Changes in the Distribution of Workers' Annual Earnings Between 1979 and 2007

October 5, 2009

Understanding how the annual earnings of workers have changed over time is integral to projecting possible changes in such earnings in the future and considering government tax and spending policies that affect workers. Last week CBO released a paper documenting changes in workers annual earnings during the past three decades.

The paper first describes changes between 1979 and 2007 in the annual (inflation-adjusted) earnings of workers ages 25 to 54. CBO found, as depicted in the figures below, that men with relatively low, median, and relatively high earnings (specifically, men at the 10th, 50th, and 90th percentiles of their earnings distribution) earned more than women in the same position of their own earnings distribution in 2007, and that those differences were smaller in 2007 than in 1979.

Real Annual Earnings at Selected Percentiles of Men's and Women's Earnings Distributions (Thousands of 2007 Dollars)

CBO also compared the differences in earnings between low, median, and high earners of the same sex in a given year. For men, the ratio of the earnings of high earners to those of median earners was larger in 2007 than in 1979, whereas the earnings ratio for median and low earners was roughly the same in the two years. For example, in 2007 men in the 90th percentile earned 2.4 times what men in the 50th percentile earned; that ratio was 1.8 in 1979. For women, in contrast, the ratio of the earnings of high earners to those of median earners was roughly the same in 2007 as it was in 1979, but the earnings ratio for median and low earners was smaller in 2007 than it was in 1979.

The paper also documents changes between 1989 and 2005 in the annual earnings of workers with very high earnings. CBO found that men with earnings at the top of their earnings distribution (those at the 95th and 99th percentiles) earned more than women at the top of their distribution in each year, although that difference declined over time. The earnings of men and women at the top of their earnings distributions were higher in 2005 than they were in 1989, and the increase for workers at the 99th percentile of the distribution was larger than for workers at the 95th percentile. Also, the share of earnings held by workers in the top 5 percent of the distribution increased between 1989 and 2005.

Additionally, CBO examined changes in earnings mobility and variability. Dividing the population into five groups based on earnings, CBO found that the fraction of people moving from one group to another (for example, from the bottom fifth of the distribution to the top fifth) over various five-year spans was roughly unchanged from 1989 to 2005 for both men and women. Slightly more than one-quarter of men and women experienced increases or decreases in earnings of 50 percent or more between 2004 and 2005. The percentage was similar for year-over-year changes throughout the 19892005 period.

This paper was prepared by Molly Dahl and Jon Schwabish of CBOs Health and Human Resources Division.