Over in the United States 180 A-2 Results from Regressing the Natural Log of Income in 1959 on Schooling for White Males of Twenty-five and Over in Seventeen States 183 A-3 Results from Regressing the Natural Log of Income in 1960 on Schooling for Nonfarm Males, Twenty- five to Sixty-four, in the Provinces of Canada 184 A-4 Earnings Inequality, Estimated Overtaking Age Rate of Return and Three Estimates of Schooling's Ex- planatory Power for the Fifty-one States 186 A-S Means,StandardDeviations, and Coefficients of Variation of the Parameters for the Fifty-one States and Eleven Provinces 188 B-i Matrix of Correlation Coefficients for the Fifty-one States, with Seventeen Excluding Nonwhites 195 B-2 Results from Regressing the Natural Log of Earnings and Income in 1959 on Schooling for Males in the United States 196 Figures

Page 2-1Supply and Demand for Labor—Homogeneous Tastes 13 2-2Supply and Demand for Labor—Heterogeneous Tastes 15 2-3One Period of Training 20 2-4 One Period of Training—An Increase in the Differential 20 6-1Hypothetical Cross-Section and Cohort Age-Income Profiles for Males 117 Acknowledgments

Iam greatly indebted to Gary Becker and Jacob Mincer for their encouragement and constructive criticism during the ges- tation period of this book. Comments received from the staff reading committee—V. K. Chetty, Sherwin Rosen, and Finis Welch— and from the Board of Directors' reading committee—Robert Lampman, Lloyd Reynolds, Alice Rivlin, and Robert Will—were also most helpful. In addition, comments by Victor Fuchs, John Meyer, Robert Michael, and Carmel Ullman, as well as those received at seminars at the National Bureau, Columbia University, theUniversityof Chicago, the University of California, Los Angeles, and Queens College C.U.N.Y., aided in sharpening my analysis and exposition. Financial support was provided primarily by the National Bu- reau of Economic Research through grants from the Carnegie Corporation of New York for studies on education, and the Eco- nomic Development Administration, Department of Commerce for regional studies. Additional aid was provided by a Ford Founda- tion fellowship, a visiting research appointment at Princeton Uni- versity's Industrial Relations section, and by the research facilities of Columbia University, the University of California, Los Angeles, the University of Chicago, Queens College, and the Graduate Center of the City University of New York. I wish to thank Martin Carnoy for lending me his sample data on Mexican wage earners, and Jennie Podoluk and Statistics Canada (formerly the Dominion Bureau of Statistics), for access to unpublished census data. Martha Jones Lichtenstein's initial help in the processing of the data, and research assistance from Irene Abramson, Neville Beharie, and Hope Wong were invaluable. Hedy D. Jellinek's skill- ful editing is also appreciated. xvi Acknowledgments

Part B is primarily a revision of the income inequality chapters in my doctoral dissertation, "Human Capital and the Personal Dis- tribution of Income," Columbia University, 1967. The section on earnings inequality and economic growth in Chapter 5 is based on my "Earnings Inequality and Economic Development," Quarterly Journal of Economics, February 1971.

Barry R. Chiswick