The Great Compression: The Wage Structure in the United States at Mid-Century

The era of wage stretching has been a current focus, but we direct attention here to a decade of extraordinary wage compression—the 1940s. Wages narrowed by education, job experience, and occupation, and compression occurred within cells. The 90–10 differential in the log of wages for men was 1.45 in 1940 but 1.06 in 1950. By the late 1980s it returned to its 1940 level, thus restoring a dispersion of 50 years ago. World War II and the National War Labor Board share some credit for the Great Compression, but much was due to an increased demand for unskilled labor when educated labor was greatly expanding.