Earnings Inequality and Central-City Development

Many papers have shown that U.S. earnings inequalityincreased substantially from about 1980 to around 1996.1Recent and careful studies agree that a basic explanationfor increased earnings inequality is the rising returns tohuman capital resulting from new technology. These risingreturns have meant that the relative earnings of someof the best educated, and thus best paid, workers haveincreased. Inequality has risen while the economy has grownwith unusual stability (at least after the 1980-82 cycle) andwhile substantial growth has occurred in the fraction ofadults who are employed. Government data indicate that theearnings of low-income and historically disadvantagedworkers rose faster in 1997 and 1998 than those of otherworkers. The Economic Report of the President (U.S. Council ofEconomic Advisers 1999) attributes the recent trend reversalto extreme tightness in the labor markets. Whether thisreversal will continue if labor markets slacken seems doubtfulif indeed the underlying cause of growing earningsinequality has been the rising returns to human capital.[...]