Economic Disparities Rising in America
INCOME RISES FOR TYPICAL FAMILY, BUT SO DO WORK HOURS, HOUSEHOLD DEBT
Below is a news announcement from the Economic Policy Institute.
Persistent low unemployment, accelerating labor productivity, and a rising minimum wage have led to broad-based wage gains for U.S. workers at all wage levels since 1995.
However, the typical American family is working more hours, is taking on historically high levels of household debt that far outpace small stock market gains, and often fails to receive adequate health care and pension coverage from their employer, according to a new study released this Labor Day by the Economic Policy Institute (EPI).
The State of Working America 2000-2001, by economists Lawrence Mishel, Jared Bernstein and John Schmitt, provides a comprehensive study of the changing living standards of working Americans. The 454-page book presents new data on family incomes, wages, wealth, jobs, unemployment, and poverty, as well as state-by-state, regional and international comparisons of key indicators.
For most workers, the early part of the economic expansion that began in 1991 was disappointing: incomes declined while poverty and job insecurity increased during what came to be called the "jobless" recovery. However, since 1995 persistent low unemployment has shifted the economy into a much higher gear. The tight labor market has been accompanied by a significant turnaround from widespread wage decline, labor productivity has accelerated (up 2.5% per year since 1995 compared to an annual rise of 1.3% from 1972-95), and the shape of wage inequality has changed markedly.
The study places the improvements in wage and income growth over the 1995-99 period in historical context to determine if the U.S. economy has entered a "new economy" that will generate continued prosperity for U.S. workers and families. The authors find that the spike in investments in information technology associated with the so-called "new economy" has led to higher productivity, but has not contributed significantly to job growth, nor has the high-tech sector set the pace for any meaningful wage gains for workers in other sectors. Technological change was also not found to be a driving factor in the growth of wage inequality in either the 1980s or 1990s.
The report’s key findings include:
- Income inequality continued to grow in the late 1990s, though at a slower rate than earlier in the decade. From 1995-98, real incomes of low-income families grew 1.9% each year, trailing the growth rate for families in the middle (2.3%) and the top (3.2%).
- The structure of income inequality remained relatively unchanged during the 1990s, even though the shape of wage inequality shifted. Strong wage gains at the bottom allowed low-wage earners and the poor to close the gap with the middle, while the top continued to pull away from the middle during this period.
- Average hourly wages grew 2.6% a year between 1995 and 1999, far better than the 0.6% annual growth during the 1989-95 period. However, because the value of employer-paid health insurance and pensions fell, overall compensation growth of 1.9% was less than the 2.6% rate for wage growth for the same period.
- In 1998, 62.9% of private sector workers had employer-provided health insurance, a slightly lower rate of coverage than in 1989 (63.1%), and less than half (49.2%) of private sector workers had employer-provided pension plans.
- While a middle-class, married-couple family’s income grew 9.2% from 1989 to 1998, a substantial part of this growth reflected an increase in family work hours, up 246 hours to 3,885 total, or about six extra full-time weeks a year since 1989. African American middle-income families logged even more hours, working an average of 4,278 hours per year – almost 500 hours per year more than white families.
- The top 1% of stock owners hold almost half (47.7%) of all stocks, while the bottom 80% own just 4.1% of total stock holdings. Stock market gains were similarly concentrated among top stock owners, with nearly 35% of the gains going to the wealthiest 1% of households from 1989-98.
- The real wage of the median CEO rose 62.7% during 1989-99, helping the typical CEO to earn 107 times more than the typical worker. This ratio of CEO to worker pay was almost double the ratio of 56 in 1989.
- In 1998, more than one in four African-Americans (26.1%) and Hispanics (25.6%) lived in poverty, much higher than the rate for whites (10.5%). However, overall poverty rates fell more for blacks (3.2 percentage points) and Hispanics (4.7 percentage points) in the 1990s than for whites (0.7 percentage points).
- Entry-level wages grew substantially between 1995 and 1999. Real wages of young high school graduates increased 6.3% for men and 6.2% for women. Among young college graduates, real wages rose 14.9% for men and 9.4% for women.
- The wage growth of typical workers has not kept pace with productivity due in large part to a growing share of corporate income being paid to owners of capital, with a lower share paid out as compensation. Without this ratcheting-up of profitability, average compensation could have been 4.3% higher in 1999.
"Persistent low unemployment and increases in the minimum wage have helped workers at the bottom recover from 15 years of wage stagnation and decline," says economist Lawrence Mishel.
"However, some alarming trends persist as wage and income inequality remain high, families are working more hours than ever and are saddled with the highest levels of debt in history."
"Investment in computerization has helped lift productivity growth, which is a most welcome change," notes Jared Bernstein. "But unless the continuing problems faced by many working families – inequality, poverty, and job quality – are addressed by public policy, the ‘new economy’ may end up looking quite similar to the old one."
"The booming stock market has allowed a small number of wealthy individuals to ride the tide to even greater wealth, but data on stock ownership shows that stocks, in practice, provide little or no financial gain to the vast majority of U.S. households," says John Schmitt.
Published biennially, The State of Working America has become a respected source for the latest available data on changes in the economic well-being of working Americans, as well as an overview of economic trends since World War II. The latest edition contains substantial original research, including new analyses of data collected by the Bureau of Labor Statistics and Census Bureau, as well as other government and academic sources.
The Economic Policy Institute is a nonprofit, non-partisan economic think tank founded in 1986. To order copies of The State of Working America 2000-2001, contact EPI at 1-800-EPI-4844. The executive summary and introduction to this report are available online at EPI's Web site at http://www.epinet.org
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