Wages for the richest 1% in the U.S. have soared 160% over the past four decades while the share of wages for the bottom 90% has shrunk, according to new data from the Economic Policy Institute.
While there has been plenty of research on worsening economic inequality in the U.S., the new EPI analysis paints a clearer picture.
The new findings are based on W-2 earnings, which include realized stock options and vested stock awards – forms of compensation not typically offered to the bottom 90% of earners.
The share of total U.S. earnings that went to the top 1% almost doubled from 7.3% in 1979 to 13.2% in 2019, and nearly tripled for the top 0.1% – rising from 1.6% to 5% during the same time period.
Meanwhile, the bottom 90% of earners lost ground. Their share of wages shrunk from 69.8% of total earnings in 1979 to 60.9% in 2019.
“This unceasing growth of wage inequality that undercuts wage growth for the bottom 90% reaffirms the need to place generating robust wage growth for the vast majority and rebuilding worker power at the center of economic policymaking,” wrote EPI’s Lawrence Mishel and Jori Kandra.
Average annual wages for most Americans stayed within the $30,000 range over the past 40 years, increasing from $30,880 in 1979 to $38,923 in 2019, according to EPI.
Earnings for the top 0.1% rocketed 345% from $648,725 in 1979 to nearly $2.9 million in average annual wages during the same period.
Income inequality narrowed slightly between 2016 and 2019, according to the Federal Reserve’s Survey of Consumer Finances in September, as lower-income families reaped the benefits of low unemployment and minimum wage increases across the country.
Pandemic’s impact on inequality
But the pandemic has since hit the labor market hard, pushing the unemployment rate to 14.7% in April, its highest point so far this year. The unemployment rate in October was 6.9%.
The pandemic has had an unequal impact on the labor market. While some workers were given the option to work from home, others in occupations requiring face-to-face interactions with customers (particularly those in retail and hospitality jobs) were laid off as a result of shutdowns. Low-wage workers have been more vulnerable to job cuts than higher-wage earners.
Economists at the Japanese bank Nomura expect that the pandemic's impact on economic inequality may encourage policy changes, such as a potential expansion of the earned income tax credit to subsidize low-wage workers or the adoption of some form of universal basic income.
A number of prominent, ultra-wealthy Americans have also sounded the alarm about widening economic inequality amid the pandemic. JPMorgan Chase (JPM) CEO Jamie Dimon called the coronavirus crisis a "wake-up call" in a May memo ahead of the bank's annual shareholder meeting. He expressed his "fervent hope" that the pandemic will be "a catalyst to rebuild an economy that creates and sustains opportunity for dramatically more people, especially those who have been left behind for too long."
Billionaire hedge fund manager Bill Ackman, CEO of Pershing Square Capital Management, called for governments to adopt solutions to address economic inequities. In an August letter to investors, he advocated for the opening of an investment account for every child born in the U.S.
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