Education, occupations and wage inequality in the UK since the 1980s Craig Holmes SKOPE and Oxford University OUDE Research Day, October 9 th 2013

Introduction Wage inequality in the UK has risen since the 1980s

Introduction Rising upper- and lower-tail inequality until mid 1990s Small increases in upper-tail inequality since mid 1990s (except at very top), coupled with falling inequality at bottom end

Workforce composition Education and earnings are strongly correlated Increasing the size of the more educated groups drives up inequality

Workforce composition Other compositional changes also have inequality-increasing effects This is true for past decade too

The wage structure Overall effect on inequality depends on structure of wages associated with these variables For education: – Increasing demand for skills widens earnings inequality between the more and less educated groups – Increasing education attainment could reduce earnings inequalities as earnings benefits spread more widely

The wage structure We do see inequality reducing changes in the wage structure...

The wage structure...but these are not attributable to educational attainment

Distribution of jobs Seems to reflect ‘correction’ of compositional changes – not as many people in high wage jobs as we’d predict Year Jobs earning below 2/3 * median hourly wage Jobs earning above 1.5* median hourly wage Initial (1987)20.2%23.4% Composition effects only24.0%27.1% Final (2001)23.0%25.6% Initial (1994) 22.6%25.2% Composition effects only 25.2%27.3% Final (2007) 21.3%25.9%

Distribution of jobs Result: increasingly heterogeneous occupational groups

Distribution of jobs Graduates only:

Conclusion Policymakers tend to work with a ‘room at the top’ mindset  focus on supply of skills through increasing educational attainment Higher wage jobs are more scarce that this suggests – limits the ability of education to reduce labour market inequalities The problem may be a different sort of ‘demand for skill’ problem to the one the UK has often faced – not a market failure or a problem of short- termism. In the mean time, should leads to a great concern about intergenerational inequalities

Contact Details Craig Holmes ESRC Centre on Skills, Knowledge and Organisational Performance (SKOPE),