1 Diana Furchtgott-Roth Senior Fellow and Director of Center for Employment Policy, Hudson Institute March 21, 2006

2 All groups are doing better than 20 years ago. The returns to education are rising, hence the greater dispersion of income. Increasing inequality is not a phenomenon we need to be concerned with per se. However, we do need to be concerned when a group is persistently falling behind. Introduction

3 Number of Families and Percentage Distribution of Families by Income Category, 1979 and Income ($2004) Number of Families ( in thousands) Percentage Distribution of Families Number of Families ( in thousands) Percentage Distribution of Families Total77, % 59,550100% $100,000 and over15, % 5,5389.3% $75,000 - $99,99910, % 6, % $50,000 - $74,99915, % 15, % $25,000 - $49,99919, % 18, % Under $25,00015, % 13, % Source: U.S. Census Bureau, Current Population Survey. Over the past 25 years, families have moved to upper income brackets.

4 Real Percentage Change in Expenditures, 2004 compared to 1984 Lowest 20 percent Second 20 percent Third 20 percent Fourth 20 percent Highest 20 percent Average annual expenditures 11.4%15.6%9.9%16.7%19.4% Food15.0%0.1%-1.2%2.4%4.3% Housing20.3%27.6%20.7%25.8%26.5% Transportation-9.3%7.5%1.5%14.1%8.0% Entertainment16.6%60.1%16.3%26.6%16.1% Apparel and services-3.3%-19.6%-32.7%-22.1%-17.7% Health care50.6%31.7%32.2%59.9%55.5% Source: U.S. Department of Labor, Consumer Expenditure Survey, and Hudson Institute calculations. Note: Average annual expenditures are measured in per person of a consumer unit. All groups are spending more in real terms in 2004 than in 1984.

5 Source: U.S. Census Bureau, Current Population Survey. (in 2003 dollars) Mean Real Earnings of Workers 18 Years and Over by Educational Attainment, 1978 – 2003 The returns to education are increasing.

6 Source: U.S. Census Bureau, Current Population Survey. (ratio) Mean Earnings of College Graduate Workers Relative to Earnings of Non-College Workers, 1978 – 2003 Earnings of college graduates relative to high school and non-high school graduates are rising over time.

7 Source: U.S. Census Bureau, Current Population Survey. (percent) Percent of People 25 Years and Over Who Have Completed Four Years of College or More, 1975 – 2003 More Americans are completing college.

8 Source: U.S. Department of Labor, Current Population Survey. (percent) Employment/Labor Force Ratio of Persons 25 Years and Over by Educational Attainment, 1992 – 2005 Employment is rising among workers at all educational levels.

9 Source: U.S. Department of Labor, Current Population Survey. Employment Shares by Occupation, Both Sexes, 1983 – 2002 Note: Blue Collar Occupations: Service Occupations; Billing, Posting, and Calculating Machine Operators; Farming, Forestry, and Fishing Occupations; Precision Production, Craft, and Repair Occupations; Operations, Fabricators, and Laborers. The definition is given in Eckstein and Nagypál’s research paper “The Evolution of U.S. Earnings Inequality ,” Federal Reserve Bank of Minneapolis Quarterly Review ( December 2004.) The occupational composition of the workforce is moving from blue-collar to professional.

10 Men Note: Blue Collar Occupations: Service Occupations; Billing, Posting, and Calculating Machine Operators; Farming, Forestry, and Fishing Occupations; Precision Production, Craft, and Repair Occupations; Operations, Fabricators, and Laborers. The definition is given in Eckstein and Nagypál’s research paper “The Evolution of U.S. Earnings Inequality ,” Federal Reserve Bank of Minneapolis Quarterly Review ( December 2004.) Source: U.S. Department of Labor, Current Population Survey. Employment Shares by Occupation, Men vs. Women, The change for women is more dramatic than that for men. Women

11 Unemployment Rates By Educational Achievement, 2005 Source: U.S. Department of Labor, Current Population Survey. for persons age 25 years and over TotalMenWomen Less than a high school diploma High school graduates, no college Some college or associate degree Bachelor's degree or higher Percent

12 Trends in Earnings Dispersion, G-7 Countries Note: Breaks in the trend lines indicate data are not available for those years. Source: OECD Employment Outlook, percentile ratio Countries with the fastest growth tend to have more income inequality.

13 We need to improve educational system. More school choice at elementary and secondary schools. Greater use of community colleges for low- skilled and dislocated workers. Conclusion