MNI INTERVIEW: 1/3 Slide In US Wage Volatility Since 1980

By Brooke Migdon

     WASHINGTON (MNI) - U.S. wage volatility has dropped by a third since 1980,

leading to an increasingly polarized income distribution, research to be

presented at the Federal Reserve Bank of Atlanta next month has found.

     The chances are declining that lower-income individuals will benefit from

structural changes such as technological advances which can drive wage

volatility, Stanford economics professor Luigi Pistaferri told MNI ahead of his

presentation at the Atlanta Fed's annual employment conference on Oct. 17.

     "It means that people at the top of the distribution, because they are now

faced with a lower probability of falling down, are more likely to stay near the

top, relative to 20 or 30 years ago," Pistaferri said.

     The slide in variations in individual earnings since 1980 has been seen

across most industries and multiple economic subgroups, such as employee age or

gender, Pistaferri's research found. Between 1970 and 2010, income disparity

among 25-year-old males tripled.

     Federal Reserve chair Jerome Powell said in March that the Fed might be

able to reduce inequality by conducting monetary policy in ways that prioritize

the creation of maximum employment. In February, he called income inequality the

"biggest economic challenge" the nation will face in the coming decade, noting

that while growth at the top of the income distribution has remained strong, it

has slipped among the middle and working classes.

     A blog post co-authored by St. Louis Fed Chairman James Bullard in March

suggested that private credit markets could facilitate the "reallocation of

uneven income," and that monetary policy could assist this by allowing inflation

to run relatively high at times of slow growth, while keeping it low when growth

is strong. This would be similar to nominal GDP targeting.

     The blog acknowledged criticism that policies such as quantitative easing

have worsened wealth inequality, by driving up the prices of assets held by

wealthier individuals.

     Fed Governor Lael Brainard said during a conference in May that any

increase in the concentration of wealth at the top of the income distribution

could weaken consumer spending and drag on national economic growth in the

long-run.

     Today, earners in the middle 50% to 90% of the income distribution account

for 37% of total pre-tax income in the U.S. The top 10% of earners account for

50%.

     "For people who are at the bottom of the distribution, a lot of the changes

are coming from the reduced chances of moving upward," said Pistaferri, noting

that the declining strength of unions has contributed to capping wages. "The two

things, if you put them together, means you now have reduced mobility, so people

are much less likely to move up or slide down than in the past."

--MNI Washington Bureau; +1 202 371 2121; email: brooke.migdon@marketnews.com

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