Evidence from internal census earnings data that labor markets are segmented

What is it about?

In this chapter, we seek to demonstrate the empirical segmentation of labor markets by showing how the distribution of income in the United States can be characterized by a mixture of equilibrium frequency dis-tributions with a finite number of components. Using internal Census Bureau data, we show that the stability of the functional form of the distribution of income as represented by distinct frequency distributions supports the hypothesis that labor markets are segmented, that each seg-ment is characterized by unique institutions within the segment, and that the division between labor markets is maintained by broader institutional structures of inequality. We also demonstrate how the use of finite mix-ture models (FMMs) resolves identification issues that have led to the abandonment of labor market segmentation as a stylized fact.

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