occupation change and income inequality

Growing income inequality has been in the news a lot lately. Although increased inequality over the past 20 years is mainly due to the vast increases in income of the top 1 percent of all households (see here), there are some explanations in the overall labor market that impact distribution within the “99 percent.” In particular, there is growth in many of the occupations that pay higher wages and growth in many of the occupations that pay lower wages, while there are declines in occupations that pay middle wages. The result is a “hollowing out” of middle income jobs, leading to increased inequality.

In the following chart I reconfigure occupation and wage data from a recent report by Colorado’s Department of Labor and Employment (CDLE). In it I show the changes in the state’s occupational employment over the period 2000-2010. Occupations are ranked from with the highest average hourly wage (Management $51.67) to the lowest average hourly wage (Food prep and serving $10.63).

Putting aside the substantial drop in management (I still need to figure that out), the data shows that most occupations that pay above the state average wage grew over the decade. Typically, these occupations are human capital intensive, often requiring a college degree. This is consistent with my previous posts about the increasing relative returns of higher education.

Looking at occupations paying below average wages proves interesting. For “high-paying, below-average wage jobs” (occupations paying between two-thirds the average and the state average–shown between the two green lines) we see a massive reduction, with nearly 141,000 fewer positions than 10 years earlier. Some of these losses were  brought about by the Great Recession, reflected in the decline in construction employment due to the bursting of the housing market bubble

Yet other, longer-term trends are also at play. The data show a large reduction in production occupations (related to declines in manufacturing) and office and administrative personnel (related to new technology in the workplace). These latter two instances reflect changes in technology and productivity, and the off-shoring of manufacturing.

Looking further down the wage scale we once again see growth, with occupations below the “2/3 average wage” level adding more than 35,000 positions over the decade. Most of these gains are related to health and other personal care and the food service industry. Because these occupations tend to involve face-to-face contact and are less substitutable with technology, that are less susceptible to the economic forces affecting occupations in the next higher wage levels.

 

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