Between and , trade-affected industries did indeed reduce the percentage of less educated workers on their payrolls figure 4. In , 42 percent of male and 45 percent of female workers in trade-affected industries had no high school degree.
By , those figures had fallen to 18 percent for men, 17 percent for women. These trends certainly seem consistent with the view that liberal trade has deprived less-skilled workers of job opportunities in the traded- goods sector. But employment patterns in industries unaffected by trade moved in exactly the same direction. The percentage of male workers without a high school degree in the industries least affected by trade fell from 36 percent in to 13 percent in If anything, industries unaffected by trade cut their use of low-skill workers even faster than trade-affected industries—a pattern that is extremely hard to square with the claim that foreign trade is the main factor behind soaring wage inequality.
Over the past quarter century, the nation has seen a dramatic shift in the pattern of demand for workers with different levels of skill. Job opportunities for the less skilled have shrunk, and relative wages for unskilled and semi-skilled workers have plunged.
But these trends are not conned to the traded-goods sector. They are also apparent in industries, such as construction and retail trade, where international trade is a minor concern. International trade, it seems, has not been the decisive factor in the trend toward greater earnings inequality. Other developments have been at least as influential, if not more so. Among economists, the leading explanation for increased wage inequality is changes in the technology of production.
Such innovations as the personal computer or new forms of business organization have favored workers with greater skill and reduced the value of unskilled labor. But other developments are also at work. Economic deregulation, new patterns of immigration into the United States, declining minimum wages, and the dwindling influence of labor unions have also contributed to the job woes of unskilled and semi-skilled workers.
Liberal trade with the newly industrializing countries of the world has certainly played a part in worsening the job prospects of Americas unskilled workers. But if we follow the advice of Ross Perot and Patrick Buchanan and erect a new wall of trade protection, we would do little to ease the plight of less-skilled workers. Too many other forces are conspiring to push their wages down. Trends in U. Income Inequality There is no disputing the worsening trend in U.
Related Books. More on U. The Avenue The monthly jobs report ignores Native Americans. How are they faring economically? Gabriel R. Sanchez , Robert Maxim , and Raymond Foxworth. They hold the key to our collective future Amy Liu and Alan Berube. Post was not sent - check your email addresses! Immigrants , many in the country illegally, fill more low-paid service positions. They have less bargaining power to demand higher wages. Many argue that President Trump's tax plan has helped businesses and investors more than wage earners.
This favoritism creates structural inequality. Walmart is the nation's largest employer at 1. Unfortunately, it has set new standards for reducing employee pay and benefits. Its competitors must follow suit to provide the same "Low Prices. In recent years, the Federal Reserve deserves some of the blame. Record-low interest rates were supposed to spur the housing market, making homes more affordable. While that is the case, housing prices have started to rise rapidly in recent years while wages have remained fairly flat.
The average American still doesn't have enough income to buy a home. This lack is especially true for younger people who typically form new households. Without good jobs, they're stuck living at home or with roommates. By keeping Treasury rates low, the Fed created an asset bubble in stocks. Many of the causes of U. Emerging market incomes are increasing. Countries such as China, Brazil, and India are becoming more competitive in the global marketplace.
Their workforces are becoming more skilled. Also, their leaders are becoming more sophisticated in managing their economies. As a result, wealth is shifting to them from the United States and other developed countries. This shift is about lessening global income inequality. As other countries become more developed, their wealth rises. In America, the least wealthy bear the brunt. The United States must accept that global wealth redistribution is occurring.
Those in the top fifth of the U. Trying to prevent U. It is punishing them for responding to the global redistribution of wealth. Neither will protectionist trade policies or walls to prevent immigrants from entering illegally.
The government should provide the bottom two-fifths access to education and employment training. Investing in human capital is the best way to increase individual wealth and improve the labor force. Equity in education would bring everyone up to at least a minimum standard. It would be a better solution than increasing welfare benefits or providing a universal basic income. Congress can raise taxes on the top fifth to pay for it. It should make these changes now so that the transition is gradual and healthy for the economy overall.
Regulations are another part of the solution. Its goal is to help shareholders better understand executive compensation practices compared to the average employee pay.
Census Bureau. Accessed Jan. Income Inequality. The Center for Disease Control. Accessed Jan 22, Pew Research Center.
The University of California, Berkley. Congressional Budget Office. Steven Greenhouse. Anchor, In recent decades, the vast majority of Americans have experienced disappointing growth in their living standards—despite economic growth that could have easily generated faster gains in their living standards had it been broadly shared. Figure A helps us assess the economic performance for different groups by charting the cumulative percentage increase in household income for the top 1 percent compared with the bottom 90 percent.
