1. Trends In Income Inequality Fatih Guvenen University of Minnesota and NBER Heller-Hurwicz Economics Institute Roundtable on Inequality and Mobility March 5, 2015

2. Trends in Income Inequality Fatih Guvenen An Age-Old Question What is the origin of inequality among men? And is it authorized by natural law? —Academy of Dijon, 1754 (Theme for essay competition)

3. Trends in Income Inequality Fatih Guvenen U.S. Inequality Since 1970s Tremendous changes in distribution of labor earnings Active debate over policy responses; active research into cause(s) Progress hampered by lack of good data Today: Overview of recent evidence using better data than has been previously available. 1.Inequality across the population 2.Inequality at the very top

4. Inequality Across the Population

5. Trends in Income Inequality Fatih Guvenen 1.What part(s) of the distribution did inequality go up the most?

6. Trends in Income Inequality Fatih Guvenen Illustrative Example

7. Trends in Income Inequality Fatih Guvenen Illustrative Example Δ(Y)

8. Trends in Income Inequality Fatih Guvenen Example 1: No Rise in Inequality

9. Trends in Income Inequality Fatih Guvenen Example 2: Rise Inequality, Between Groups

10. Trends in Income Inequality Fatih Guvenen Rise in Inequality: Pervasive

11. Trends in Income Inequality Fatih Guvenen Rise in P90-P50 inequality Where in the Population Did Inequality Rise? Inequality Rose Across the Entire Population P50 P90

12. Trends in Income Inequality Fatih Guvenen Rise in Between-Firm Inequality

13. Trends in Income Inequality Fatih Guvenen NO Rise in Within-Firm Inequality Within-Employer Inequality FELL modestly

14. How About the Top 1%?

15. Trends in Income Inequality Fatih Guvenen How about the Top 1%?

16. Trends in Income Inequality Fatih Guvenen CEO Pay and Rise in Inequality Paul Krugman (NY Times, Last week): As for wages and salaries … all the big gains are going to a tiny group of individuals holding strategic positions in corporate suites.. Piketty (2013): The primary reason for increased income inequality in recent decades is the rise of the supermanager. Mishel and Sabadish (2014): A key driver of wage inequality is the growth of chief executive officer earnings and compensation.

17. Trends in Income Inequality Fatih Guvenen Inequality Within the Top 1% Top 0.01% Rise in Top 0.01% to Average pay ratio 1.2

18. Trends in Income Inequality Fatih Guvenen Closer Look at Top Earners 1.CEO and executive pay and inequality ✔ 1.Increasing earnings of the top 1%. 2.Talent allocation across industries.

19. Trends in Income Inequality Fatih Guvenen Why Care about Top Earners? Raw fascination? NO Disproportionately large influence on economy: 1.Crucial economic actors Top 1% pay around 40% of income taxes Disproportionate share of economic decisions 2.Crucial political actors Increasing influence on political outcomes 3.Constitute large share of talent

20. Trends in Income Inequality Fatih Guvenen We know surprisingly little about top earners… Most existing work uses aggregated tax data Or surveys of CEOs and other executives Little evidence from: Micro data Panel data Representative data Why? Good data is hard to come by

21. Data

22. Trends in Income Inequality Fatih Guvenen Data: SSA Master Earnings File File maintained by Social Security Administration (SSA) 10% representative sample of all individuals with a SSN Salary and wage data received directly from employers (W-2 box 1) Data from 1981 to 2012: Labor earnings reported annually to SSA from W-2 forms Includes: Wages and salaries Plus: bonuses, exercised stock options, RSU

23. Trends in Income Inequality Fatih Guvenen Thresholds for top 0.1%

24. Trends in Income Inequality Fatih Guvenen Thresholds for top 0.1%

25. Trends in Income Inequality Fatih Guvenen Thresholds for top 1%

26. Trends in Income Inequality Fatih Guvenen Ratio of 0.1% threshold to 1% threshold

27. Trends in Income Inequality Fatih Guvenen Ratio of 0.1% threshold to 1% threshold

28. The Glass Ceiling: Gender Composition of Top Earners

29. Trends in Income Inequality Fatih Guvenen Share of females among top earners

30. Trends in Income Inequality Fatih Guvenen Number of males for every female in top percentiles

31. Trends in Income Inequality Fatih Guvenen Female dynamics, Top 1%

32. Which Industries Do Top Earners Work?

33. Trends in Income Inequality Fatih Guvenen Aggregating industries 1.Finance & Insurance 2.Health Services 3.Legal Services 4.Engineering, Software & Computing 5.Management, Accounting & Business Consulting 6.Construction & Real Estate 7.Commodities & Mining 8.Durable Manufacturing 9.Non-durable Manufacturing 10.Wholesale Trade 11.Retail Trade 12.Transportation & Communication 13.Other Services

34. Trends in Income Inequality Fatih Guvenen Industry composition of bottom 99%

35. Trends in Income Inequality Fatih Guvenen Industry composition of bottom 99%

36. Trends in Income Inequality Fatih Guvenen Industry composition of top earners Top 0.1 PercentP99 to P99.9

37. Trends in Income Inequality Fatih Guvenen Industry composition of top earners Top 0.1 PercentP99 to P99.9

38. Trends in Income Inequality Fatih Guvenen Concluding Thoughts Better data holds an unmatched opportunity for better understanding of inequality 1.Earnings inequality rose across the entire population. 1.Almost all the rise in inequality happened across employers 1.The pay gap between top paid employees and the average employee rose only modestly. 1.Top industries in top 1% are health and finance. Same as 30 years ago.

39. Final Thought: Capital Income vs Labor Income Inequality

40. Trends in Income Inequality Fatih Guvenen Capital taxation and capital ownership Labor earnings of top percentiles have been roughly flat since 2000 Much publicized growth is about: a)Capital income, incl. house price gains b)The very, very top: 0.01%