When wage rates grow unequally

Snapshot for September 27, 2007.

The economic stress on middle-class families has been driven by a general stagnation of inflation-adjusted wages for most workers over the last 25 or so years, largely as a result of inequality in the rate of wage and salary growth (the late 1990s being a notable exception). Newly available wage data drawn from Social Security records up through 2004 show that the wages of those in the upper 5% of earners, especially those in the upper 1%, grew far faster than everyone else's wages. For instance, the upper 1% of earners (those individuals earning more than $219,000 in wages in 2004) received 12.9% of all wage income in 2004, up 5.6 percentage points from their 7.3% share 25 years earlier in 1979.

The degree to which this radical redistribution of wages upward has benefited or hurt different wage groups is illustrated in the graph below. In the end, almost all earners except those at the very top were worse off as a result of the shift in the growth rate. The average salary of those in the upper 1% was $504,195, substantially higher than the $286,768 they would have received if the rate of wage growth had been the same for all wage earners over the past 25 years. Correspondingly, wage earners in the middle-fifth would have earned $30,538 in 2004 if wage growth had been equitable, but they instead earned $26,718, 12.5% or $3,820 less a year.

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