NCPA - National Center for Policy Analysis

Inequality Not Increasing

March 1, 1997

Job growth in the United States is the envy of the world. But many opinion leaders believe the inevitable downside to this growth is an increasing disparity in wages between low- and high-paid workers -- or rising earnings inequality.

The basis for these assertions, says American University economist Robert Lerman, are studies that are typically limited to subsets of workers and often use total earnings rather than earnings per hour.

  • Using total earnings rather than earnings per hour mixes the impacts of structural changes in the economy with the impacts of changes in hours worked.
  • Even among full-time, year-round workers, variations in hours worked are large and have been increasing over the past decade.
  • Ignoring part of the earnings distribution -- for example by comparing only high and low wage workers -- produces potentially misleading indicators of change for the distribution as a whole.

Using data from Census Bureau surveys, Lerman found that when the whole earnings distribution is taken into account and earnings per hour is used as the measure, U.S. earnings inequality has not increased since 1984.

Other studies measuring earnings as payments per hour or including all workers have also found no increases in inequality since 1984, says Lerman. He cites three studies published in 1996 as examples:

  • A study by the Organization for Economic Cooperation and Development (OECD) based on hourly earnings shows a slight decline in U.S. wage inequality between 1989 and 1992.
  • An American Enterprise Institute study by Robert Haveman shows no increases in the inequality of wage rates between 1973 and 1988, nor between 1988 and 1991.
  • In a New England Economic Review article, economist Kathy Bradbury reports no change or declining inequality in earnings (unadjusted for hours worked) among all workers.

In contrast to individual earnings, inequality of family income has increased over the past decade, says Lerman; but other factors are responsible for the family income gap -- such as the increasing share of one-parent families -- not the labor market.

Source: Robert I. Lerman, "Is Earnings Inequality Really Increasing?" Economic Restructuring and the Job Market, No. 1, March 1997, Urban Institute, 2100 M Street, NW, Washington, DC 20037, (202) 833-7200.


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