War Mobilization and the Great Compression

During the 1940s, the diversion of 55\% of the workforce to war-time production, the induction of over 10 million young men into the armed forces and the entry of millions of female, young and elderly workers into workplace subject the labor force to large shocks. Also during the 1940s the wage distribution compressed sharply and the returns to education fell. This paper uses between occupation wage changes to link war-time labor market shocks to the decline in the return to education and to the decline in wage inequality. War-time production favoring less-educated labor along with the occupation-biased nature of the draft combined to compress both the lower and upper tails of the male wage distribution and the upper portion of the female wage distribution.