A Workplace Trend That Increases Income Inequality

In a new working paper, MIT Sloan Assistant Professor Nathan Wilmers and Clem Aeppli, a doctoral student in the Department of Sociology at Harvard University, offer an intriguing explanation for a substantial portion of the rise in U.S. income inequality in recent years. In their new paper, “Consolidated Advantage: New Organizational Dynamics of Wage Inequality,” Wilmers and Aeppli argue that up to two-thirds of the increase in U.S. wage inequality since 1999 is due to a phenomenon they call “consolidated inequality,” in which people in high-wage occupations increasingly work in high-wage workplaces, while people in low-wage occupations increasingly work in low-wage workplaces.

Some workplaces, as Wilmers and Aeppli note in their paper, pay more than others employing workers in the same occupation. That may be because of unionization, business strategy or sector, for-profit vs. nonprofit status, or other factors. What’s decreased over time in the U.S. economy, the authors’ research finds, is the likelihood of someone in a low-wage occupation working in an organization that in general pays more than average or someone in a high-wage occupation working in an organization that in general pays less than average.

“High-paying workplaces once employed low-skill workers in circumstances ranging from unionized manufacturing assembly jobs to maintenance and food service positions at large corporate headquarters. Moreover, previously many members of high-paying occupations—like doctors, teachers, and psychiatrists—worked in low-paying service workplaces,” Wilmers and Aeppli write.

But such scenarios have become less common in recent years, the authors conclude after analyzing data from the U.S. Bureau of Labor Statistics’ Occupational Employment Statistics Survey. “Over time, the workers benefiting from employment at a high-paying workplace are increasingly those who already benefit from membership in a high-paying occupation,” Wilmers and Aeppli observe.

For example, Wilmers and Aeppli note in a post about their research that the service sector is “increasingly dominated by low-paying workplaces employing primarily poorly paid occupations on the one hand (think fast-food restaurants), and very high-paying workplaces employing mainly well-compensated occupations (think consulting firms).”  This dynamic, the researchers argue, is something policymakers concerned about addressing inequality need to understand.

Wilmers and Aeppli’s working paper was posted this month on the website of the Washington Center for Equitable Growth, one of the groups that provided funding for the research. A version of the paper has also been conditionally accepted by the journal American Sociological Review.