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Economic inequality is growing, a Fed blog says

November 21, 2011 | 11:17 am

Everyone from Occupy Wall Streeters to politicians seems to be talking about economic inequality these days, but actual data can be hard to find, especially regarding the effects of the 2007-09 recession. But a new set of numbers from Liberty Street Economics, the blog attached to the Federal Reserve Bank of New York, shows definitively that there is a growing gap between the upper and lower classes.

Economists Jaison R. Abel and Richard Deitz isolate 25 occupations and look at how median wages have changed over the last three decades. They find that rising wages in the highest-paying occupations, coupled with shrinking employment in middle-wage jobs, is leading to a startling income gap.

"With a rising share of jobs at the upper and lower ends of the wage distribution and a wider gap in wages among occupations, jobs have become more polarized in the United States over the last three decades," they write.

For instance,the median wage for occupations in computer and math was $49,000 in 1980 and grew to $67,000 in 2009. Construction, on the other hand, shrunk to median pay of $35,000 in 2009, from $38,000 in 1980 -- no doubt hurt by the housing crisis.

It's not just wages that are changing. Employment in sectors across the economy is changing too. Using wage levels as a stand-in for skill levels, the economists divided occupations into three groups: "high-skill" were the top five categories, "low-skill" were the bottom five, and "mid-skill" were the rest. The high- and low-skill categories grew the fastest from 1980 to 2009 -- low-skill grew 110% while high-skill grew 100%. Mid-skill grew just 46%. 

High-skill jobs also saw their wages rise significantly over that time period, while they've remained stagnant in middle-skill jobs.

"Job growth occurred disproportionately at the upper and lower ends of the wage distribution," the economists write.

Economists such as David Autor have raised this issue before, hypothesizing that automation and outsourcing are in part to blame for the "hollowing out" of the workforce. But few have any idea what to do about it. Some suggest asking those who are paid more to pay higher taxes, but business leaders say that would stifle growth.

Robert Reich, the former Labor Secretary under President Clinton, has said that the economy won't recover until this trend is reversed. If the middle class doesn't have enough money to buy goods, demand will remain weak.

As for how this trend might affect the American people -- those who work at the Fed in New York City might just be able to look out their windows the last few days and see for themselves.


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-- Alana Semuels

Photo: Protesters at Occupy Cincinatti make a statement about class inequality. Credit: Big 3 News via Flickr