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July 2015

Compensation inequality: evidence from the National Compensation Survey

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Measures of compensation inequality

What do ECEC data reveal about wage and compensation inequality? One way to document changes in wage inequality is to contrast wage growth for low- and high-wage jobs. If, for instance, wages in jobs with low to moderate pay have fallen and wages in jobs with high pay have risen, then wage inequality has gone up. To carry out this analysis, we calculate the percent change in real wages between 2007 and 2014 at different percentiles of the wage distribution. We calculate analogous estimates for total compensation growth at different percentiles of the compensation distribution.

Figure 1 presents the percent change in real compensation and wages for civilian workers (i.e., private sector and state and local government workers). The vertical axis shows wage or compensation growth, and the horizontal axis indicates percentiles of the relevant distribution. For example, the percent change in wages at the 50th percentile is about –4 percent, which means that median real hourly wages fell approximately 4 percent over the 2007–2014 period. (Nominal median wages rose, but not enough to keep pace with inflation.)

The patterns of wage and compensation growth are roughly U-shaped, with real growth for both measures lying below zero for most of the range. At relatively high percentiles of the wage or compensation distributions, however, growth is positive. This picture of pay inequality lends support to other studies that find positive wage growth among highly paid jobs but wage stagnation among jobs with lower pay.7 Beyond about the 25th percentile, the series plotted in figure 1 broadly slope up, which implies that inequality by either measure increased over the study period. Pay at the 90th percentile grew more in percent terms than did pay at the 75th percentile, which in turn grew more (fell less) than pay at the median, and so forth. The U-shaped patterns mean that inequality decreased within the bottom quartiles of the wage and compensation distributions.

Figure 2 reproduces figure 1, but only for private sector workers, who generally have less generous employer-provided benefits than do state and local government workers. While the picture is similar to that for all workers, it shows percent changes in compensation close to 9 percent for the highest percentiles of the distribution.

Notable in figures 1 and 2 is that compensation growth lies below wage growth at lower percentiles and above wage growth at higher percentiles. In other words, compensation inequality grew faster than did wage inequality over the 2007–2014 period. This result is possible because the relationship between wages and total compensation is not constant across wage levels. Indeed, the series in figures 1 and 2 suggest substantial changes over time in how benefit costs vary by percentile. To examine these changes, the next section presents the relationship between wage and total compensation at different points in the distribution.

Employer-provided benefits as a share of pay

We calculate the share of employer-provided benefits as the ratio of a job’s benefit costs (less legally required benefits) to the adjusted wage. For instance, a job might pay $10 an hour in direct cash wages and $1 an hour in benefits like paid leave or employer contributions to a retirement plan. Workers in such a job would have a benefits share of 10 percent ($1 in benefit costs divided by $10 in wages). In that case, one might think of the employer as paying a 10-percent benefit “add-on” to the wage.

Notes

7 See, for example, David H. Autor, “Skills, education, and the rise of earnings inequality among the ‘other 99 percent’,” Science 344, May 2014, http://seii.mit.edu/wp-content/uploads/2014/05/Science-2014-Autor-843-51.pdf; and Claudia Goldin and Lawrence F. Katz, The race between education and technology (Cambridge, MA: Belknap Press, 2008).

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About the Author

Kristen Monaco
monaco.kristen@bls.gov

Kristen Monaco is a research economist in the Office of Compensation and Working Conditions, U.S. Bureau of Labor Statistics.

Brooks Pierce
pierce.brooks@bls.gov

Brooks Pierce is a research economist in the Office of Compensation and Working Conditions, U.S. Bureau of Labor Statistics.

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