Income Inequality in the
An interview with Jared Bernstein
Multinational Monitor, May
[Jared Bernstein is the co-director
of research at the Economic Policy Institute in Washington, D.C.
He is the co-author of The State of Working America 2002/2003,
the premier source of information on economic trends affecting
working people, as well as numerous other books and reports. Between
1995 and 1996, he served as deputy chief economist at the U.S.
Department of Labor, where he worked on the initiative to raise
the minimum wage.]
Multinational Monitor: What is the best
way to measure and describe income inequality?
Jared Bernstein: Probably the most intuitive
way is to look at the ratio of those at the very top of the income
scale to those at the very bottom, and to see how that ratio has
changed over time.
If you go back to 1979, prior to the period
when the growth in inequality really took off in the United States,
the top 5 percent on average had 11 times the average income of
the bottom 20 percent. If you fast forward to the year 2000, the
most recent economic peak, you find that that ratio increased
to 19 times. So over the course of those two decades, the gap
between the wealthiest and the lowest income families grew from
11 times to 19 times.
MM: What is the disparity just in benefits?
Bernstein: The previous figures were for
income, so that includes most income sources, including both wages
and non-wage income, such as interest payments and government
If you divide the work force into quintiles,
or fifths, based on their wages, in the bottom fifth, 18 percent
of the workforce has pension coverage and one-third has health
coverage. If you then look at the top fifth, you'll find that
73 percent has pension coverage, and 81 percent has healthcare
Practically any variable that has to do
with how economic growth is distributed-compensation, benefits,
pensions, health insurance, quality of education, quality of housing,
exposure to crime -will yield this kind of highly skewed result.
Wealth disparity is far more concentrated than income disparity.
MM: And what happens when you look at
that set of data by race?
Bernstein: Minorities tend to be concentrated
on the lower end of the spectrum whether we're talking about income
or wealth. And if you're looking at the impact of some of these
other inequalities, they are more acutely felt by minorities as
well. For example, minorities experience more crime than whites
on average, and majority populations have better access to higher
quality public education than minority populations.
If you're talking about wealth, the gap
between white wealth and black wealth is very extreme because
wealth is a more historical variable than income. African Americans
by dint of their history in this country have had much less opportunity
to accumulate wealth over time.
MM: To what extent do the income disparities
correlate with educational disparities?
Bernstein: Well, folks with less education
tend to have less income at any point in time. So there is definitely
a correlation between inequality and education. However, over
time the growth in inequality has been as much within education
groups as between them.
While education differentials themselves
have grown, they only explain about half of the growth in overall
inequality. That is, the gap between the earnings of, say, college
and high school workers explains part of the increase in equality,
but only about half of it. The rest of the increase has occurred
within pretty narrowly defined educational groups. Even within
college-educated workers, there is more inequality than there
used to be, and among high school-educated workers as well.
Educational disparities are one explanation
for why income or wages are unequally distributed at any point
in time. Such disparities, though, do little to explain the increase
MM: How does the level of unemployment
affect the income ladder?
Bernstein: That's a very important point.
It affects it profoundly When the unemployment rate is too high,
the fruits of economic growth tend to be distributed much less
evenly throughout the workforce and tend to be distributed upward.
In an economy like ours, where lower-
and mid-wage workers don't have a lot of bargaining power, they
depend on a low unemployment rate to ensure that the fruits of
productivity growth are more equally distributed. In the absence
of low unemployment, you are typically going to see the kinds
of redistribution upward that we saw over the eighties and early
MM: Why does a lower unemployment rate
mean that the productivity benefits are more evenly shared?
Bernstein: When unemployment is very low
and when we're near full employment, employers typically have
to bid up wages to maintain the workforce they need in order to
meet high levels of demand. That is what characterizes a tight
labor market. There is enough demand out there such that there
is competition for workers. In the presence of such competition,
employers tend to pay workers a higher wage than they do if unemployment
is higher and there is less competition and firms can keep more
of their income as profits.
Think of the economy as a pie. As the
pie is growing, the question is how do the slices get determined.
A tight labor market plays the same role as other institutions
that distribute growth - like unions and minimum wages - and ensures
that the slices of the pie are distributed fairly to those who
help bake it.
MM: How does trade policy and the trade
balance impact inequality?
Bernstein: Trade policy is certainly implicated
in the falling wages of the bottom half of the workforce, along
with the loss of manufacturing employment, which are obviously
Manufacturing is a sector where non-college-educated
workers have historically seen relatively high and rising wages,
wages that rise in step with productivity, which has always grown
pretty quickly in that sector. We've now run large trade deficits
in the manufacturing sector for many years on end, and have lost
millions of manufacturing jobs in the process.
The kinds of trade agreements that we've
pursued over the past decade or so have exposed our manufacturers
to foreign competition with workforces that earn much less than
we do, and that has hurt the sector. Add to that the fact that
our economic policy at the federal level has explicitly pursued
a strong dollar regime that makes our manufactured good less competitive
in international markets. So between greater exposure to globalization
and the strong dollar, we've constructed a set of policies that
have made it very difficult for manufacturing to do anything but
contract, and it has contracted big time.
