Is Inequality Growing as American Workers Fall Behind?

A popular and highly politicized theme today is that US workers are falling behind as their real wages fall and income gets redistributed to the rich. This article looks at some reasons that income inequality could rise, and then explores whether, in fact, workers are losing out. It looks at the suggestion that workers are falling behind relative to the wealthy, and at evidence on whether workers real wages have been falling, or perhaps only manufacturing wages. It also examines whether there is a growing “wealth gap” and whether it is due to falling labor compensation relative to wealth. Finally it examines the hypothesis that relatively inexperienced or unskilled workers are falling behind by fixing a skill level and seeing how real wages are changing over the recent past. The evidence here provides a perspective on why some analysts might believe that there is rising inequality or an emerging wealth gap, or that workers are falling behind, but generally it is not favorable to these pessimistic views of how well workers are doing. While inequality may have risen in recent decades, and there are strong reasons to think that the evidence for this is weak, there is also a strong reason to think that it would be a normal function of an aging population and nothing more. Short of population control or unexplainable and unfair redistribution from the old to the young, there may be nothing that can or should be done to reverse the rise in inequality. Finally the paper argues that there is a wealth gap, but it is due to falling real interest rates and a decline and not due to declining compensation, either absolutely or relative to overall income.