As the country strives toward improving the economy, the income inequality gap seems to be growing wider. We take a look at the driving force behind this trend with DePaul University's Michael Miller and the Federal Reserve Bank of Chicago's Bhash Mazumder.
In August, the Economic Policy Institute released a report, “Raising America’s Pay,” that details the rise in income inequality in recent decades as well as examines the implications of this rise in inequality for living standards growth for the majority.
“The poor performance of American workers’ wages in recent decades—particularly their failure to grow at anywhere near the pace of overall productivity—is the country’s central economic challenge,” the report states. “Indeed, it’s hard to think of a more important economic development in recent decades. It is at the root of the large rise in overall income inequality that has attracted so much attention in recent years. A range of other economic challenges—reducing poverty, increasing mobility, and spurring a more complete recovery from the Great Recession—also rely largely on boosting hourly wage growth for the vast majority.”
Between 1979 and 2007, more than 90 percent of American household incomes grew slower than average income growth (53.4 percent), which was inflated by large gains at the top (78.1 percent for the 96th and 99th percentiles, and 244.7 percent for the top 1 percent). The chart below shows cumulative percentage changes in annual household incomes by income group from 1979-2010. The red line on the chart is the overall average of household incomes.
According to the organization, hourly wages for most Americans have been flat or falling since 1979 “even though decades of consistent gains in economy-wide productivity have provided ample room for wage growth.”
The failure of hourly wages to rise in line with overall productivity for the vast majority since 1979 has led to a large increase in income inequality. Scroll over the chart below to see changes in productivity and hourly compensation over the years.