It is no secret that jobs vary widely with respect to the pay, benefits, security of employment, and intrinsic rewards they offer. What is less well-known is that many of these disparities have been growing in recent decades, reversing a trend toward equalization that dates back to the Great Depression. This article describes inequality in wage income and other characteristics of labor-market careers, with particular attention to trends in the United States during the last three decades of the twentieth century. Some of the micro- and macrolevel processes by which persons may be allocated to qualitatively different jobs are briefly considered.
Wage Inequality in the United States
Historical data show two peaks in income inequality during the twentieth century, the first occurring just prior to World War I and the second occurring prior to the Great Depression. These peaks were followed by what economic historians have dubbed the “Great Compression” during the New Deal and World War II eras, when President Franklin Roosevelt introduced social and economic policy measures aimed at reducing income gaps. In the quarter century following World War II, the American economy enjoyed rising wages, low unemployment rates, and sustained economic growth. Wages of the median earner doubled between 1950 and 1970, and those further down in the income distribution made even greater progress. Since the early 1970s, these trends have undergone a dramatic reversal, as median wages have stagnated and income disparities have grown. Earnings polarization has increased within all large demographic groups—even among employed White men working full time.
One way of measuring the degree of inequality in wage income is to divide the population into equally sized groups and compare the percentage of total wage income earned by different groups. Analyses of this sort show that top-tier earners control a large and growing share of the economic pie. In 2000, for instance, the top 10 percent of wage earners alone accounted for 36 percent of wage income earned in the United States. This share increased from 26 percent in 1970. Analyses by economists Thomas Piketty and Emmanuel Saez have revealed that most of the gains made by this top decile have accrued to the top 1 percent of earners, whose share of national wage income increased from 5 percent in 1970 to 13 percent in 2000. The above figures take into account only the portion of individual income derived from wages and salaries. The distribution of income derived from capital and financial investments is much more strongly skewed.
The growing concentration of income at the top of the economic ladder has coincided with corresponding declines in the shares of wage income earned by the average worker. Real wages of median workers stagnated through most of the 1970s and 1980s and then fell sharply in the 1990s. The federal minimum wage, which is not indexed to inflation, is no higher today in constant dollars than it was in the 1950s, according to recent data from the U.S. Census Bureau. Stagnation of median wages and a decreasingly progressive tax structure have meant that increasing numbers of American families require two incomes to sustain a middle-class lifestyle.
Trends in income inequality are also commonly assessed with reference to changes in the ratio of a company’s top salary brackets to amounts paid to workers at the bottom. Plato once maintained that no one should earn more than five times the pay of his lowest worker. In 1965, CEOs in major American companies earned 24 times more than the average worker. In 2003, this ratio was 185 to 1 (having fallen from 300 to 1 in 2000). A recent analysis by Fortune Magazine found CEO pay in the nation’s top 100 corporations at the turn of the twenty-first century to be more than 1,000 times that of the average worker ($37.5 million in 1999, compared with $1.3 million in 1970). Although income inequality has grown in other wealthy industrialized countries, the trend has been especially pronounced in the United States.
Why the Growing Wage Disparities?
Numerous explanations have been offered for increasing wage polarization and inequality. Some focus on demographic shifts (i.e., changes in the supply of available workers), and others emphasize changes in the socioeconomic and ideological contexts of employment.
Some of the most important changes in the demographic profile of the labor force since World War II include growing rates of female labor-force participation, increased immigration, and the entry of a large cohort of baby boomers into the labor force. By expanding the labor supply, these demographic shifts have likely contributed to downward pressure on wages for many types of work. They may have also contributed to a growing polarization of the labor force in terms of skills and other human-capital assets.
Among the most commonly invoked structural explanations for growing income inequality are deindustrialization and expansion of the service industry, trends that both increase the demand for a highly skilled workforce and reduce the market value of a high school education (because well-paid manufacturing jobs are replaced with poorly paid retail trade and service jobs). Other relevant factors include declining unionization, labor-saving technological changes, effects on market wages of a stagnant minimum wage, the rise of flexible employment relations (i.e., decline in lifetime employment and decreasing reliance on firm-internal labor markets), and economic globalization (i.e., growing imports from low-wage countries and job outsourcing). In addition, the dramatic growth in executive compensation has been attributed to changing corporate and social norms regarding the acceptability of high levels of inequality, including an increasing emphasis on the growth-enhancing powers of individual and corporate “greed” since the 1980s.
Other Wage Gaps: Gender and Race/Ethnicity
Although women’s wages have increased relative to men’s since the 1970s in the United States, women working full time, year-round in 2003 still earned only about 76 cents to every dollar earned by the comparable group of men. The gender gap in earnings varies by age and is much larger among older workers. According to data from the 2000 U.S. census, the average 25-year-old woman earned 90 percent of what her male counterpart earned, while the corresponding figure for 55-year-olds was only 65 percent.
