Annual earnings are up for the poor as well as for the rich

July 20, 1999

Annual earnings are up for the poor as well as for the rich

ANN ARBOR—Both the rich and the poor are earning higher wages than they did in the mid-80s, according to a University of Michigan study. But average hourly wages are rising more modestly for Americans with upper-middle incomes.

The new findings from the Panel Study of Income Dynamics, conducted by the U-M Institute for Social Research and funded by the National Science Foundation, compare data from a nationally representative sample of approximately 8,500 U.S. heads of household for 1995 and 1985.

“For many years, the U.S. economy has experienced wage growth among high-wage workers and wage declines or stagnation for other workers,” says Frank P. Stafford, the U-M researcher who conducted the analysis with colleague Yong Seong-Kim. “Our new results show a rise throughout much of the range of wages, notably for those below the middle of the wage distribution, and for those in the top quarter. For those with wages from the 50th to the 75th percentiles, however, growth has been more modest.”

Workers at the 10th percentile from the bottom of the wage distribution earned $5.40 per hour in 1985 compared with $6.08 per hour in 1995. Adjusting for the official measure of inflation, the consumer price index (CPI), this is a rise of 13 percent. But since the CPI is believed to have overstated inflation by about 10 percent during this time period, Stafford notes, wages at the 10th percentile have actually risen by 23 percent.
At the top of the wage distribution, there were also strong gains. The top 1 percent of workers had earnings of $89.80 per hour in 1985, compared with $101.25 per hour in 1995, also a gain of 13 percent. Allowing for a correction to the CPI, this is also a 23-percent increase over the decade.

Workers at the 60th percentile had wages of $16.97 per hour in 1985 compared with $16.52 in 1995, in constant dollars adjusted for inflation. Small declines were also found for workers at the 70th percentile. Allowing for the CPI adjustment, these groups actually experienced about a 10 percent wage gain, according to Stafford and Kim.

“Recent economic indicators suggest that wage growth is continuing in the late ’90s,” says Stafford. “There’s some concern that this growth will lead to inflationary pressure. But other data from the Panel Study of Income Dynamics suggest that one of the factors producing a productivity benefit to sustain real wage growth is the capacity of the U.S. labor market to adapt to the rapid technological and social changes of recent decades.”

This capacity is reflected in data on changes in occupation for men age 25 to 54, which shows a rise in occupational mobility over successive five-year periods from 1975 through 1996, Stafford reports. The mobility index, which indicates the percentage of men who changed occupations, rose from 34 percent between 1975 and 1980 to 45 percent between 1991 and 1996.

Men nearing retirement age were somewhat less likely to retire in the 1990s than they were in the mid-80s, Stafford and Kim found, and were more likely to make late-career occupational changes. The labor market mobility of adult women also rose over the period studied.

“The effects of technological and social changes have been unevenly felt in different sectors of the labor market, and in different time periods,” Stafford notes. “For example, in the 1980s, many of the adjustments were in traditional blue-collar occupations. In the 1990s, more of the changes involve the restructuring of clerical and middle-skilled white-collar jobs.”

While the top “exit” and “destination” occupations for both men and women have changed from the mid-80s through the 90s, Stafford notes, the flexibility of the U.S. labor market is one of the factors supporting economic growth without contributing to inflationary pressures.

The top exit occupations for men in the 1990s have been assembly-line and transport workers. The top destination occupations have been salaried managers and foremen. Service sector jobs have been both an active exit and destination occupation in the last 10 years, indicating high-turnover among service workers.

WAGES by PERCENTILE 1985 and 1995 (1997 dollars–CPI-U)

Percentile 1985 1995
2 $ 2.70 $ 2.70
5 $ 4.12 $ 4.42
10 $ 5.40 $ 6.08
15 $ 6.62 $ 7.34
20 $ 7.70 $ 8.26
25 $ 8.68 $ 9.21
30 $ 9.73 $ 10.32
35 $ 10.83 $ 11.28
40 $ 11.92 $ 12.29
45 $ 13.04 $ 13.19
50 $ 14.17 $ 14.19
55 $ 15.47 $ 15.37
60 $ 16.97 $ 16.52
65 $ 18.65 $ 17.93
70 $ 20.15 $ 19.75
75 $ 21.88 $ 21.94
80 $ 23.93 $ 24.67
85 $ 26.79 $ 28.08
90 $ 30.74 $ 33.01
95 $ 39.41 $ 42.99
98 $ 54.04 $ 69.53
99 $ 89.80 $ 101.25
Frank Stafford and Sandra Hofferth, co-directors July 1999)


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