Widening Pay Gap

With the field of presidential candidates slowly being whittled down, the issues that concern most people finally may be discussed in some detail. Or at least we can hope.

One economic problem so many people ask about is growing income inequality. Unfortunately, while income differentials are widening and politicians are tripping all over themselves to present ways of dealing with the issue, reducing the gap may be difficult, if not impossible.

It is undeniable that the gains in wages have varied dramatically across income groups. A recent Bureau of Labor Statistics report titled "A Look at Pay at the Top, the Bottom, and In Between" showed that the differences are startling. Over the last 35 years, average inflation-adjusted (real) earnings rose only 7.9 percent. However, the top 10 percent of wage earners saw a 33 percent rise, while those in the bottom 10 percent experienced a 1 percent decline in their real wages.

That pattern has persisted both during and after the Great Recession. Between 2007, when the recession started, and 2014, while workers who earned the average national wage or less continued to see their incomes decline slightly, those at the top received a nearly 4 percent increase.

The larger wage increases for the highest earners led not only to a widening of the dollar gap, but also to a concentration of income. Thirty-five years ago, the top 10 percent earned 3.7 times what the bottom 10 percent of workers made. Now, they make five times the wages.

It is interesting that there is also a huge difference in income concentration across the states. In 2014, it ranged from a high of 5.7 times in New York and Maryland, to a low of 3.5 in South Dakota. Locally, New Jersey, at 5.4, had the seventh-highest income concentration, while Delaware was only slightly above the national average of 4.9 and Pennsylvania came in below, at 4.6 times.

OK, people who have high incomes are doing a lot better than average- and low-income workers, but can we do something about it?

Only if we develop policies based on how the differences are created.

When it comes to earnings, it's all about education, which is hardly a shocking discovery. If you have a college degree, you make a lot more money. On average, a worker with a bachelor's degree or higher makes nearly 80 percent more than the person who is only a high school graduate.

Just getting some kind of college education bumps the salary up by nearly 15 percent.

Those differences widen as you climb the income ladder. At the top end of the wage scale, a person with a college degree earns almost 95 percent more than a high school graduate. And, of course, men make a lot more than women, regardless of the level of education.

There are also major differences across industries and occupations, which closely follow the need for high levels of skills and education. For example, the largest differential between low- and high-income workers exists in the information, professional, scientific and technical services, management and finance industries. Meanwhile, the smallest differences are in hospitality, farming and retail trade.

Changing the income distribution requires addressing the many factors that create the differences. Skills and education must be improved, and investing in technology to make workers more productive is needed. Workers with minimal economic power might need special assistance. But as the data show, even in a robust economy, where labor shortages drive all worker salaries up sharply, the income distribution can widen.

In our economy, there will always be a broad distribution of income. And as technology becomes even more important for growth, the differences will likely increase.

jnaroff@phillynews.com