Hourglass Economy

Growing Inequality

An analysis of the rise, fall, and rise again in economic inequality in the United States for the past 100 years shows that for a quarter-century before World War II, the income share of total national wages for the top 10% of wage earners (the top decile) ranged between 40% and 47%. Come the “Great Compression”—the period between the late 1930s and the early 1970s—that share shrunk to a low of 30%. A major shift in the allocation of economic gains during the early 1970s resulted in the raising of the ceiling and a lowering of the floor for the U.S. labor force, with the few getting a great deal more and the many getting a great deal less. At that point, inequality accelerated markedly, and by the late 1990s it had reached pre-World War II robber baron levels. [Page 655]Bifurcation of Wealth

David Ellwood, a Harvard University economist, added another dimension to the analysis of economic inequality—the bifurcation of income and wealth. He examined the percentage change in the earnings of different percentile groups of full-year, full-time male workers from 1961 to 2000, using 1961 as the base year. There were three key statistical groups in the crosshairs of his analysis: (a) rich wage earners at the 90th and 75th percentiles of the income hierarchy, (b) poor wage earners at the 25th and 10th percentiles, and (c) “the middle” wage earners at the 50th percentile.

All three groups had relatively equal income growth from 1961 to the early 1970s. Then income divergence began, somewhat slowly at first and then accelerating markedly from 1975 onward. The character of the divergence is just as dramatic as its magnitude. The poor had the same percentage growth as the rich until the early 1970s. Then their real wage earning actually began to decline until around 1995. The rich saw their percentage of income start growing in 1961 and experienced few declines up to the present time. The net result was the rise of economic bifurcation—an extreme difference in the percentage of income growth between the “haves” and the “have lesses” and also the rise of an extreme absolute dollar difference. So, as the gap between middle-income America and high-income America (the top 1%) grows, that same gap for racial/ethnic minority groups has exploded.

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