A new analysis of state wages shows that the gulf between Oregon’s wealthy and everyone else continues to widen.
Oregon’s wealthiest are not only earning more, but the rate at which their incomes are growing far outstrips the middle class and the poor.
Meanwhile, the middle class continued to encounter stagnant wages this past decade — even during the vaunted economic boom that preceded the bust — and saw its compensation fall back to 2001 levels in the recession-racked year of 2008, according to a draft analysis of wage trends by the Oregon Employment Department.
Inflation-adjusted annual wages for Oregon’s top 2 percent of earners hit $153,480 on average in 2008, a 29.5 percent increase from 1990.
Workers at the 50 percentile, meanwhile, earned $32,659 in 2008, an increase of just 2.4 percent over 1990 after adjusting for inflation.
“Wage inequality in Oregon rose steadily between 1990 and 2000, declined slightly in 2001 and 2002, and continued to increase to its peak in 2007,” the study said.
The analysis considers only wages. The disparity would be far greater if the numbers included investment income.
The growing income gap takes on a new significance as Oregonians consider Measure 66, which would increase by 1.8 percentage points the marginal tax rate on personal income above $250,000 for couples, $125,000 for an individual.
Long after Measure 66 is a distant memory, however, the wage gap will pose a daunting challenge, threatening America’s view of itself as a land of equal opportunity, some economists argue.
The free-market fervor that has gripped the country since the Ronald Reagan administration has allowed the country, for the most part, to remain competitive in a globalized economy. But some contend that the trickle-down economy has sent just that — a trickle — to the masses, while steering a torrent of riches to the wealthy.
“There’s something going on at the very top, an explosion of the ‘uber-rich,'” said Bryce Ward, a senior economist with Portland-based consulting firm ECONorthwest. “There’s been no growth in a decade for the middle.”
Fiscal conservatives generally have dismissed concerns about income inequality as “class warfare.” They argue that economic growth benefits rich and poor alike.
But recently, there has been some recognition from the right that a struggling middle class and a dysfunctional underclass poses a threat to all.
In a controversial and much-cited article that ran this winter in the quarterly National Affairs, conservative writer and entrepreneur Jim Manzi argues that the growing income disparity poses a dilemma for which there is no obvious answer.
“If we reverse the market-based reforms that have allowed us to prosper,” Manzi wrote, “we will cede global economic share; but if we let inequality and its underlying causes grow unchecked, we will hollow out the middle class — threatening social cohesion, and eventually surrendering our international position anyway.”
It wasn’t always this way.
Liberal-leaning economists point to the decades after World War II as a golden era when the economy enjoyed sustained, vigorous growth, despite high taxes, and the benefits of that growth were evenly spread across the socio-economic spectrum.
Those growth years helped create the middle class as we now know it, a huge group that enjoyed low unemployment and big wage gains and even some degree of retirement security.
The golden era began to wane in the 1970s.
The economy struggled, inflation ate up people’s buying power, as did double-digit interest rates. And for the first time in decades, wages no longer grew in lockstep with gains in economic productivity, said Heidi Shierholz, a labor economist with the liberal Economic Policy Institute.
A laundry list of powerful forces contributed to the stagnating wages: The decline of organized labor, the erosion of the minimum wage, the shift from a manufacturing-based to service-based economy, and, perhaps most of all, the globalization of the economy, Shierholz said.
Manzi adds immigration to that list. While globalization forced American employers to compete with low-wage foreign operations, immigration provided a stream of low-skilled workers across our borders willing to accept less.
American political leaders turned to free-market policies to see them through the uncertain new era. The Reagan administration deregulated industries and cut taxes. George W. Bush followed up with further tax reductions in the name of spurring the economy.
The free-market policies helped America pull out of the economic doldrums. But Manzi and many other economists contend the rising tide did not lift all boats.
“Rising inequality would have been easier to swallow had it been merely a statistical artifact of rapid growth in prosperity that substantially benefited the middle class and maintained social mobility,” Manzi wrote. “But this was not the case. Over the same period in which inequality has grown, wages have been stagnating for large swaths of the middle class, and income mobility has been declining.”
It’s this decline in social mobility — the ability of Americans to rise beyond their socio-economic origins — that worries Ward. The rags-to-riches story that has long been a bulwark of the American Dream still happens. But it’s becoming more rare, he argues.
“My concern is just with opportunity,” Ward said. “There should be no correlation between your parents’ earnings and yours.”
In a 2007 article he co-wrote about wage inequality, Ward pointed out that in 1965 the typical CEO earned 24 times what the typical worker earned; in 2005, 262 times.
Along with stagnant wages has come what sociologist Jacob Hacker calls “the great risk shift.” In a trend that has only picked up steam in the recession, employers have slashed health care and retirement benefits, leaving workers to shoulder more of that burden.
Jared Bernstein, an economic advisor in the Obama administration, describes the new paradigm as the “yo-yo” economy, for “You’re on Your Own.”
At least one prominent economist argues that income inequality has already taken a devastating toll.
University of Chicago economist Raghuram Rajan, former director of research at the International Monetary Fund, posits that stagnant wages for the bulk of Americans contributed to the economic crash. Millions of Americans wracked up unprecedented debt earlier this decade because their compensation failed to keep up with the cost of living, Rajan theorizes.
The nation’s financial sector enabled the debt bubble and then sliced and diced bad loans into bad mortgage-backed securities.
It all blew up in 2007 and 2008.
The recession’s impact is reflected in the Employment Department wage numbers.
The study compares wages for four-quarter employees (those who worked all four quarters but not necessarily full-time) from 1990-2008 for four different income groups.
Oregonians earning at the 50th percentile saw their inflation-adjusted wages grow 4.5 percent from $31,866 in 1990 to peak of $33,318 in 2004. The group’s income has fallen every year since then, finishing 2008 at $32,659, the lowest level since 2001.
In contrast, those at the top 98th percentile of earners saw their inflation-adjusted wages climb 31 percent in the same 18 years from $118,453 in 1990 to a peak of $155,496 in 2007.
The downturn took its toll on the high earners as well. Their income dipped to $153,480 in 2008.
Wage numbers are not yet available for 2009. But given the state of the economy, they likely won’t improve for any income group.