Breaking the top 1 percent down even further would show nearly as dramatic an increase in inequality just within this top group, but it would also stretch the vertical axis so much as to make it nearly unreadable. What this shows is that income grew swiftly for a small sliver of the population while living standards for most grew far more slowly.
Figure A measures the change in comprehensive income—including cash, market-based incomes wages and salaries, dividends, rent, capital gains, and business income ; noncash income, such as employer contributions to health insurance premiums; and cash and noncash government transfers like Social Security, food stamps, Medicare, and Medicaid.
It is easy to see that the rise in American inequality is extreme even when using these comprehensive income measures, which include taxes and transfers. One striking aspect of the figure is the large decline in top 1 percent incomes following the onset of the Great Recession after However, a similarly large fall in top 1 percent incomes resulted from stock market declines following the recession as well, and as the figure shows, as of , these incomes mostly recovered.
Even with these losses, the top 1 percent of household income has grown percent since , far in excess of the slower 46 percent growth—just 1. Notes : Data are for comprehensive income, including market income, social insurance benefits, and means-tested transfers.
Average income for the bottom 90th was constructed using a simple weighted average of the bottom four quintiles and the 91—90th deciles. Among the bottom 90 percent of American households, labor income—including wages and wage-related income such as employer contributions to health insurance benefits for workers and Social Security and Medicare for retired workers—represents the vast majority of income.
Figure B illustrates the share of total income that is composed of wages and wage-related incomes for the bottom 90 percent and the top 1 percent of household incomes. Over the entire period, contributions of wages and wage-related income for the top 1 percent averaged just under 40 percent, while it averaged 86 percent for the bottom 90 percent of households, more than twice as high.
In , By , the share had fallen slightly to Over this period, much of the rise in earnings for most households came from increasing work hours and not increasing hourly wages Bivens et al. Because the vast majority of household income for the bottom 90 percent comes from labor income, it is clear that growing wage inequality is at the root of slow growing incomes for the vast majority of American households.
Notes : : Data used for wage-related labor market income are wages, employer contribution to deferred compensation, health insurance, and payroll taxes, unemployment tax, corporate tax borne by labor, other market income mostly pension benefits , and insurance benefits including Social Security and Medicare.
Average labor share for the bottom 90th was constructed using a simple weighted average of the bottom four quintiles and the 91—90th deciles,. Because wages are their primary source of income, the rise in income inequality that has blocked living standards growth for the vast majority since has been driven by a pronounced reduction in the collective and individual bargaining power of ordinary American workers. As a result of their eroded bargaining power, their wages have grown agonizingly slow over the past generation.
Rising wage inequality—anemic wage growth for the vast majority, combined with substantial wage gains for those at the very top—has left most Americans with an ever-shrinking portion of the overall wage bill. It is also the case that if labor incomes—i. The resulting lackluster wage growth and inequality have afflicted men and women, and people at all levels of education; even the college educated are just treading water.
After tracking rather closely in the three decades following World War II, growing productivity and typical worker compensation diverged.
From to , productivity grew Productivity thus grew six times faster than typical worker compensation. Updated from Figure A in Bivens et al.
A significant portion of it went to higher corporate profits and increased income accruing to capital and business owners Bivens et al. But much of it went to those at the very top of the wage distribution, as shown in Figure D. The top 1 percent of earners saw cumulative gains in annual wages of Over the same period, top 0.
Over the same period, despite a growing economy and increases in productivity, the earnings for the bottom 90 percent only rose When policymakers consider policies to improve productivity growth, they also should consider ways that growth could better translate into wage growth for most workers and not just for those at the very top.
While the CPS-ORG—the primary data set used in the remainder of this testimony—does not allow disaggregation within the top 5 percent of the earnings distribution, it is still instructive for measuring the growth in wage inequality over the last odd years. Figure E illustrates that for all but the highest earners, hourly wage growth has been weak.
Median hourly wages rose Over the same period, the 95th-percentile worker saw growth of Notes: Shaded areas denote recessions. Figure F illustrates the trends in wages for select deciles and the 95th percentile , showing the cumulative percent change in real hourly wages from to The continuing overall story of inequality is clear. From to , the 95th-percentile wage grew over three times as fast as wages at the median. Additional details on recent wage trends can be found in Gould a, also submitted into the written record.
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