Vertical Income Polarization in the United States

These pages have documented the diverging fortunes of the college-educated, who are over-represented in the Democratic coalition, and those without a college degree, who form the base of Trump’s GOP. Here we go further and document substantial vertical polarization over the past twenty years within each education class. All figures in this post are based on BLS data on weekly earnings by quartile, regardless of race and gender.

We begin by documenting the college wage premium, operationalized here as the annualized difference in median usual weekly earnings in two ways. First, we look at the differential between those with a college degree and those with only a high school degree. As we have argued before, these two diplomas provide the structural parameters of American class society. This straight-up college wage premium increased from $16,653 in 2000 to $25,438 in 2019, rising 52.8 percent almost continuously over the past twenty years. cwp.png

Second, we look at the differential between those with at least a college degree and those without a college degree. This is a tighter definition of the college wage premium — it computes the average boost from having a college diploma. However, it is less consistent with our previous work on class reproduction. The college wage premium, under this definition, increased from $20,973 in 2000 to $32,850, an increase of 56.6 percent over the twenty years.

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We now go much further and ask: Conditional on educational attainment, how much have incomes diverged for breadwinners? Vertical polarization means that those who are better off pull further away from those doing less well. Since we are interested in the bulk of the populace, we operationalize vertical polarization by the interquartile range of annualized differences in median usual weekly earnings. That is, we compare the annual incomes of the 75th percentile of breadwinners with those at the 25th percentile by earning, conditional on educational attainment.

We begin at the bottom. The next figure displays the diachronic pattern of the interquartile range of earnings for breadwinners without a high school diploma. The vertical differential for breadwinners without a high school diploma rose by 34 percent in 2000-2019.

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That for breadwinners with only a high school diploma rose by 52 percent over the past twenty years.

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For breadwinners with some college education, including an associate’s degree, the vertical differential also rose by 52 percent. In absolute terms, it is slightly more than the that for high school graduates who did not go to college at all.

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For those with a college degree and no more, the interquartile range increased by 71.4 percent over the past twenty year.

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For breadwinners with a college degree or higher, the differential rose by 61.4 percent over the same period.

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For breadwinners with an advanced degree, the interquartile range of annual earnings rose by 69 percent.

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We aggregate the various educational attainment categories by taking a simple mean. The next figure displays the basic diachronic pattern of vertical income polarization in the United States over the past twenty years. The interquartile range rose by 61 percent from $26,301 in 2000 to $42,316 in 2019.

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The next figure displays the increase in vertical income polarization by education class. The import is unmistakable. Incomes have polarized across the board, and they have polarized at a faster rate higher up the educational attainment ladder. As we have noted previously, this is likely driven by the prestige school premium. The increase for breadwinners with advanced degrees is attenuated because of the over-representation of this educational class in low income-high prestige sectors like academia, publishing, and the press.

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Economists have found that rising earnings inequality among breadwinners has been driven by increasing between-firm variation in earnings, and ultimately, productivity growth, rather than within-firm variation in compensation. In other words, some firms, particularly in high-tech sectors at the cutting edge of the machine learning revolution, enjoy substantial oligopolistic rents because a vast and widening gulf separates them from their peers; rents that they share with their workforce. If you luck out and end up working at one of the winners, you can get your hands on some of that moolah. The easiest way to get lucky is to get into a prestige school — whence the fight to the death between 18-year-olds.

As a policy challenge, this is a very tough nut to crack, particularly in light of the stagnation in economy-wide productivity growth. Given the superstar firm dilemma, remedies are hard to find. Yet, remedies must be found. We are in the midst of a Polanyian double-movement. There is no exit from the present impasse without an actual solution to the physical problem of vertical polarization. Unless we can reverse these tidal forces, we go deeper into the impasse, whether or not Trump is ousted in 2020.

One thought on “Vertical Income Polarization in the United States

  1. A reassuring result with respect to meritocracy, but the increasing inequality within education bands suggests a growing lack of solidarity in the workforce.

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