Tuesday, May 20, 2008

Income Inequality in Maryland

Last month, the Center on Budget and Policy Priorities (CBPP) and the Economic Policy Institute (EPI) released a study on income inequality in all 50 states. We reproduce their results for Maryland below and add some new research of our own in Part One of a two-part series.

The above analysis shows that income inequality has been growing steadily in Maryland since at least the 1980s, as it has been in the rest of the country. Why is that? There are many potential explanations, but as a union researcher, my natural inclination is to look at the labor market. What is happening to pay for Marylanders?

The Bureau of Labor Statistics’ Occupational Employment Survey program releases occupational employment and wage data from surveys of employers at the national, state and metropolitan area levels. The program has produced methodologically consistent longitudinal data going back to 1999. While some of the data is handicapped by small sample sizes and resulting large standard errors, many occupations report wage levels within 95% confidence intervals even at the state level.

We picked a list of 15 of the highest-paying occupations and 15 of the lowest-paying occupations in Maryland. The high-paying occupations all paid at least $35 per hour in 2007 dollars and the low-paying occupations paid $14 per hour or less. All of these occupations reported standard errors associated with their wage estimates of 6% or less. Together, these occupations accounted for 28% of all employment in the state in 2006 and they accounted for most of the employment at the upper and lower ends of the wage distribution.

For each occupation, we report employment and mean hourly earnings in 1999 and 2006, deflated with the CPI-W into 2007 dollars. We then compute weighted averages (by employment) for each occupational group and compare it to the state average. Below are our results.

As you can see, the 15 high-paying occupations saw a weighted average hourly earnings gain of 19.2% in real dollars. The 15 low-paying occupations saw a gain of just 0.4%, a statistically insignificant difference from zero. Six of these occupations saw real earnings losses. On average, Maryland workers saw a gain of 7.2% in real dollars, or about 1% per year over the period.

But the employment data is also instructive. The fifteen high-paying occupations saw a combined employment drop of 11%. The fifteen low-paying occupations saw employment grow by 18%. This change in employment patterns may be just as meaningful in driving labor market inequality as the change in the wage structure.

The above data applies to only 30 occupations over just one seven-year period. It cannot be considered as comprehensive as EPI’s work or a true peer-reviewed academic study. But the behavior of the upper and lower ends of Maryland’s occupational earnings distribution strongly suggests one source of the state’s growing income inequality.

Maryland’s labor market is rewarding a smaller and smaller number of people at the top with above-average real earnings gains. At the same time, it is punishing a larger and larger number of people at the bottom with no real earnings gains at all. And there is no reason to believe that this trend will end anytime soon.

In Part Two, we will use a very different methodology to examine income inequality in Montgomery County.