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News : US Economy Last Updated: Feb 22, 2011 - 7:28 AM

US Inequality: Wage gap widened over past 30 years; Lowest 10% of earners got 5% inflation-adjusted rise in 1979-2009
By Michael Hennigan, Founder and Editor of Finfacts
Feb 21, 2011 - 1:48 AM

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US Inequality: The US wage gap has sharply widened over the past 30 years, according to an official study that was published last week. The inflation-adjusted pay rise in the period 1979-2009 for the lowest 10% paid of the working population, was 5%.

The research shows inequality increasing as hourly wages of employees in the 90th pay percentile - - those whose wage exceeded that of 90% of the working population - - stood at $38.50 in 2009, 364% more than the $8.30 an hour earned by those in the lowest 10th%ile. The Irish minimum hourly wage in 2009 was almost $12.

The study by the bipartisan Congressional Budget Office (CBO) shows that in 1999, the difference was 332%, adjusted for inflation. The difference is more pronounced for men than women, at 383% versus 319%.

The wage rate (the wage per hour of work) received by workers in the middle of the wage distribution (the 50th%ile) increased by about 20% over the 1979–2009 period after adjusting for inflation, reaching about $17 per hour in 2009. The dispersion of wages - - the gap between wages at the top and bottom of the distribution - - also increased over that period, but the pattern of changes at the top and bottom differed.

For men and women alike, the gap between the wage rates received by high-wage (90th percentile) and middle-wage workers expanded throughout the 30-year period; the wage rates of high-wage women grew especially rapidly. In contrast, the gap between the wage rates received by low-wage (10th percentile) and middle-wage workers widened for both men and women early in the 1980s but has remained stable for the past 20 years.

Between 1979 and 2009, the median (the mid-point with 50% above and 50% below) wage rate of men increased by about 8% after adjusting for inflation. The 90th percentile wage rate increased much faster, by 40%, whereas the 10th percentile wage rate increased slightly more slowly, by 5%.

The CBO says given the complex pattern of changes in the wage distribution during the past 30 years, it is not surprising that no single explanation can account for the entire pattern.

It says in the category of market forces, innovations in information and computing technology in the 1990s and 2000s generated growing demand for skilled labour, particularly for highly educated workers, that outpaced growth in the supply of highly skilled, highly educated workers; that differential probably played a large role in the observed changes in the wage distribution.

Shifts in international trade might also have contributed to increasing relative demand for skilled labour, as imports from low-wage countries substituted for some domestic production and employment; however, the CBO says research on the significance of that effect is inconclusive. In addition, a rising number of foreign-born people in the workforce affected the relative supply of workers with different amounts of education, but that shift appears to have had only a modest effect on the distribution of wages.

An important factor as well have been cozy cartel-style arrangements at the top and simply a system where there were few restrictions on senior executives grabbing what they could get away with, from crony boards and hired remuneration consultants who were always able to find a convenient benchmark. 

The Washington DC-based Economic Policy Institute think-tank said in 2008 that US CEOs in major companies earned 24 times more than a typical worker; this ratio grew to 35 in 1978 and to 71 in 1989. The ratio surged in the 1990s and hit 298 at the end of the recovery in 2000. The fall in the stock market reduced CEO stock-related pay (e.g., options), causing CEO pay to tumble to 143 times that of the average worker in 2002. Since then, however, CEO pay has recovered and by 2007 was 275 times that of the typical worker. In other words, in 2007 a CEO earned more in one workday (there are 260 in a year) than the typical worker earned all year.

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