Income growth over the last few decades has been enormously unbalanced, and this must be taken into account as the nation considers shifts in tax policy and develops a fiscal plan that strengthens the recovery and targets a sustainable deficit. According to the Congressional Budget Office, between 1979 and the start of the current recession in 2007, the pre-tax incomes of the upper 1% grew 214%, while the incomes of the middle-fifth and lowest-fifth grew, respectively, 25% and 4%. As the Chart shows, this extremely unbalanced growth implies that 38.7% of all of the income growth accrued to the upper 1% over the 1979-2007 period: a greater share than the 36.3% share received by the entire bottom 90% of the population.
The Great Divergence coincided with a dramatic decline in the power of organized labor. Union members now account for about 12 percent of the workforce, down from about 20 percent in 1983. When you exclude public-employee unions (whose membership has been growing), union membership has dropped to a mere 7.5 percent of the private-sector workforce. Did the decline of labor create the income-inequality binge?
Source: Leah Platt Boustan, Fernando V. Ferreira, Hernan Winkler, Eric M. Zolt, NBER Working Paper No. w16299, August 2010
From the abstract:
The income distribution in many developed countries widened dramatically from 1970 to 2000. Scholars speculate that inequality contributes to a host of social ills by weakening the public sector. In contrast, we find that growing income inequality is associated with an expansion in revenues and expenditures on a wide range of services at the municipal and school district levels in the United States. These results are robust to a number of model specifications, including instrumental variables that deal with the endogeneity of local expenditures. Our results are inconsistent with models that predict heterogeneous societies provide lower levels of public goods.
From the summary:
Over 15 million workers were fired from their jobs from January 2007 through December 2009, according to the Bureau of Labor Statistics.
Keep that in mind while looking at these numbers from IPS’s just-released 17th annual Executive Excess Report, CEO Pay and the Great Recession:
* Fred Hassan, the ex-CEO of Schering-Plough, received a $33 million golden parachute when his firm merged with Merck in late 2009. The merger led to 16,000 workers being fired.
* William Weldon of Johnson & Johnson took home $25.6 million, more than three times as much as the S&P 500 CEO average, at a time when his firm slashed 9,000 jobs and while the company was facing a massive drug recall scandal.
* Mark Hurd of Hewlett-Packard, currently famous for failing to cover up a relationship with a contractor/erotic film star, has been awarded $24.2 million for laying off 6,400 workers. On top of that, he received an additional $28 million in severance.
By most counts, the U.S. economy started growing in the middle of last year. For many Americans, though, it does not feel as if the Great Recession has ended–unemployment and underemployment are still alarmingly high, and job growth is weak. Many causes have been suggested for both the economic collapse and mediocre recovery, but one that is hardly ever mentioned is income inequality. This is a mistake. Growing income inequality in the United States and the policy responses it has spawned have done tremendous damage to our economy. And because we continue to ignore this underlying problem, the risks of our policies leading to another calamity will not go away, no matter what we do to reform the financial sector.
The dramatic rise in inequality in the United States over the past generation has occasioned considerable attention from economists, but strikingly little from students of American politics. This has started to change: in recent years, a small but growing body of political science research on rising inequality has challenged standard economic accounts that emphasize apolitical processes of economic change. For all the sophistication of this new scholarship, however, it too fails to provide a compelling account of the political sources and effects of rising inequality. In particular, these studies share with dominant economic accounts three weaknesses: (1) they downplay the distinctive feature of American inequality -namely, the extreme concentration of income gains at the top of the economic ladder; (2) they miss the profound role of government policy in creating this “winner-take-all” pattern; and (3) they give little attention or weight to the dramatic long-term transformation of the organizational landscape of American politics that lies behind these changes in policy. These weaknesses are interrelated, stemming ultimately from a conception of politics that emphasizes the sway (or lack thereof) of the “median voter” in electoral politics, rather than the influence of organized interests in the process of policy making. A perspective centered on organizational and policy change -one that identifies the major policy shifts that have bolstered the economic standing of those at the top and then links those shifts to concrete organizational efforts by resourceful private interests -fares much better at explaining why the American political economy has become distinctively winner-take-all.
American women who work full-time, year-round are paid only 77 cents for every dollar paid to their male counterparts. This gap in earnings translates into $10,622 less per year in female median earnings, leaving women and their families shortchanged. The wage gap is even more substantial when race and gender are considered together, with African-American women making only 61 cents, and Latinas only 52 cents, for every dollar earned by white, non-Hispanic men. Although enforcement of the Equal Pay Act as well as other civil rights laws has helped to narrow the wage gap over time, it is critical for women and their families that the significant disparities in pay that remain be addressed.
From the summary:
History suggests that employment will rise again in the United States, but in the recovery we will have to contend with the reality that there has been a sharp rise in wage inequality in recent decades and a declining number of middle-skill jobs.
* U.S. employment growth is polarizing, with job opportunities increasingly concentrated in relatively high-skill, high-wage jobs and low-skill, low wage jobs.
* Employment polarization is not a uniquely American phenomenon; it is widespread across industrialized economies.
* Key contributors to job polarization are the automation of routine work and, to a lesser extent, the international integration of labor markets through trade and, more recently, offshoring. The declining penetration of labor unions and the falling real value of the federal minimum wage have played a smaller role.
* The Great Recession quantitatively but not qualitatively changed the trend toward employment polarization in the U.S. labor market. Employment losses during the recent recession were far more severe in middle-skill white- and blue-collar jobs than in either high-skill, white-collar jobs or in low-skill service occupations.
* The earnings of college-educated workers relative to high school-educated workers have risen steadily for almost three decades.
* The rise in the relative earnings of college graduates is due both to rising real earnings for college-educated workers and falling real earnings for noncollege-educated workers, particularly noncollege-educated males.
* Gains in educational attainment have not generally kept pace with rising educational returns, particularly for males. And the slowing pace of educational attainment has contributed to the rising college/high school earnings gap.
– Executive Summary
– other works by David Autor
From the summary:
The gender pay gap has taken on added importance as men have been more likely than women to lose jobs during the Great Recession. This loss of a man’s paycheck means that millions of families now rely on a woman’s job to make ends meet. The persistent gender pay gap is adding insult to injury for families already hit hard by unemployment.
Our newly analyzed state-by-state data demonstrate that mothers in every state and the District of Columbia are financially supporting their families–and many are their family’s primary breadwinner. Women’s earnings are critical to their families’ financial stability. Yet they continue to face a career wage gap that sets them back hundreds of thousands of dollars throughout their lives. Women face this gap regardless of their education, occupation, or where they live.
Interactive Map: The Persistent Career Wage Gap
Interactive Map: Women Provide for Their Families
From the press release:
Whether they work in the same occupations as men or work in different occupations, women’s median earnings are lower than men’s, according to a new analysis by the Institute for Women’s Policy Research (IWPR). Using the most recent data released by the US Bureau of Labor Statistics, the study finds that there are only four occupations, out of the 108 occupations with enough men and women to estimate earnings for both groups, where women earn more than men. In the 104 others, women’s median earnings are less.
The occupation where women have the highest earnings compared to men is ‘dining room and cafeteria attendants and bartender helpers’ (the female/male earnings ratio is 111.1 percent, based on median weekly earnings in 2009 that were $400 for women, $360 for men), an occupation that ranks among the ten lowest paid occupations for men, with average earnings for both men and women well below median earnings for all workers.
The Gender Wage Gap: 2009
Source: Heidi Hartmann, Ph.D., Ariane Hegewisch, Hannah Liepmann, and Claudia Williams
Updated March 2010
– Fact Sheet
– Press Release