The Inequality Staircase

January 18th, 2013 at 9:02 pm

I posted a piece yesterday about the factors behind the growth of wage inequality.  Well, today we find the BLS releasing some relevant data on the issue.  The figure below shows the annual growth rates of weekly earnings of full-time workers by various wage percentiles.

Two things to note: the staircase function characteristic of inequality is clear—the higher your pay, the better (or less bad) you did.  Second, the bottom half of full-time workers lost ground in real terms.

Weekly earnings of 10th percentile workers fell by almost two percent, to about $350 per week.  That’s $18,200 per year, assuming full-year work, a bit below the poverty threshold for a parent with two kids.  Paychecks of workers at the middle of the pay scale were relatively unchanged last year, down half-a-percent in real terms.  High-wage workers, those at the 90th percentile, did the best, up almost two percent, to $1,875 per week, or $97,500 per year.

This is, of course, a continuation of a long-term trend.  Back in 2000, the weekly earnings at the 90th %’ile were 4.5 times that at the 10th percentile.  By last year, that ratio had grown to 5.2.

The economy grew in 2012—GDP and productivity were up and more folks were working.  Once again, however, much of that growth eluded many of those folks.

Source: BLS

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3 comments in reply to "The Inequality Staircase"

  1. urban legend says:

    I sure hope the President spends some time on this subject in his State of the Union, explaining carefully what has happened and, beyond issues of fairness, how it has resulted in insufficient demand to support an economy with full employment. In other words, how an emphasis on achieving full employment is the most pro-business policy there is. How the best thing we can do now to achieve full employment more rapidly is to modernize our aging infrastructure — something the country really, really needs, not mere make-work.

    It doesn’t have to be wonky. “People need money to spend on something other than necessities.” People are capable of recognizing that getting people to work now is crucial to doing something about the deficit. It doesn’t have to be confrontational, either. It just needs to be expressed in common sense language. I recently witnessed a particularly rock-ribbed Republican do a complete 180 after reading Krugman’s End This Depression Now. It’s a book he should have hated, and yet he was shouting to our book group, “It’s all about demand. Demand, demand, demand.”

    OK, so don’t mention Krugman or Keynes because their mere names are lightning rods. Just make the case to the American people — i.e., the moderates and independents who, if turnout is nurtured by quietly walking away from anti-base policies of the kind cavalierly embraced ahead of the disastrous 2010 election (like benefit-cutting chained-CPI for Social Security), could flip the House in 2014.


  2. Alton says:

    I have been a skilled tradesman most of my life. From firsthand experience…there hasn’t been a “good” blue collar job created since Reagan. I don’t have to go look for historical statistics, I lived it. From taking away the GI Bill from some serviceman for serving certain years, he saved a few billion. Jobs don’t pay as well as they used to and none offer job security.


  3. perplexed says:

    It would be great to hear more on this Jared. It seems there may be important missing “factors” from both of these theories i.e. what is the role of monopoly profits and rents; and how do these explanations square with other studies i.e. Robert Gordon’s paper: http://www.nber.org/papers/w18315?

    And why is it that economists insist on using the term “labor markets” when it seems to be such an oxymoron? If there is a “market” for labor, how do you explain the existence of unemployment? Where do I go to find the bid/ask? Why is it exempted from anti-trust laws? Why do we keep trying to force current economic conditions into old theories that don’t hold up instead viewing them through the power dynamics, other than supply & demand, that are really controlling them?

    You mentioned a while ago you were reading the Acemoglu/Robinson book “Why Nations Fail.” I was hoping to hear your comments on their analysis (maybe I missed it? If so, do you have a link?). Maybe what we should really be looking at is how the campaign finance system we’ve come to accept as “normal” has thoroughly corrupted the power relationship between voters and their representatives. What’s the impact of this on the pluralism Acemoglu & Robinson point out is so crucial?

    Do economists have any responsibility in pointing out what are “market forces” and what are other, “non-market forces” that impact and control prices, or is it OK that they just accept that these “altered” markets must somehow follow the rules of “markets” in spite of the differences, and that they just need to find the links to “explain” how it works? How many of those 90th %ile earners work in “rent free” occupations that are subject to “market forces”? How bad does the inequality have to get before we admit and talk about what’s really going on? Will wealth inequality Gini of .90 do it? .95? Well, we’re not that far off so I guess we’ll find out soon enough through our “natural experiment” won’t we?


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