The richest Americans had a very, very good year in 2014. But there are signs that over the longer term, the earnings of the richest Americans may be stabilizing, albeit at a very high level.
The average person in the top 1 percent of wage earners made $671,061 in 2014, up 4.9 percent from 2013 after adjusting for inflation, according to a new analysis of Social Security Administration data from the Economic Policy Institute (EPI), a left-leaning Washington think tank. The richest 0.1 percent — about 156,000 people earning an average of $2.5 million a year — did even better. Their earnings rose 8.9 percent from 2013. By contrast, the bottom 90 percent of wage earners got just a 1.4 percent pay raise.
But the big gains for the richest Americans in 2014 are likely a one-time blip. In 2013, the federal government imposed higher taxes on top earners. That led some banks, and perhaps other companies, to shift bonuses into 2012, when they would be taxed at a lower rate. As a result, earnings actually fell for the top 1 percent in 2013 and then rebounded in 2014 as pay patterns returned to normal.
Over the somewhat longer term, inequality in earnings — at least as measured between the richest and everyone else — seems to have leveled off, at least for now. The earnings of the top 0.1 percent haven’t yet returned to their pre-recession peak, after adjusting for inflation. The rest of the 1 percent have seen their earnings rise about 1 percent over the past seven years. Earnings for the bottom 90 percent are basically flat since 2007.
Still, inequality remains high by historical standards. In the years after World War II, the top 1 percent received about 7 percent of all earnings. Today, that group receives roughly twice as much. The bottom 90 percent have seen their share of earnings fall to 61 percent from more than 70 percent in the late 1940s. And while the earnings of the richest may not have risen as much in recent years, there has been no similar flattening out of earnings for the rest of the top 10 percent; those earning in the low- to mid-six-figures have continued to enjoy faster-than-average earnings growth.
Economic Policy Institute President Lawrence Mishel noted that while the wealthy suffered larger-than-average losses during the recession, they have also experienced far faster wage growth during the recovery than the rest of the population. Moreover, he said, inequality seems to be peaking higher in each economic cycle, and although top earners haven’t yet gotten back to where they were in 2007, they might still reach a new high before the next recession hits.
“If [inequality] is stabilizing, it’s way, way higher than 1979 or 1989,” Mishel said.
The EPI’s analysis covers only wages and salaries, not other sources of income such as investment returns. But the trends are similar using a broader definition of income as well. A preliminary analysis of 2014 Internal Revenue Service data by University of California, Berkeley, economist Emmanuel Saez also found that the richest Americans saw big gains in 2014 but haven’t yet gotten back to their pre-recession income levels.