Unequal Pay: Wage Distribution within Jobs

We’re underpaying the builders of America, the jobs that we once believed were the foundation of our economy.

The story of 3 distributions

There once were three types of jobs: High, Medium and Low paid occupations.  The BLS publishes data on the distribution of wages within occupations (all 2014 data presented here). What naturally emerges are three types of occupation distributions. But, not all are shaped the same.  These distributions give us hints into the inequality problem of the USA. 

1. Supermanagers & the 1% (Piketty)

Mom always encouraged you to go to school and become a doctor, lawyer or engineer.  She’s not wrong, but it turns out that she should’ve told you to study to become a doctor, lawyer or … manager. Popularized by Piketty, managers are some the highest income earners on average and the earnings of the top 1% have been partly fueled by this.

It’s no surprise that Scientists, doctors, lawyers, architects, managers, etc., earn higher incomes – we can see this with a distribution that is skewed to the right (below).  More shockingly is that the distribution for managers, doctors and lawyers has a snake-like pattern (polynomial to the 4th or 6th degree). Usually we expect a few people to earn a little or a lot from the median. But, a group of extremely well paid managers, lawyers and (less so) doctors emerge.  Within these earners live the 1% who capture significantly more earnings than the rest of this group of occupations. Within these occupations, they are making an unfair amount of income that is not equivalent to their productivity or contribution to society.

2. Builders of America

The core of America: those who make offices buzz, maintain our infrastructure, build our homes, teach our children, support our communities and make us feel are a second group of occupations. Their distribution is what we expect for all jobs- a few earn a little, a few earn a lot (Beyonce and Tom Brady), but most people earn the average wage.  It’s where the average lies that is most concerning – most people earn $15 an hour, which is annually around $28,800 a year.  This is way below the average income of $50,500 a year!  We’re underpaying the builders of America, the jobs that we once believed were the foundation of our economy.

3. Minimum Wage Earners

Finally, a strange distribution emerges for another group of jobs – the minimum wage earners. These are people who farm, wait your tables, drive your oranges from florida to your dinner table, take care of your grandparents, and sell you your clothes.  This group of earners have the strangest distribution (log), where the majority of people in these jobs earn minimum wage ($7.25/hr, although this graph only depicts wages below $9.25). This means their annual salary is only $18,500 a year with relatively little hope of a wage increase.

Why we need to raise the Minimum Wage

If we look at the distribution of what I call, ‘minimum wage earners’, you see that it is highly unlikely they will earn more money – a pay increase means switching jobs into a different category.  The only way these service related occupations can increase their wage is with an increase in minimum wage. In other words, we need the minimum wage to automatically rise with the consumer price index.

Why? Because 41% of all people who work fall into this category.  They are unlikely to get a pay increase by their employers since their wages are clearly being pushed to the floor. The only way for their work to match the cost of living is to ensure minimum wage increases with costs.

If you want people to be incentivized to work then pay a decent living: provide them with the opportunity for a pay rise!

Number of Employees by Distribution Type (2014)