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9 - U.S Wage Trends in the 1980s The Role of International...

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18 FRBNY E CONOMIC P OLICY R EVIEW / J ANUARY 1995 U.S. Wage Trends in the 1980s: The Role of International Factors Robert Z. Lawrence* nited States wage performance has been dis- quieting. Between 1979 and 1993, real hourly compensation rose by just 5.5 per- cent. This poor average wage performance has been associated with a dramatic increase in the disper- sion of earnings: both in the returns to general characteris- tics such as education, experience, and occupation and in earnings across workers with similar educational, experi- ence, and occupational characteristics. 1 In this paper I will consider briefly the evidence on the role that U.S. interna- tional performance has played in these outcomes. A VERAGE W AGES Three internationally related explanations have been advanced to account for the poor average growth in U.S. wages over the 1980s. These can be described as deindus- trialization, relative decline, and factor-price equalization. But the evidence supports none of these explanations. Instead, poor average compensation reflects the sluggish rise in U.S. labor productivity, which results from poor productivity performance outside the manufacturing sector. D EINDUSTRIALIZATION The deindustrialization hypothesis suggests that the U.S. trade deficit in manufactured goods has eroded the supply of highly paid manufacturing jobs. But the job content of the U.S. manufacturing trade deficit that emerged over the 1980s is simply too small to allow the explanation for slow average wage growth to be the loss of high-paying manu- facturing jobs due to trade. In 1991, the trade deficit was equal to about 5 percent of value-added in manufacturing. Average hourly earnings in manufacturing were 8.2 per- cent higher than those in the private sector generally. (Average weekly earnings were 29 percent higher.) Since manufacturing accounted for 17 percent of total employ- U *Robert Z. Lawrence is Albert L. Williams Professor of International Trade and Investment, John F. Kennedy School of Government, Harvard University. The views expressed in this article are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. The Federal Reserve Bank of New York provides no warranty, express or implied, as to the accuracy, timeliness, com- pleteness, merchantability, or fitness for any particular purpose of any information contained in documents produced and provided by the Federal Reserve Bank of New York in any form or manner whatsoever.
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FRBNY E CONOMIC P OLICY R EVIEW / J ANUARY 1995 19 ment, shifting an additional (.05 * 17) 0.85 percent of employment to manufacturing would have raised average hourly and weekly wages by 0.07 and 0.25 percent, respec- tively—an amount scarcely large enough to explain the poor wage performance of the 1980s.
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