Wage Inequality in the Region

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Tamsin Wilson
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1 Wage Inequality in the Region Jaison R. Abel, Research Officer Community Advisory Group Meeting November 15, 2017 The views expressed here are those of the presenter and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.

Overview Since the early 1980s, wage inequality has increased among all workers in the United States, not just between those at the top and bottom. Some places are much more unequal than others.

2 Overview Since the early 1980s, wage inequality has increased among all workers in the United States, not just between those at the top and bottom. Some places are much more unequal than others. In fact, the NY-NNJ region is home to some of the most unequal and least unequal areas in the country. The most unequal places tend to be large metros with strong wage growth for those at the top of the wage distribution. FEDERAL RESERVE BANK OF NEW YORK 1

3 Annual Wages in the United States Full-Time Workers, Constant 2015 Dollars $120 Thousands $ th Percentile $80 $60 $40 90/10 Ratio = /10 Ratio = /10 Ratio = 5.3 $20 10 th Percentile $ Source: U.S. Census Bureau and Bureau of Labor Statistics, Current Population Survey; U.S. Bureau of Economic Analysis, PCE Price Index. Note: Full-time workers are those aged 16 to 64 working at least 35 hours per week and 40 weeks per year. 2

4 Real Wage Growth in the United States Percent Change 80% Percent Change by Percentile 60% +57% 40% +24% 20% 0% 5 th 10 th 15 th 20 th 25 th 30 th 35 th 40 th 45 th 50 th 55 th 60 th 65 th 70 th 75 th 80 th 85 th 90 th 95 th Median Source: U.S. Census Bureau and Bureau of Labor Statistics, Current Population Survey; U.S. Bureau of Economic Analysis, PCE Price Index. 3

5 What s Driving Wage Inequality? Technological change and globalization have changed the pattern of demand for workers. Strong demand for skilled workers has resulted in larger wage gains for workers toward the top of the wage distribution. Demand for lesser skilled workers has been weaker, stifling wage growth for workers at the middle and bottom of the wage distribution. Other contributing factors include the decline in unions and the falling real value of the minimum wage. FEDERAL RESERVE BANK OF NEW YORK 4

6 The Geography of Wage Inequality Ratio for U.S. Metropolitan Areas Most Unequal Least Unequal > <5 Sources: U.S. Census Bureau, Decennial Census (1980) and American Community Survey (2015). 5

7 Wage Inequality in the Region Ratios for 2 nd District Metro Areas 10 Note: The NYC-NNJ metro includes New York City, Long Island, parts of the Northern Suburbs, and much of Northern NJ U.S. = Fairfield NYC-NNJ Ithaca Rochester Binghamton Syracuse Albany Glens Falls Buffalo Utica Sources: U.S. Census Bureau, Decennial Census (1980) and American Community Survey (2015). 6

8 Why Are Some Places More Unequal? Differences in Local Demand for Workers Demand for skilled workers has been particularly strong in some metros leading to outsized wage gains for those at the top. Decline in demand for lesser skilled workers has been geographically concentrated, stifling wage growth for workers toward the middle and bottom of the wage distribution. Agglomeration Economies Productivity benefits from clustering together in cities have been particularly strong for skilled workers located in large metros. Migration Skilled workers are increasingly moving to large metros that offer urban amenities and higher wages. FEDERAL RESERVE BANK OF NEW YORK 7

9 90-10 Ratio Larger Metros Now Tend to Be More Unequal than Smaller Metros , ,000 1,000,000 5,000,000 10,000,000 Population Sources: U.S. Census Bureau, Decennial Census (1980) and American Community Survey (2015). 8

10 Real Wage Growth in U.S. Metros Percent Change by Percentile Percent Change 150% 125% 100% San Francisco NYC-NNJ 75% United States 50% 25% 0% Detroit Youngstown -25% 5 th 10 th 15 th 20 th 25 th 30 th 35 th 40 th 45 th 50 th 55 th 60 th 65 th 70 th 75 th 80 th 85 th 90 th 95 th Sources: U.S. Census Bureau and Bureau of Labor Statistics, Current Population Survey; U.S. Census Bureau, Decennial Census (1980); American Community Survey (2015); U.S. Bureau of Economic Analysis, PCE Price Index. 9

11 Real Wage Growth in the Region Percent Change by Percentile Percent Change 150% 125% Fairfield 97 th = 276% 100% 75% Albany United States 50% 25% Rochester 0% -25% 5 th 10 th 15 th 20 th 25 th 30 th 35 th 40 th 45 th 50 th 55 th 60 th 65 th 70 th 75 th 80 th 85 th 90 th 95 th Sources: U.S. Census Bureau and Bureau of Labor Statistics, Current Population Survey; U.S. Census Bureau, Decennial Census (1980); American Community Survey (2015); U.S. Bureau of Economic Analysis, PCE Price Index. 10

12 Summary Wage inequality has increased in nearly every metro since the early 1980s, though it has increased much more in some places than others. The most unequal places tend to be large metros with strong demand for skill, agglomeration economies, and appeal for skilled workers (e.g., NYC-NNJ Metro). The least unequal places tend to have lackluster wage growth across the board, due in large part to weak demand (e.g., most metros in upstate New York). FEDERAL RESERVE BANK OF NEW YORK 11

Online Appendix for The Contribution of National Income Inequality to Regional Economic Divergence

Online Appendix for The Contribution of National Income Inequality to Regional Economic Divergence APPENDIX 1: Trends in Regional Divergence Measured Using BEA Data on Commuting Zone Per Capita Personal