Financial Fitness


Wages for top earners growing

Wage disparity rises again
Posted: 4:09 PM, Jan 20, 2016
Updated: 2016-01-20 22:09:08Z
Wages for top earners growing

Have your wages grown 324.4 percent since 1979? If not, then according to a recent study by the Economic Policy Institute (EPI), you are probably not in the top 0.1 percent of wage earners. By comparison, salaries of the top 1 percent (including the upper 0.1 percent) grew by 149.4 percent, while the bottom 90 percent rose by only 16.7 percent. These values speak to the rapid inequality of wage growth even at the highest levels, not to mention the huge income gap compared to the average American.

Wage Growth Inequality

Annual earnings for the top 0.1% increased 8.9% in 2014 over 2013 values, and 4.9% for the top 1%, maintaining the same ballpark ratio as it has over the last 35 years. How about those of us in the lower 90%? Income rose by only 1.4%, barely beating inflation.

2013 represented a bit of an anomaly as wages declined for the top 1%, while wages increased for the lower 99%. EPI suggests that this was due to income shifting caused by the introduction of the 39.6% upper tax bracket and the additional Medicare tax of 0.9%.

Wherever possible, the wealthiest managed to defer and shift more of their income into the realm of assets and capital gains taxation. 2014's increase suggests that things have returned to normal with respect to income trends.

The Great Recession took a larger toll on the upper 1% and 0.1% of earners, as one might expect. EPI's analysis shows that the upper 0.1% of income earners is the only group that has yet to recoup all of their wealth consumed by the recession.

Earnings are still 8.2% below 2007 levels within that group, and that subset drops the average of the top 1.0% down to 2.7% below 2007 levels. However, if the top 0.1% were removed from that population, the number changes to a 1.1% improvement for the 99.0% to 99.9% income group.

The majority of Americans can call it a draw. The lower 90% of incomes have recovered their 2007 salary levels and are essentially flat at a 0.1% increase. Those in the 95% to 99% income percentile range have fared the best since that time, with a 4.7% salary increase.

Either they may be in the sweet spot of high-income earners that did not lose large amounts of money in the recession while experiencing significant salary growth since then, or they are newcomers to that salary level and did not have as much money to lose when the Great Recession hit.

The gap in wages is driven home by looking directly at the average incomes for 2014. The lower 90% of American incomes average out to $33,297. For the next 9% (90th to 99th percentile), the average jumps to $141,293. For the next 0.9%, the average rises to $463,072. At the pinnacle of the top 0.1%, the average wages break seven figures at $2,542,965.

Keep in mind that income does not equal wealth. In terms of wealth, the disparity between the upper 0.1% and the rest will be even larger, given the rise in the stock market and other asset-based investments. Higher incomes generally correlate to greater investments and further increases in wealth.

EPI also notes that productivity (net of depreciation) increased 62.7% over the last 35 years, but only the top 1% and 0.1% saw an equal or greater rise in their wages.

Improvements in productivity are evidently not making it back down to workers via increased salaries. One could argue that they are harming laborers through eliminating jobs.

Wage disparity is not likely to change anytime soon — thus explaining the appeal of the Bernie Sanders presidential campaign and his message of curbing such inequality and increasing taxes on the very rich.

Should Sanders be elected President, expect inequality to change as billionaires "feel the Bern" — but as of this writing, that is quite a long shot.