MM: To what extent do you attribute the
rise in inequality to the shift in the U.S. economy to the service
Bernstein: I hesitate to attach numbers
to any one factor, but it is widely agreed that the loss of manufacturing
employment probably explains 15 to 25 percent of the increase
in inequality over the past couple of decades, which is as large
as any one factor alone, so it's a very important factor.
The service sector is a very broad sector.
It includes professional people earning lots of money and people
earning very little, so it is a sector that inherently has more
inequality built into it. If the
economy grows and there's more employment
in that sector and less employment in a sector where blue collar
workers were making relatively high wages, you're definitely going
to have more inequality.
MM: What about the considerable portion
of the service sector that is low paying - are people shifting
to those jobs driving the inequality?
Bernstein: The share of our economy working
in low-wage jobs crept up consistently from the mid-seventies
through the mid-nineties. This was despite the fact that we were
ever more productive, that we were ever more highly educated,
that average incomes were growing. Despite the fact that on a
broad per capita level it was a richer country, we kept creating
more and more low wage jobs. That explains part of the increase
The average is less and less relevant
for understanding what's going on because you've got more disparity
between the top and the bottom.
MM: Is there anything inherent in low-wage
jobs that makes them low wage?
Bernstein: I think there is. Some of these
jobs are pretty low productivity jobs. At some level, what you
pay is a function of how productive that particular job is. One
of the problems in our low wage labor market is that we have lots
of cheap labor and lots of low-wage work for that cheap labor
But although the level of pay is somewhat
constrained, there is a fairly broad range within which low-wage
labor can be paid. Low-wage workers are paid much less now than
they used to be. The idea is that a janitor in 1965 was paid a
lot more than a janitor in 2000, despite the fact that that person
was at least as productive and as well educated in 2000 as he
or she was in 1965.
So there are constraints in paying low-wage
sectors based on their low productivity, but there's a range within
those constraints that we've slid down.
MM: There's clearly been a huge surge
in salaries of top management at big corporations. Does that impact
on the inequality measures or does it affect too few people to
make much difference?
Bernstein: It's more limited than you
might believe. It is sensational and eye-grabbing. It is egregious
in many cases, especially when you've got these guys, and they
are mostly guys, pulling down huge salaries with falling stock
prices and very little to show for it.
If you just think about the supernovas
at the top of the income or wealth scale, you'll miss the fact
that real wages were falling for low-wage men and women for 20
years from the mid-seventies until the mid-nineties, and that
there is just no obvious reason why that should have been the
case. It is not just a very small group at the top pulling ahead,
it is too little growth being fairly shared with workers at the
middle and lower end of the income scale.
The real story tends to be more that the
growth between the top and the middle, and the middle and the
bottom, and how those different groups have grown over the years.
Why have real incomes stagnated at the
middle and declined at the bottom over the long term? In a growing
economy where people are more highly educated and they are working
more hours, there is no obvious reason why their incomes should
be falling. You might argue that you can see why their incomes
wouldn't grow in lock step with productivity because not everybody
is equally productive, but, on average, an economy that is working
appropriately should have incomes growing throughout the distribution.
To understand why a particular occupation
pays less now than it did 20 years ago, you have to look at structural
changes of the type we talked about before: higher unemployment,
fewer union protections, lower minimum wages, large and unsustainable
trade imbalances. Those are the kinds of factors that work against
non-college-educated workers that find themselves with less bargaining
power and thus are less able to claim their fair share of the
MM: Technological change is often used
as an explanation for rising inequality: technology jobs are the
best paid, but only available to those who are highly educated
and technologically-fluent. How do you assess this explanation.?
Bernstein: I think a lot of people notice
that they're looking at computers on their desk that they didn't
have 20 years ago and they look at these inequality trends and
think that they must be correlated. But a closer look reveals
that that correlation doesn't really lead to a causation.
Technology is an ongoing trend. The production
of goods and services in our economy has become consistently more
technology complex, going back as far as you can record history.
These days it's the computer, but starting with the abacus and
moving forward there has always been some new technological gain
or application that has made a difference in the workforce. In
earlier periods it was, for example, electricity, or railroads.
Computerization and information technology is the latest flavor.
It is very important and has played a
key role in absorbing the more skilled workers that our education
system turns out over time. Think about the fact that we now have
25 percent of our workforce college educated. A generation ago,
it was 12 percent. We do a very good job at employing skilled
persons and finding useful productive things for them to do, and
part of that is because ongoing technological change is highly
complimentary to the skills of the workforce.
But there is no evidence that this factor
has accelerated over time and would therefore explain the increase
in inequality. At any given point in time, those who are more
technologically adept will earn more than those who aren't, but
that relationship has not grown; the income or wage premium associated
with technology has not increased much over time. So it does not
explain the increase in inequality.
Like the education story before-in fact
they are highly correlated-at any given point in time technology
can explain part of the story, but it does not do much in terms
of accounting for the increase in inequality.
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