Income Inequality in U.S. Narrows in Turning Point, Feroli Says

The gap between America’s rich and poor is shrinking, according to one measure of income inequality that has reversed a steady increase seen for more than a decade.

Americans near the top of the income scale, whose weekly earnings exceed those of 90 percent of their fellow workers, made five times as much as people in the bottom 10 percent in a typical week during this year’s first quarter, according to JPMorgan Chase & Co.’s Michael Feroli, who based his analysis on Labor Department data. That’s down from a record 5.3 times reached in 2012.

That figure, called the 90-10 ratio, was 4.4 in 2000 when the Labor Department records began. In the first quarter, 90 percent of all full-time wage and salary workers earned less than $1,893 in a typical week, according to Labor Department figures. The bottom tenth earned less than $378.

“We may be at a turn,” said Feroli, chief U.S. economist for JPMorgan in New York. “We could be seeing a reversal in the increase in income inequality. The evidence is tentative but there is reason to believe that income inequality may narrow” in the next one to three years.

The improving economy and rising employment are the main reasons why the gap is likely to shrink further, Feroli said. Federal Reserve officials are focused on the weak job market -- of which inequality is one facet -- as they try to spur growth. The divide between the highest and lowest-paid Americans is dominating the national debate over President Barack Obama’s campaign to raise the minimum wage.

Counter-Cyclical Gap

Wage disparity tends to be counter-cyclical, with inequality rising during times of slower economic growth, and shrinking when the when the business cycle picks up, Feroli said. The changes, though, occur very slowly, he said.

Janet Yellen, during her first public remarks as Fed chair, said in response to a question that growing wage disparity was “one of the most important issues and one of the most disturbing trends facing the nation.”

“Rising inequality is partly a matter of a weak job market that we are trying to address,” Yellen said in congressional testimony Feb. 11.

Median weekly earnings for 104.3 million full-time wage and salary workers climbed 3 percent in the first quarter from a year earlier, the biggest gain since 2008, according to Labor Department figures released on April 17. The median pay across all income groups was $796 a week. The data isn’t adjusted for seasonal variations.

Inflation Trends

Sustained advances in wages have the potential to feed into broader gains in prices. Fed officials are watching job and inflation trends to help determine the pace at which to reduce their monthly asset purchases and eventually begin raising interest rates.

Data on usual weekly earnings, collected as part of the household survey within the monthly jobs report, are relatively more volatile than average hourly earnings gleaned from a separate monthly establishment survey, Feroli said.

Payrolls rose by 192,000 workers in March after a 197,000 gain in February, the Labor Department reported April 4. The jobless rate held at 6.7 percent even as almost half a million people entered the workforce. Average hourly earnings for all workers were unchanged from the prior month and climbed 2.1 percent from March 2013.

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