Does a Rising Tide Lift All Boats? Trends in Wage Growth and Inequality Across Jobs

Key Findings

  • In recent years, real wages have started to pick up. But they’ve grown unevenly across jobs — sparking a rise in inequality for some occupations, but falling inequality in others.
  • Our analysis of Glassdoor data show the jobs with the highest pay inequality today are high-skill managerial positions, such as program manager, architect, and attorney.
  • The jobs with the lowest pay inequality today (therefore, more equal) tend to be lower-skill positions, such as warehouse workers, bank teller, and emergency medical technician — jobs potentially impacted by recent minimum wage increases in many states.
  • In general, higher wage growth for jobs doesn’t appear to be what’s driving more pay inequality within jobs. We find no statistical link between wage growth and rising inequality within jobs in Glassdoor data.
  • So far in 2018, pay inequality within jobs appears to be falling slightly — potentially good news for those concerned with rising U.S. pay inequality.

Stagnant wage growth for years has plagued an otherwise healthy U.S. economy. Economists are unsure of the root cause, but there are several factors: Declines in unionization and lagging minimum wage laws, slower productivity growth and innovation, declines in employer competition, the rise in non-compete clauses, increasing globalization and so on.

At the same time, income inequality in the United States has worsened.(1) The Gini coefficient — a popular measure of income inequality that gauges how concentrated wealth is at the top — reached a 25-year high for the United States in 2016. While factors such as increasing returns to education or technological skills, declining unionization, and stagnant minimum wage laws can exacerbate pay inequality, it is unclear whether pay increases themselves can too. Do high earners enjoy more wage growth than low-earners doing a similar job in the same city?

According to data from the Bureau of Labor Statistics, after accounting for changes in the cost of living, wages for the average full-time worker fell or remained stagnant throughout the early years of the recovery. From 2014-2017, as the labor market became increasingly tight and inflation remained very low, growth in inflation-adjusted pay picked up to 1-2 percent per year — a trend toward rising wages that has continued in 2018.

Using a large sample of Glassdoor salary data, in this analysis we ask the question: How universal were these increases in base pay, and how much inequality do we see in base pay within jobs? And when wages grow (or shrink) for a job, does pay for low- and high-earners move closer together or farther apart?

Where Are Wages Rising?

First, let’s look at which jobs are experiencing the fastest and slowest wage growth today on Glassdoor. In all the following analysis, we first calculate wage growth and inequality for each job title in each city and then merge together the city-level estimates using weights. That gives us a city-weighted average for each job that isn’t biased by changes in how Glassdoor samples salaries from metros over time. (For more details, see our “Methodology” section below.)

The figure below shows the distribution of inflation-adjusted wage growth from 2014 to 2017 among job titles. The horizontal axis shows the average annual growth rate in real wages, and the vertical axis shows the number of job titles that experienced each level of pay growth.

As is clear in the figure, many jobs saw slightly positive real wage growth during this period, but some experienced very low and very high pay gains. Overall, the average annual growth rate across job categories was about one-half percentage point increase per year in inflation-adjusted wages. However, annual real wage growth for jobs ranged from as sharp as a 4.7 percentage point gain per year for retail team members, to a roughly -3.4 percentage point drop per year for attorneys.

The table below shows the jobs in our sample with some of the highest and lowest inflation-adjusted wage gains between 2014 and 2017 according, to Glassdoor salary data. In general, jobs with the largest pay declines were higher-skilled managerial jobs, possibly reflecting shifts in compensation away from base pay. Jobs that experienced the highest real wage gains tended to be lower-skill, manual roles such as retail team members, security officers, and bank tellers.

Source: Glassdoor Economic Research (glassdoor.com/research)

A Look at Pay Inequality Within Jobs

While the average wage is important, it doesn’t tell us whether pay at the top and bottom has gotten more or less equal. To go beyond average pay, we next looked at what has happened to inequality in wages by exploring 80-20 ratios across job titles. This ratio of pay for high-earners compared to low-earners gives an easy-to-interpret measure of income inequality facing workers who are all working within the same job category.

To understand how our 80-20 ratio works, consider a simple example. In 2017, accountants in our sample had an 80-20 ratio of 1.53. That means that the top 20 percent of accountants in 2017 earned at least 53 percent higher pay than the bottom 20 percent working in the same metro. Jobs vary in their degree of pay inequality, with most bunched around the average of 1.58 — meaning that within a job category, the top 20 percent of earners receive on average wages that are at least 58 percent higher than the bottom 20 percent.

The figure below shows the full distribution of 80-20 ratios for job titles in our sample in 2017. For most jobs, the 80-20 inequality ratio hovers around the average. However, there are a few outlier jobs with very equal pay toward the left of the figure and very unequal pay toward the right.

Which jobs have the most and least pay inequality among workers? The table below shows jobs in our sample with some of the most equal, and most unequal, pay in 2017.

The job with the most unequal pay was program manager, with an 80-20 ratio above 2.2 — that is, pay for the highest-earning program managers was more than double that of the lowest-earning 20 percent. The job with the most equal pay in our sample with an 80-20 ratio of 1.19 was audit assistant — an entry-level position for which there is likely an industry standard for starting salary.  

Other jobs with low pay inequality included warehouse worker and bank teller. Interestingly, a number of health care professions such as licensed practical nurse and emergency medical technician also have particularly low pay inequality today.  

