Skills, Computerization and Income Inequality in the Postwar U.S. Economy

Inequality in the distribution of family income in the U.S., which had remained virtually unchanged since the end of World War II until 1968, has increased sharply since then. In contrast, schooling and skill inequality has declined rather steadily over the postwar period. Another notable change over the past 30 years or so has been the widespread diffusion of computers. Using aggregate time-series data for the 1947-2000 period, I find that the largest effects on inequality come from office, computing and accounting equipment (OCA) investment, which accounted for about half of the rise in inequality between 1968 and 2000. The unionization rate is second in importance, and its decline over this period explains about 40 percent of the increase in inequality. The decline in the dispersion of schooling, on the other hand, plays almost no role in explaining the rise in inequality. On the basis of pooled time series, industry regressions for the 1970-2000 period, I also find that investment in OCA is positively related to changes in skill inequality, while changes in the unionization rate are negatively related.