Earnings inequality and mobility: Evidence from Social Security Data since 1937

 
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Studies have shown that inequality in the U.S. has been on the rise for decades, with the top earners enjoying astronomical gains and average Americans coping with stagnating incomes. These studies typically rely on annual income data, however, which may overstate inequality: low earners in one year may be high earners the next.

A 2010 study from Columbia University, University of California, Berkeley, and the Social Security Administration published in the Quarterly Journal of Economics, Earnings Inequality and Mobility in the United States: Evidence from Social Security Data since 1937,” uses Social Security Administration longitudinal data to capture earnings information on a random subset of individuals from 1937 to 2004 to chart both short-term (five-year) mobility and longer-term mobility. The dataset was limited to individuals aged 25 to 60 working in the commerce and industry sectors and earning a minimum of 25% of the average full-time wage in a given year.

Key findings of the study include:

  • Overall annual earnings inequality declined from 1937 until 1953 — the postwar era economic boom often referred to as “the Great Compression” — but has steadily risen ever since, with the rate of inequality significantly increasing between 1980 and 2004.
  • While inequality and mobility among men has gotten worse since the 1950s, women have made substantial gains that “almost exactly compensate for the increase in inequality for males.” The chance that a working woman will experience upward mobility increased from less than 1% in the 1950s to more than 7% in the 1980s.
  • Short-term mobility gains have not compensated for dramatic increases in overall inequality; in fact, short-term mobility was actually slightly lower in 2004 than it was in the early 1970s.
  • The dramatic surge in income for the top 1% of earners (primarily through performance-based packages of bonuses and stock options) has not been accompanied by a similar degree of mobility into or out of this income bracket.

The researchers conclude that the entry of women to the labor force, as well as increases in women’s compensation, have had a significant impact on overall inequality and mobility in the United States. The overall numbers mask a bleak trend line for the male population, where inequality is on the rise and mobility is on the decline in both the short and long terms.

A related 2010 paper, “Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967-2006,” corroborates many of these findings through different data sources.

Tags: employment, poverty, Social Security

Last updated: November 28, 2011

 

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