The changing structure of male earnings in Britain, 1974-88

The paper uses data from the annual British General household Survey to examine changes in the structure of weekly earnings for full-time male employees aged 16 to 64 during the period 1974-1988. The principal findings are: (1) earnings inequality fell slightly in the second half of the 1970s only to grow sharply during the 1980s; (2) rising financial returns to education and labor market experience in the 1980s account for between one-third and one-half of the growth in earnings inequality during the 1980s; (3) the earnings if low-skilled workers increased by over 15 percent in real terms between 1974 and 1988. Rising returns to skills in the face of large increase in the supply of skilled labor suggest a substantial shift in labor demand in favor of skilled workers. Changes in British labor market institutions, particularly the decline in trade unions density may also help to explain part of the rise in inequality during the 1980s.