More Make Less As Less Make More

I’ve been curious lately about the wages of American workers.

To sate this wonder I massaged the Social Security Administration’s database of employer-generated W-2 forms where I learned that more than 150 million W-2s were issued in 2011 for more than $6.2 trillion that was earned in wages, tips, etc. (The 2012 data releases in October).

The average wage earned in 2011 was $41,211.36 and the median wage was $26,965.43. That’s a “median to average” ratio of 65.43 percent. In 1991 the ratio was 71.87 percent. It has been steadily declining for at least two decades. Also, the average wage increased 3.13 percent from 2010 to 2011 while the median increased 2.28 percent. That disparity has also been a trend over the last two decades.

These numbers suggest that there is a steadily widening earnings gap separating the relative and declining few in the upper income brackets from the much larger and growing majority in the lower income brackets. Nonetheless, on closer inspection, I was surprised by the magnitude of the disparity in income distribution.

I took the entire “pie” of wages earned in 2011 - $6.2 trillion – and divided it into $3.1 trillion halves and $1.55 trillion quarters (as best I could, because the data is aggregated in $5,000 income intervals).

The bottom half of the “wages earned pie” was spread out over 129 million W-2s while the top half was shared by just over 22 million. In other words, less than 15 percent of all wage earners took home one-half of all the wages paid in the United States in 2011 while the other half of the wage pie was divided among the remaining 85 percent.

The bottom quarter of the wage pie was shared by more than six in 10 workers, a ratio that has increased slightly over the last two decades.

This is good news, I suppose, for those concerned about socialism.

The average wage for those that divided up the bottom half of the pie was less than $25,000 and none of them earned more than $70,000 while the average wage of those that divided up the top half of the pie was more than $136,000 and all of them earned more than $70,000. The average for the bottom quarter was $16,400 while those in the top quarter averaged nearly $272,000.

For comparison; a person earning the minimum hourly wage ($7.25) that works 40 hours per week for 50 weeks would earn $14,500.

The average wage for those dividing up the bottom half of the pie was 18.22 percent of the average wage of those that shared the top half of the pie. In 2001 it was 19.81 percent and in 1991 it was 22.02 percent.

The same trend is true if you divide the “wage pie” into quarters. In 2011 the top quarter of the pie was divided among less than four percent of the W-2s. In 2001 the top quarter was divided among 4.4 percent of the wage earners and in 1991 it was shared by more than five percent.

In fact, there were about a half-million fewer wage earners sharing the top quarter of the earnings pie in 2011 than there were in 2001 even though the total number of W-2s increased by more than three million.

In 2011 one of every four W-2’s reported earnings of less than $10,000; two in four reported earnings of less than $25,000 and three out of four reported earnings of less than $50,000. Ten percent of W-2s reported earnings of $85,000 or more; seven percent had six-figure incomes, 1.52 percent earned more than $200,000, less than one percent earned in excess of $250,000 and only one-quarter of one percent – 377,279 W-2s – reported earnings of $500,000 or more. The average wage for those 377,279 at the tippy-top of the wage pyramid was $1.1 million.

At the risk of stating the obvious; the overarching story the data tells is that there are a hell of a lot of American workers that don’t make very much money and the gap between low-wage earners and high-wage earners is growing.

It’s also apparent that the Clinton-era tax rates and Bush-era tax rates had no obvious impact on the trends in wages. From 1991 to 2001 more people made less and less people made more and that trend continued from 2001 to 2011 even though the tax rates on high incomes in the last 10 years were the lowest they’ve been since World War II.

That seems odd because, from a tax perspective, the 2000’s were the best time to earn high incomes that we’ve had in nearly a century; yet the actual number of people at the top of the heap declined and the numbers at the bottom increased.

Surely these facts must create at least some doubt in the minds of those that believe that the fear of paying higher taxes is the only thing holding people back from earning more.

If fewer of us are making more and more of us are making less I worry that there will not be enough consumers with enough discretionary income to grow our consumer-based economy. It’s not hard to imagine a downward spiral. In fact, it’s quite possible that we are already in that spiral.

I’ve always believed that a key component of America’s success has been the “plausible hope” that – if we want to – each of us can improve our standard of living with education, hard work, talent and creative thinking. Obviously that possibility still exists. There are plenty of recent examples; Mark Zuckerberg comes immediately to mind. However, the W-2 data suggests that the odds of moving up the wage ladder are declining and the window of “plausible hope” is narrowing.