9.1.1Inequality in the 1970s, 1980s and 1990s

Changes in income inequality differ by decades. Features of trends in income inequality during the 1970s, 1980s and 1990s appear in Table 9.1. The overall situation regarding income inequality has deteriorated since the 1970s. The only improvement comes from the diminution of the gender gap since the 1980s.

Table 9.1Features of Trends in Income Inequality for the 1970s, 1980s and 1990s

	1970s	1980s	1990s
Overall inequality	Stable	Sharp increase	Increase
- Between groups	Decrease	Sharp increase	Increase
- Within groups	Increase	Increase	Increase
Real wages	Decrease	Decrease	Decrease
Gender gap	Stable	Decrease	Decrease
Return to education	Sharp decrease	Sharp increase	Increase

Levy and Murnane distinguished three periods in earnings inequalities that correspond roughly to the past three decades.

1. 1970-1982 was characterized by stable inequality, well-educated baby boomers increasing the overall wage and the return to age and experience. However, a substantial decline in the education premium was observed. Therefore, between groups inequality decreased while within group inequality increased, explaining the stable trend in overall inequality during the 1970s.

2. 1983 to 1987 was a period of vanishing middle class jobs. According to the authors, the “Economic Recovery and Taxation Act in 1982” was a mistake. Following the advice of supply-side growth theorists, this act had reduced taxes, especially in the top brackets of the income scale. Its aim was to increase saving and investment. However, the result was an increase of 9.7% in the unemployment rate. The rich were getting richer and the poor poorer. Apart from this supply-side explanation, the decline in middle class jobs was also attributed to demand-side factors such as de-industrialization. Indeed, during the decline in industrialization “production workers and craftsmen [became] hamburger flippers” according to Levy and Murnane (p1347). Furthermore, the number of female workers increased moderately in middle class jobs. Still, the demand-side was not a sufficient explanation of increasing inequalities because these appeared within sector too.

3. During the last period, from 1988 to 1991 the education premium increased because of technological change and the dramatic decrease in low-skilled wages due to numerous young high school dropouts. Murphy and Welch (1992) carefully studied supply and demand effects and showed that the “decline in earnings of less-educated men in the 1980s reflected an inward demand shift arising from the increased import competition in U.S. markets.” Thus, over the three periods, between groups inequalities were stable in the 1970s and grew rapidly in the 1980s, whereas within group inequalities were steadily growing over the same period. Levy and Murnane analyzed these two types of group inequalities.

How income inequality occurred at the first place is an interesting question that has generated a lot of academic research. According to Levy and Murnane (1992), in the “postwar golden age” real wages doubled because of increasing productivity. Since 1973 average real wages have increased much more slowly, causing an end to rapid real earnings growth and the start of slower growth nearing stagnation. The trend in earnings growth is different from the trend in inequality: if both increase, then poor people get richer but rich people get richer faster, and if there is only an increase in inequality with stagnant earnings, then the rich get richer and the poor poorer. In 1979, there was a sharp acceleration in the growth of inequality, especially among men, and the increase was at both ends of the wage distribution scale. This phenomenon is called “polarization,” where the increase in inequality is observed for the young as well as the older workers. Inequalities between and within groups by age or education have increased. However, the female/male gap in earnings has narrowed. Regarding earnings of women, there has been an increase in the hourly wage and annual hours worked.