The overall pay disparities between men and women are largely attributable to the lower wages associated with female-typed work. Despite strong female inroads into prestigious professional and managerial occupations over the past three or four decades, women remain heavily concentrated in a relatively small number of poorly paid “occupational ghettos,” most notably in clerical, personal service, and retail sales work. Most analysts agree that the persistent segregation of men and women into different occupations, industries, economic sectors, subspecialties, and firm types accounts for the lion’s share of the gender pay gap in the contemporary United States. There is less agreement, however, regarding the causal mechanisms underlying this relationship. For example: Do female-dominated jobs pay poorly because they involve stereotypically “female” work? Are jobs female-dominated because of their historically poor pay? Does the pay gap reflect differences in the skill, training, or labor force experience required for male- and female-typed jobs?
Wages also vary strongly by race, ethnicity, and immigration status. In 2003, the median income of non-Hispanic White households (many that included more than a single wage earner) was about $48,000. The median for Black households was 62 percent of that for White households; for Hispanic and Native American households, it was about 69 percent; for Asian households, it was 117 percent. According to data published by the U.S. Census Bureau, households with U.S.-born heads had a real median income in 2003 of about $44,000, compared with $37,000 for households in which the householder was born outside the United States and its territories. As with the gender gap, these disparities are partly attributable to the concentration of minorities and immigrants in low-wage occupations and industries (as opposed to differential pay rates for the same job). Direct discrimination (i.e., different pay for the same job) undoubtedly occurs as well, but the prevalence of this problem is difficult to assess for a variety of reasons.
The comparable-worth movement represents an effort to overcome the wage effects of occupational segregation by requiring that wages be commensurate with jobs’ skill requirements. As noted above, however, researchers disagree regarding the extent to which the low pay associated with female, minority, and immigrant work reflects these groups’ lower average levels of human capital (e.g., education, skills, job experience), as opposed to a lesser average payoff to such human-capital assets.
Other Dimensions of Labor Market Inequality
The current state of knowledge concerning some other highly consequential forms of labor-market inequality is summarized below.
Health Insurance and Other Benefits
Unlike most other wealthy democracies, the United States has no comprehensive system of national health care. As a result, Americans rely heavily on employer-provided health insurance. Such plans have been declining in both quality and availability in recent years, with 5 million fewer workers covered in 2004 than in 2001. Those who do enjoy coverage are bearing a growing share of the total cost.
Declining coverage can be attributed in part to skyrocketing premiums, which have increased nearly 60 percent since 2001. In 2004, the $10,000 average annual premium for family coverage approached the gross annual earnings of a worker employed full time at the federal minimum wage. Given the soaring overall costs, it is not surprising that workers have seen their annual contributions rise rapidly (by 10 percent in 2003), along with their deductibles and copayments.
Overall, more than 45 million Americans, including 8.4 million children, have no medical insurance today. The vast majority of uninsured children live in families with at least one employed adult. Those hardest hit by declining employer-provided health insurance include temporary and part-time employees, workers with little education, and those employed in blue-collar and low-wage service jobs. U.S. Census Bureau data show that the uninsured are disproportionately racial minorities: Among Whites, 11.1 percent are uninsured, compared with 19.5 percent of Blacks, 18.7 percent of Asians, 32.7 percent of Hispanics, and 27.5 percent of Native Americans. Noninsurance and underinsurance represent significant social and economic problems, since individuals without health coverage often do not seek or receive the type of preventative and prenatal care that can save lives and prevent costly emergency interventions.
Since the recession of the early 1980s, American firms have been downsizing their workforces and relying more on nonstandard work arrangements, such as employment of temporary and contract workers. The number of employees involuntarily working part time (i.e., working part time because they could not find full-time work) grew during the 1980s and stabilized during the 1990s. According to estimates by Neil Fligstein and Taek-Jin Shin, temporary part-time workers made up about 2.5 percent of the labor force in 2000, and involuntarily part-time workers made up about 4.5 percent of the workforce. Other relevant changes include the growing practice of outsourcing jobs to countries with lower labor costs and the declining use of firm-internal promotion (i.e., “internal labor markets”) to tie workers to firms and provide lifetime employment opportunities.
Growing insecurity at work can be assessed by considering trends in average job tenure (i.e., the length of time that individuals stay with the same employer). Due to scholarly disagreements about how best to measure tenure and the meaning of observed trends, there is no consensus on whether tenure rates have decreased for all types of workers. There is agreement, however, that average job tenure has declined more for younger, less educated, blue-collar, and service workers. Attitudinal surveys indicate that fear of job loss increased in the United States during the last decades of the twentieth century, especially among blue-collar workers in the 1980s and among managers and professionals in the 1990s.
Jobs vary a great deal in their working conditions, including workplace autonomy, intellectual rewards, physical and emotional demands, work hours, scheduling flexibility, and exposure to danger. Many of these job characteristics vary with income. Available evidence suggests a growing bifurcation of the workforce since the 1980s and 1990s, with differences in the working conditions faced by high- and low-wage workers increasing over time.
Attitudinal data from the U.S. General Social Survey show that low-income workers report lower levels of job satisfaction than do high-income workers and that inequality in job satisfaction increased during the last two decades of the twentieth century. The percentage of workers at the bottom quintile of the income distribution reporting that they were “very satisfied” with their work decreased from 46 to 39 between 1978 and 1998, whereas the percentage among those in the top quintile increased from 57 to 62.
