US Income Inequality Rising Despite Gains In Employment

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A Long Island Railroad conductor looks at a schedule aboard a commuter train bound for New York July 17, 2014.

Don't let the jobs numbers fool you: Though U.S. employment is back to pre-recession levels and steadily rising, the jobs being created pay far less than jobs lost during the recession.

Like, 23 percent less.

According to a recent analysis by the U.S. Conference of Mayors on research conducted by IHS Global Insight, jobs gained during the recovery pay an average 23 percent less than jobs lost during the recession. That wage gap, at $93 billion currently, is nearly double the gap during the 2001-2002 recession, the report said. 

While average income has slowly risen since the financial crisis calmed, an increasing share of the gain is going to upper-income households. The top 20 percent of income earners have taken home 60.6 percent of income gains since 2005 (with the top 5 percent earning 27.6 percent), but the lowest 40 percent of income earners have seen only 6.6 percent of income gains, according to IHS.

Most economists agree on data from several major institutions, including the Congressional Budget Office, showing that incomes among top earners have risen substantially faster than incomes among low earners, though some right-leaning economists argue tax changes in recent years add income that previously went uncounted and has distorted figures.

“There’s no doubt that income inequality has risen,” said Gary Burtless, senior fellow and economist at the Brookings Institution. “But it’s a little misleading -- only a little -- if you say [that] in the recovery only the wages of the very top have gone up.”

People earning large incomes tend to absorb big hits to their incomes when the economy stalls, and during recoveries their incomes climb the fastest, but other incomes should eventually follow, Burtless said.

From 1940 to 1970, wages increased at about the same level for all Americans, but since the 1980s, the wealthiest Americans have seen their incomes rise much faster, according to the Center on Budget and Policy Priorities. From the 1970s to 2007, incomes for middle-class Americans rose only about 5 percent, and during the recovery, wages have barely kept ahead of prices.

“The unemployment rate got quite low at the end of the '90s, and you saw good wage growth,” said Dean Baker, co-founder of the Center for Economic and Policy Research. “If we were to again get unemployment down, I think you would start to see wage gains. As it stands now, there’s still a lot of slack in the wage market.”

When firms know there are still job seekers in the market that fit their positions, they are less likely to raise wages.

According to Baker, government policies that protect high-income workers like doctors, pharmacists and lawyers but not many middle- and low- income workers is causing the growth in income inequality.

“It’s very difficult for highly trained doctors to come into the U.S. to practice,” he said. “It’s because our doctors want protection. It’s purely an effort to keep down competition. By contrast, you look at our trade policy on manufacturers. This is all about competition, making it as easy as possible.”

Many manufacturing jobs moved overseas during the recession, and though the sector is adding a portion of those jobs again, many will never return to the U.S.

According to Paul Ashworth, chief U.S. economist for Capital Economics, the slack in the labor market is dwindling, which will soon accelerate wage growth.

“We expect the growth rate of average hourly earnings to increase from around 2 percent to 3 percent by early 2015,” he wrote in a note Tuesday.

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