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Trends and Challenges for Work in the 21st Century

futurework - Chapter 2, Box 2.3 The Wage Gap

A commonly accepted way of assessing the change in wage inequality is to measure the extent to which change occurs in the ratios of high-wage, middle-wage, and low-wage workers. For the period 1979 to 1998, chart 2.3 illustrates the wage gap as the ratio of a high-wage worker’s earnings (at the 90th percentile of the wage distribution) to those of a low-wage worker (at the 10th percentile). Similarly, to learn whether the wage gap is growing or falling across the entire wage dis-tribution, we can compare the ratio between high- and middle-wage (at the 50th percentile) workers’ earnings with that between middle- and low-wage workers’ earnings. (See chart 2.4.)

We can see in chart 2.3 that the gap between high- and low-wage workers expanded rapidly during the 1980s. After forty years of narrowing inequality, the high-to-low wage ratio increased by 19 percent between 1979 and 1999 (from 3.7 to 4.4), largely because low-wage workers’ earnings fell dramatically. During the 1980s, the 90/50 and 50/10 ratios both increased rapidly; relatively speaking. During the 1990s, however, low-wage workers began to catch up with middle-income workers, due in part to increases in the minimum wage and similar government policies. The steady widening of the gap between high and middle earners is largely responsible for the overall increase in inequality over the last 25 years.

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