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Wage inequality seems to be decreasing

Here's a small sign that one of the drivers behind US income inequality may have reversed itself over the past few years.

The chart below compares the hourly compensation of all private sector workers (in red) to the hourly compensation of just production and nonsupervisory (in blue) private sector workers:

What this chart shows is that although wage growth has been generally slow since the start of the recession in 2007, wage growth for the bottom 80 percent (the blue line) has actually been a little bit faster than wage growth for all workers (the red). The wage gap between managers and non-managers, in other words, is narrowing.*

That doesn't mean that overall income inequality is declining, however. Rich people also tend to have investment income from owning financial assets such as stocks and bonds, and very rich people — almost by definition — own a lot of financial assets. These asset prices have recovered from the recession more robustly than wages, thus creating a whole different source of inequality. But wage inequality was a major force in the 1980s and 1990s, and the news that it seems to have gone into reverse is interesting and important.

* Note: The "all workers" data set only goes back to 2006, so we can't do any useful historical analysis of this. But the "production and nonsupervisory" series goes back to 1964, and we know it covers about 80 percent of the workforce. We also know that average pay in the "all workers" series is higher, which makes sense since the other 20 percent is composed of managers and supervisors.

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