Academic journal article Social Security Bulletin

The Distribution of Annual and Long-Run Us Earnings, 1981-2004

Academic journal article Social Security Bulletin

The Distribution of Annual and Long-Run Us Earnings, 1981-2004

Article excerpt

Numerous authors have presented evidence of increased dispersion in the distribution of annual earnings in the United States from the late 1970s through 2004 or later. However, the dispersion of long-run earnings measured over many years has received relatively little attention because of the limited availability of appropriate data. This article uses the Social Security Administration's Continuous Work History Sample, which documents the earnings histories of 3.3 million workers, to examine changes in both the annual and the long-run distributions of earnings during 1981-2004 for men and women. For men, the results indicate an increase in long-run earnings inequality of roughly the same magnitude as the trend seen in annual earnings dispersion, but there has been very little increase in the dispersion of long-run earnings among women. If calculations are restricted to a sample of women who work every year of the observation period, a trend of increased earnings dispersion emerges, but much less so than that observed for men.

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A large body of research shows that a substantial increase in the dispersion of annual earnings of American workers began around 1980 (for example, Katz and Autor 1999; Eckstein and Nagypál 2004; Goldin and Katz 2007). In a widely cited article, Levy and Murnane (1992) note two key years that marked the onset of change in prior earnings trends: 1973, which saw the end of large annual increases in real earnings for many workers; and 1979, when a large sustained increase in annual earnings inequality began. At least among prime-aged men, real earnings have declined or stagnated for low-wage earners, have increased modestly in the middle of the distribution, and have risen substantially for high earners. The trend is consistent with the view that more highly skilled and educated workers have been paid higher premiums for their labor over time, while the productivity and earnings of lower-skilled workers have not similarly benefited from improvements in technology. Moreover, this change is something of a global phenomenon, as evidenced by increases in earnings dispersion documented in many other developed economies (for example, Gottschalk and Smeeding 1997; Atkinson 2008). Details vary among countries regarding the amount of increased dispersion, the parts of the distribution where change is most pronounced, and the timing of those changes, yet there are similarities in the increased relative earnings for high-skill workers. The increase in earnings dispersion in the United States is among the largest of the developed countries, if not the very largest.1

Much of the research on the earnings distribution and earnings trends focuses on pretax earnings for a period of a year or less. However, the distribution of earnings over a lifetime-or at least over many years-is often of greater interest than the distribution of earnings during shorter intervals. Economic well-being is determined more by earnings over an extended period than by earnings during a relatively short interval that may reflect a temporary deviation from a longer-term average. Workers can often shift resources from higher- to lower-income periods to maintain their preferred consumption level over time. Change in the distribution of longer-period (multiyear) pretax earnings of US workers during the past three decades is the primary focus of this article.

In contrast with the attention given to the distribution of annual earnings, there is relatively little empirical research on the dispersion of lifetime earnings, most likely because of the more demanding data requirements. With individual earnings histories often spanning four decades or longer, it is unusual to have longitudinal microdata that can fully document lifetime earnings for a single birth cohort, let alone for multiple cohorts that would allow a trend to be identified. That obstacle has not deterred researchers from making inferences about lifetime earnings by using one or both of two strategies. …

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