Economic Quarterly

Summer 2005

What's Driving Wage Inequality?

Aaron Steelman and John A. Weinberg

Wage inequality has increased sharply in the United States since the mid-1970s. Some have argued that globalization—in particular, increased international trade and immigration—is primarily responsible for changes in the wage distribution. However, Senior Vice President and Director of Research, John Weinberg and Region Focus Editor, Aaron Steelman, argue that the main cause is skill-biased technical change. Workers with relatively high skill levels have experienced more rapid growth in wages than less-skilled workers, some of whom have seen an actual decline in their real wages. Although technical change likely has increased wage inequality, it also has greatly enhanced productivity and living standards in the United States. (Note: This article first appeared in the Bank's 2004 Annual Report.)

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