Unemployment and Underemployment
Unemployment rates are strongly linked to the overall health of the economy. They increase during economic downturns and decrease during periods of economic growth and prosperity. At the time of this writing, the official unemployment rate is approximately 5.4 percent. In addition, a significant fraction of people belonging to the employed labor force work in part-time jobs because they cannot find full-time work.
The United States enjoys lower levels of unemployment than do other rich industrialized countries. Although this is generally attributed to the relatively low wages and benefits paid to American blue-collar and service workers, sociologist Bruce Western and colleagues have suggested that high incarceration rates of American males (especially African Americans) may account for some of the difference between U.S. and European unemployment rates.
Unemployment rates have historically varied by race/ethnicity and sex. Since 1970, the African American rate has been approximately double the White rate. The unemployment rate for Hispanics is higher than that of Whites but lower than that of African Americans. Differences by gender are less pronounced. Between 1970 and 1990, women were slightly more likely to be officially unemployed than were men, but the gender gap all but disappeared after 1990. The latest figures for 2004 show a slightly higher unemployment rate among men than women. Convergence of the male and female unemployment rates is likely due to the expansion of female-labeled service and clerical jobs and the contraction of male-dominated manufacturing occupations in many metropolitan labor markets.
Official unemployment statistics do not take into account so-called discouraged workers (i.e., individuals who would like to work but have given up looking for jobs). There are few reliable estimates on the size of this population.
Who Gets a Good Job?
Much sociological and economic research has been devoted to studying how individuals are sorted across qualitatively different labor market positions. This work can be divided into two categories: micro- and macrolevel studies.
Microlevel accounts of labor market inequality focus on characteristics of the workers themselves. The most comprehensive accounts are human capital theory (from economics) and functional theory (from sociology). By these arguments, high-quality workers (i.e., those with high levels of education, experience, or other productivity-relevant traits) are allocated to the best-paid and most functionally important jobs, because this is the most economically and socially efficient arrangement in competitive market economies.
Human capital theory has often been applied to explain inequalities between men and women in the labor market. The core premise underlying this line of analysis, advanced, most notably, by economist Gary Becker, is that women have a competitive advantage in domestic work and therefore expect to be discontinuously employed. They rationally choose female-dominated occupations because wage penalties for labor force withdrawal are lower in these occupations.
Sociologists have long disputed the power of such microlevel accounts to explain observed patterns of labor market inequality. They question, in particular, neoclassical economists’ assumptions of perfect information, individual rationality, and nondiscrimination, pointing instead to the cultural and structural processes that influence the allocation of persons to jobs (see especially work by Paula England questioning the economic rationality of gender-typed employment for women).
Macrolevel accounts of inequality focus on understanding the social and cultural contexts in which individuals and groups are sorted across qualitatively different labor-market positions. Researchers in this tradition point to institutional, organizational, and ideological constraints that prevent members of historically underprivileged groups (especially women, persons of color, and individuals growing up in lower-class families or impoverished neighborhoods) from developing the human-capital assets, network ties, and personal dispositions that are rewarded, sometimes arbitrarily, in the labor market.
By treating wages as characteristics of jobs rather than persons, “new structuralists” have, moreover, directed attention to the processes by which certain occupations and jobs come to pay “above-market” wages (i.e., wages higher than would obtain in a perfectly competitive labor market). These processes include the imposition of licensing and credentialing requirements by professional groups and reliance on informal recruitment networks or firm-internal labor markets to fill job openings. Such “closure” practices tend to inflate wages by restricting the supply of individuals who can effectively compete for particular positions.
Taken-for-granted cultural norms concerning the appropriate gender or ethnic identity of particular job incumbents (as well as norms concerning the appropriate jobs for individuals with particular gender or ethnic identities) have also been identified as powerful macrolevel mechanisms in the generation and maintenance of occupational segregation and labor market inequality.
- Charles, M. and Grusky, D. B. 2004. Occupational Ghettos: The Worldwide Segregation of Women and Men. Stanford, CA: Stanford University Press.
- Fligstein, N. and Shin, T. 2004. “The Shareholder Value Society: A Review of the Changes in Working Conditions and Inequality in the United States, 1976-2000.” Pp. 401432 in Social Inequality, edited by K. M. Neckerman. New York: Russell Sage Foundation.
- McCall, L. 2001. Complex Inequality: Gender, Class, and Race in the New Economy. New York: Routledge.
- Mishel, L., Bernstein, J. and Schmitt, J. 2005. The State of Working America 2003-2004. Ithaca, NY: ILR Press.
- Morris, M. and Western, B. 1999. “Inequality in Earnings at the Close of the Twentieth Century.” Annual Review of Sociology 25:623-57.
- Piketty, T. and Saez, E. 2003. “Income Inequality in the United States, 1913-1998.” Quarterly Journal of Economics 118:1-39.
- S. Census Bureau. 2004. Current Population Reports, Series P60-226. Washington, DC: U.S. Department of Commerce.
- S. Census Bureau. 2004. Statistical Abstract of the United States. Washington, DC: U.S. Department of Commerce.