Next, let’s look at how inequality within jobs has changed in recent years — and what factors in the economy may be driving those trends.

Is Pay Growth Fueling Inequality?

If a rising tide lifts all boats, then as the average wage moves, the shape of the wage distribution should be roughly unchanged — meaning that the 80-20 ratio for jobs should remain constant. To examine this, we compared average real wage growth against the change in its 80-20 ratio in recent years for each of the jobs in our sample, to see if there is any statistical link between pay growth and rising inequality.

The figure below shows our results. The horizontal axis shows average annual wage growth from 2014 to 2017, while the vertical axis shows the change in the 80-20 inequality ratio during that period. Each dot is a job category in our sample.

Overall, there isn’t a clear relationship between wage growth and rising or falling inequality. A simple regression of wage growth on pay inequality suggests that the wage distribution moves in step as pay rises or falls (as indicated by the remarkably flat trend line in the figure).

However, there is a lot of variation in pay growth and shifts in inequality across job titles in our sample.(2) Many jobs have experienced either large increases or decreases in inequality according to Glassdoor salary data: about 40 percent of the jobs in our sample have an inequality ratio that changed more than 5 percentage points from 2014 to 2017.  

The table below shows jobs with different trends in pay growth and inequality in recent years. In the top panel, we show jobs in the “sweet spot” with both high wage growth and falling inequality. In the center panel, we show jobs with rising pay, but where pay inequality among workers is getting worse. Finally, in the bottom panel we show jobs where pay is rising, and inequality isn’t changing much. These cases illustrate the diverse and complicated link between wage gains and inequality within jobs.

Does Inequality Matter?

The U.S. labor market today is strong and growing. As the job market tightens and pay begins to rise for workers, it’s important to know how universal these gains will be. For example, our analysis shows office managers and media planners both enjoyed strong wage growth over the past half-decade. But at the same time, both experienced large jumps in pay inequality — suggesting most of the gains were enjoyed by high-earners.

Even among jobs with similar skills, there isn’t a clear picture. Some lower-skilled jobs like security officers have benefited from strong wage growth, but have also suffered from widening inequality. At the same time, other lower-skilled positions like retail team members saw both increased pay — partly due to rising minimum wages in many cities and states — and falling inequality. On the other hand, bank tellers — another lower-skilled job — has experienced strong wage growth yet little change in inequality.

What Do We See in 2018?

Looking at 2018, Glassdoor salary data so far this year suggest that for most jobs today, pay inequality is actually falling. That is, pay in 2018 for most jobs is getting more equal, not less.

About two-thirds of the job titles in our sample have an inequality ratio that has declined so far in 2018. Rising minimum wage laws in many cities and states have likely played a major role, as has the increasingly tight labor market, which may be nudging firms to offer pay increases to more of their employees.

The figure below shows the distribution of changes in our measure of wage inequality for jobs titles in 2018 so far. For most jobs, pay inequality appears to have declined slightly — that is, the distribution of in the figure below is slightly shifted to the left into negative territory. However, there are still a handful of job categories for which pay inequality is rising this year, in the right-hand side of the figure.

Although we’re not able to pinpoint all of the factors driving this decline in pay inequality within jobs so far in 2018, when taken together with recent BLS jobs reports that point to positive — albeit somewhat sluggish — overall U.S. real wage growth, 2018 may turn out to be a year with a labor market that isn’t just red-hot, but also slightly more balanced in terms of equality.  

Methodology:

Using salary data from Glassdoor, we grouped full-time salary reports by city and job title from 2014 through 2017. For each group with at least 30 salary reports per year, we determined the average wage, as well as the 20th and 80th percentiles. To control for trends in non-base pay — such as tips, commissions, and bonuses — we include only job titles where at least 75 percent of respondents report receiving only base pay, or where base pay accounts for on average at least 85 percent of total compensation.

Next, we create an index of inequality for each job in each city. The 20th percentile of pay for jobs means that one-fifth of wages are below this amount, and the 80th percentile of pay means that four-fifths are below this amount. Dividing the 80th percentile by the 20th percentile, we calculate an easy-to-understand measure of wage inequality — which we call the “80-20 ratio.” If this ratio is high, pay is very unequal, and if it’s low, pay is more equal.

After adjusting for changes in the cost of living, we calculate changes in the average wage, as well as the 80-20 ratio over the 4-year window. (3) Last, we combine this measure across cities to estimate growth in wages and inequality for each job title and include only job titles for which there are at least 100 salaries recorded in 2014 and in 2017. (4) We also conduct an identical analysis on a sample of job titles for the years 2017 and 2018, which includes more job titles than our 2014-2017 sample since more salary data are available in recent years.

 

Footnotes:

1. For an in-depth discussion of trends in inequality, see Chapter 1 of the 2016 Economic Report of the President https://obamawhitehouse.archives.gov/sites/default/files/docs/ERP_2016_Chapter_1.pdf.

2.For example, the dot in the far bottom-left corner of the chart represents attorneys, which have seen a steep decline in both average pay and inequality.

3.Changes in the cost of living are gauged using inflation data from the Federal Reserve Economic Database. If inflation is unavailable for a specific city, inflation data for the nation as a whole is used.

4.We are careful to avoid confounding differences in living costs and sampling with changes in the wage distribution by first calculating for each job title, changes in the average wage and inequality within each city and then summing across cities using each city’s average annual share of salary estimates for each job title as aggregation weights.