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Economy

U.S. Earnings Inequality Plateaued in the Past Decade, New Study Finds

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Starting around 1980, earnings inequality in the U.S. increased for more than 30 years — leading some to assume rising inequality would be an ongoing trend in the contemporary economy. But a new analysis by researchers Clem Aeppli and Nathan Wilmers finds that wasn’t the case: In the last decade, U.S. earnings inequality did not increase.  Aeppli is a doctoral student in Harvard University’s Department of Sociology, and Wilmers is the Sarofim Family Career Development Associate Professor and an Associate Professor of Work and Organization Studies at the MIT Sloan School of Management, where he is part of the core faculty of the MIT Institute for Work and Employment Research (IWER).

In a paper published recently by the Proceedings of the National Academy of Sciences, Aeppli and Wilmers use eight different economic data sets to analyze recent trends in the wages of U.S. workers. The authors find that a plateau in U.S. earnings inequality that started around 2012 was primarily due to rapid wage gains by workers at the low end of the labor market, who had faced very slow wage growth during the prior period, from 2002 to 2012.  Aeppli and Wilmers’ analysis also indicates that the earnings gains for low-wage workers since 2012 were mostly related to tight labor markets. 

“At the local labor market level, pay increases for low-wage workers were associated with tightening labor markets,” Aeppli and Wilmers write in their article, “Rapid Wage Growth at the Bottom has Offset Rising US Inequality.” “These dynamics delivered a period in which earnings growth has been higher for workers at the bottom than at the middle or the top.”

However, the authors caution that there’s no guarantee such trends will continue. Instead, they note that they “find little evidence that the last decade reversed the main drivers of rising inequality” within the economy. They also point out that wage gains caused by tight labor markets are “fragile with respect to the business cycle, and can only be expected to persist as long as labor markets are tight.”