Wage inequality has increased dramatically over the last 35 years. For most of the 1980s, inequality increased across the entire wage distribution. This means middle-wage earners pulled away from the bottom and top wage earners pulled away from the middle. Since the late 1980s, however, the increase in inequality has been almost entirely in the “upper tail” of the distribution, or put simply the top has pulled away from everyone else.
The figure below shows one measure of upper tail inequality, the “95/50 wage gap.” This is the ratio of the wages of high-wage earners (those at the 95th percentile) to middle-wage earners (those at the 50th percentile). In 1979, men and women had the same 95/50 wage gap; wages at the 95th percentile were 2.2 times higher than the wages of the typical worker. However, inequality grew among both men and women over essentially the entire period since 1979, though in the 2000s, the rise in inequality was somewhat higher among men than women. By 2013, the 95th percentile man earned 3.3 times as much as the 50th percentile man and the 95th percentile woman earned 3.0 times as much as the 50th percentile woman.
Wage Inequality Has Dramatically Increased Among Both Men and Women Over the Last 35 Years: Wage gap* between the 95th and 50th percentiles,** by gender, 1979–2013
* Ratio of workers' wages at the higher earnings percentile to workers' wages at the lower percentile
** The xth-percentile wage is the wage at which x% of wage earners earn less and (100-x)% earn more.
Source: Authors' analysis of Current Population Survey Outgoing Rotation Group microdata
UPDATED FROM: Figure 4M in The State of Working America, 12th Edition, an Economic Policy Institute book published by Cornell University Press in 2012
High wage inequality is a key wedge between a successful economy–one with strong overall economic growth that translates into strong wage growth for low, middle, and high-wage earners–and an unsuccessful economy –one where the vast majority of workers do not get ahead (which, if there is extreme wage inequality, can happen even in the face of strong overall economic growth). The enormous increase in inequality among both men and women over the last 35 years is a testament to the fact that skewed wage growth has become a core economic challenge of our time.
Tomorrow at 9:30 a.m. ET, EPI will launch Raising America’s Pay, a new initiative focused on policy solutions to jumpstart the stagnant wages of American workers with the release of the new report Raising America’s Pay: Why It’s Our Central Economic Policy Challenge, which includes the figure above. The report argues that wage growth is the key to addressing income inequality, boosting middle class incomes, reducing poverty, and facilitating social mobility. For more information or to RSVP, email firstname.lastname@example.org. You can also watch the event live and follow the conversation on Twitter using the hashtag #RaisePay.