Academic journal article Social Security Bulletin

Recent Changes in Earnings Distributions in the United States

Academic journal article Social Security Bulletin

Recent Changes in Earnings Distributions in the United States

Article excerpt

Kelvin R. Utendorf*

In this article, the author uses large, Social Security administrative data sets to examine changes in earnings distributions in the United States over the 1980s and early 1990s. Because the earnings information contained in these data sets comes directly from the W-2 forms filed by employers, self-reporting errors and top-coding problems, common in other data used for this type of analysis, are minimized. Previous research has documented an increase in overall earnings inequality during the 1970s and the 1980s. While the author also observes that overall earnings inequality generally increased during the early to mid-1980s, his analysis finds that this upward trend in earnings inequality might have slowed, or reversed, during the late 1980s and early 1990s. The data suggest that within-group inequality for various race and/or gender subgroups of the population generally increased over the period examined, confirming the results of others and extending those findings into the early 1990s. Finally, the author finds that female earnings increased relative to male earnings over the entire period, while the earnings of Black males declined relative to the earnings of the other groups examined.

Introduction

Earnings have traditionally served as one measure of a person's wellbeing. Other things equal, an increase in an individual's earnings is generally thought to signify an improvement in that individual's lot. Likewise, at a group or national level, increases in average earnings are often viewed as an indication that a group or nation is, in some sense, better off than before the increase. Increasing earnings disparity among groups is commonly viewed as being bad, however. An increase in the earnings of one group relative to those of another group could mean that society as a whole is worse off, depending on one's point of view. Examining changes in earnings distributions provides us with insights into the welfare of individuals and groups in society. In addition, the ability to forecast earnings plays a central role in accurately projecting the future status of Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds. One part of developing an earnings forecast involves understanding how past earnings distributions have changed over time, with the hope that this understanding will provide insights as to what to expect in the future.

This article will describe the changes in earnings distributions in the United States for the population as a whole, as well as for gender and racial subgroups of the population, for the period 1981-93, using an unusually large sample derived from Social Security Administration (SSA) earnings records.

Much has been written in the economics literature regarding the observed changes in earnings distributions in the United States over the 1980s. Levy and Murnane (1992), in their survey article that deals with earnings trends and with earnings inequality, state, "Nineteen-hundredseventy-nine marked the beginning of a sharp acceleration in the growth of earnings inequality, particularly among men."' With many different measures of inequality and using many different data sets, researchers detected a pattern of increasing earnings (and income) inequality over the 1980s, both in the overall population as well as in subgroups of that population.

Blackburn, Bloom, and Freeman (1990/1991), using data from March Current Population Surveys (CPS), found that overall earnings inequality increased over the 1980s, while average earnings changed little over the same period. Cutler and Katz (1992) compared changes in income distributions over the 1980s with changes in the distributions of consumption over the same period by using CPS data (for income distributions) and Consumer Expenditure Survey (CES) data (for information on consumption patterns). They observed that there had been an increase in inequality in both income and consumption distributions over that period. …

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