The Changing Distribution of Worker Earnings

On Friday, the Congressional Budget Office released a new study examining how worker earnings changed from 1979 through 2007. The report is full of important facts about the evolution of earnings throughout the earnings distribution and, in particular, among the highest earners.

For example, the following chart illustrates how the earnings of men and women (age 25-54) have changed at different points in the earnings distribution:

Earnings of Men and Women

The chart confirms two well-known findings: men, on average, earn more than women, and high-earners have seen the largest earnings gains in recent decades. Other takeaways include:

  • In real terms (i.e., adjusting for inflation), men at the 10th and 50th percentiles (of the male earnings distribution) in 2007 earned about the same as similarly situated men back in 1979.
  • Women’s earnings have been growing faster than men’s. Women at the 10th and 50th percentile (of the female earnings distribution), for example, had higher earnings in 2007 than their counterparts in 1979.
  • Women at the 90th percentile in 1979 earned a bit less than the median man. In 2007, however, a woman at the 90th percentile earned 66% more than the median man.

The following chart illustrates how earnings have evolved among the top 10% of men and the top 10% of women from 1989 to 2007:

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Unemployment Still Rising

Today’s jobs report didn’t deliver any real surprises. The number of payroll jobs fell by 216,000 in August, slightly less than expectations, but revisions to earlier months subtracted an additional 49,000 jobs. The unemployment rate rose to 9.7%, more than expected and consistent with the consensus view that unemployment will exceed 10% in coming months.

In short, we are still losing jobs, but at a much slower pace than earlier in the year.

Looking further into the details, there are two things I’d highlight. First, the U-6 measure of unemployment, which includes workers who are discouraged or working part-time for economic reasons, increased even more than the regular unemployment rate, rising from 16.3% to 16.8%:

Unemployment August 2009

Second, unemployment among teenagers in August was the highest ever recorded. More than 25% of teenage workers were unemployed in August, topping the previous peak of 24.1% set in late 1982:

Teen Unemployment August 2009

Teenage unemployment jumped sharply from July to August, rising from 23.8% to 25.5%, an increase of 1.7 percentage points. In comparison, unemployment among adult men increased by “only” 0.3 percentage points and among adult women by 0.1 percentage point.

I predict that the econo-blogosphere will feature some healthy debate about whether the sharp increase among teenagers has anything to do with the most recent increase in the minimum wage that went into effect toward the end of July (and, therefore, after the July unemployment data were collected). As you would expect, teenagers are more likely to earn the minimum wage than are adult workers. If the latest minimum wage increase had immediate, negative effects on employment, you might therefore expect to see it among teenagers.

On the other hand, the chart shows that teenage unemployment can be quite volatile from month to month; as a result, analysts should be humble about what they can infer from the changes observed during a single month. Moreover, teenage unemployment has been rising rapidly throughout the downturn, which may reflect the intensity of the economic weakness rather than a series of increases in the minimum wage.

My advice: Before accepting or rejecting the idea that the recent minimum wage hike has hurt teen employment, wait to see whether any enterprising economists come up with compelling data that go beyond the month-to-month pattern. For example, it would be interesting to see comparisons among states. Some states had minimum wages above the federal level, and thus were unaffected by the recent increase.

A Less-Bad Jobs Report

The headlines in today’s jobs report were better than expected:

  • Payrolls fell by “only” 247,000 in July, somewhat smaller than the 325,000 that analysts had anticipated.
  • The unemployment rate ticked down to 9.4%.

If you dig into the numbers a bit further, you find some other encouraging nuggets:

  • Job losses in May and June were 43,000 smaller than BLS had previously estimated.
  • The average work week ticked up from 33.0 hours in June to 33.1 hours in July. That may seem like a small change, but it’s a good sign that hours have bounced off the record low recorded in June.
  • Average hourly earnings increased 0.2%. Again not a huge change, but clearly pointing in the right direction.
  • The U-6 measure of unemployment, which includes workers who are discouraged or working part-time for economic reasons, declined from 16.5% to 16.3%:

UE July

Losing 247,000 jobs is not a good month in the job market. But it is the best month since last August, before the fall of Lehman.