The many dimensions of income inequality | Federal Reserve Bank of Minneapolis

When Claudia Goldin won the Nobel prize in economics in 2023 for her research on women’s labor market outcomes

When Claudia Goldin won the Nobel prize in economics in 2023 for her research on women’s labor market outcomes, it was simultaneously cause to celebrate women’s progress toward economic equality and a sober reminder of how far there is to go. The gender gap in earnings closed significantly in the 1980s, but progress since has been slow, despite all the changes to the economic environment. In 2005, the median annual earnings of women was 69 percent that of men at the median. Fourteen years later, that number had inched up … to 74 percent. Put another way: A woman earning the median income of $38,060 in 2019 would need to increase her income by 35 percent to reach the median male income of $51,430, according to data from Income Distributions and Dynamics in America (IDDA), a new resource from the Opportunity & Inclusive Growth Institute and the U.S. Census Bureau.

“We’re often guilty of disregarding the enormous scale and long history of gender disparities,” Goldin wrote in her 2021 book Career & Family

“We’re often guilty of disregarding the enormous scale and long history of gender disparities,” Goldin wrote in her 2021 book Career & Family. The stickiness of the gender earnings gap is a reminder that for all the ink that has been spilled on the subject of income inequality in the United States, we have more hypotheses than conclusions when it comes to explaining the persistence of disparities.

In the case of the gender earnings gap, researchers have pointed to “greedy” jobs (Goldin’s term), nonwage amenities, the motherhood penalty, and salary histories as factors in women’s lives and the economy at large that shape women’s earnings. However, it’s difficult to test hypotheses about why women still earn only $0.74 for every $1 men do if that’s the only number we know. With so many potential contributing factors, we need more facts about incomes in America so we can do a better job identifying the causes of—and solutions to—income disparities.

Enter IDDA

By combining data from the IRS and the Census Bureau, IDDA statistics provide information on income levels and mobility for detailed demographic and geographic groups in the United States.

This means we can use IDDA to identify where income disparities are larger and smaller. Is the gender gap the same across the income distribution top to bottom, for instance? Do some states have much larger gaps than others? IDDA can shed light on these dynamics not only for men and women but also across states; by race and ethnicity; by age; and at the individual and household levels.

“Having data for 50 states helps us get a more nuanced picture of how incomes are evolving and gives us opportunities to test hypotheses about how local factors or policies might matter,” said Kevin Rinz, an economist at the Census Bureau and one of the principal investigators on the IDDA team. Data alone won’t automatically tell us what combination of economic factors and policies are causing income disparities. But when economic outcomes across states show varying degrees of success, that can be a starting point to identify where policies are working well and where they are not. On the other hand, consistency across states—and across time—might highlight patterns that are more deeply entrenched, requiring sustained national-level attention.

It is an ambitious and worthy goal to understand and address earnings gaps in the labor market. It’s one that requires data resources that are up to the task.

A gender gap that is not yet closed

Using annual earnings data from W-2 forms, IDDA shows where the earnings gap between men and women has closed the most—and where it remains wide.

A common way to measure the earnings gap is to compare the income distribution of men with the income distribution of women: If you line up all women in order of their earnings, how much are the women at the 10th percentile making? How much are the men making? This comparison shows that across most of the income distribution, women’s earnings in 2019 were between 70 and 74 percent of men’s (Figure 1). These values, called “relative earnings,” saw modest growth over the decade and a half from 2005 to 2019.

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At the top of the income distribution is where the earnings gap widens. In 2019, men at the 98th percentile earned $293,400 while women at the 98th percentile earned $183,500, just 63 percent of men’s earnings. By the 99.9th percentile, women earned 46 percent of what men earned. While women’s earnings lag men’s across the income distribution, the particularly large disparity at the top suggests that obstacles to women’s employment in top executive positions and boardrooms—places where decisions impacting millions of U.S. workers are made—deserve more attention.

But relative earnings isn’t the only place where women lag men. While women make up half of all earners in the IDDA data, only 21 percent of the oft-discussed “top 1 percent” in 2019 were women—and of the total earnings received by that top 1 percent, women got 18 percent. While these proportions too look better in 2019 than in 2005, it is clear women are not getting an even slice of the pie.

One way to think about where the inequality comes from is to study what happens when the pie is growing. When the fraction of total income that goes to the top 1 percent increases, what happens to the share that goes to the women in the top 1 percent? It turns out, the fraction going to women increases less in years when the top 1 percent as a whole sees larger increases. In other words, growing the pie—at least for top earners—does not seem to translate to growing equality of earnings.

Mapping earnings gaps

There’s another intriguing dimension of variation in the gender gap: differences across states.

SDGs, Targets, and Indicators

1. SDGs Addressed or Connected to the Issues Highlighted in the Article

• SDG 5: Gender Equality
• SDG 8: Decent Work and Economic Growth
• SDG 10: Reduced Inequalities

2. Specific Targets Under Those SDGs Identified Based on the Article’s Content

• SDG 5.1: End all forms of discrimination against all women and girls everywhere.
• SDG 5.4: Recognize and value unpaid care and domestic work through the provision of public services, infrastructure, and social protection policies and the promotion of shared responsibility within the household and the family.
• SDG 8.5: By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value.
• SDG 10.1: By 2030, progressively achieve and sustain income growth of the bottom 40 percent of the population at a rate higher than the national average.

3. Indicators Mentioned or Implied in the Article that Can Be Used to Measure Progress towards the Identified Targets

• Gender earnings gap: The article discusses the gender gap in earnings and provides specific percentages to measure the difference between men’s and women’s earnings.
• Relative earnings: The article mentions relative earnings at different percentiles of the income distribution to assess income disparities.
• Upward mobility rates: The article highlights the percentage of individuals who started in the lowest earnings quartile and moved into a higher earnings quartile over a specific time period.
• Household income growth: The article compares income growth at the individual level and the household level to analyze disparities in income distribution.

Table: SDGs, Targets, and Indicators

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Source: minneapolisfed.org

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