Wage inequality warps U.S. income report

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(Moneywatch) The Commerce Department announced last week that U.S. incomes had fallen 3.6 percent in January, the most in 20 years. The good news: This isn't true for most Americans, just the top earners. The bad news: Because of increased wage inequality, the government's main income report no longer accurately reflects the earnings of average Americans.

January's slump in incomes was the biggest since January 1993 and followed a 2.6 percent jump in December. Most of that decline was a result of companies paying dividends and employee bonuses late last year ahead of a hike in federal income taxes for wealthy Americans.

"I do think that many people got special one-time bonuses this year," said Joe Kinahan, chief derivatives strategist with TDAmeritrade. "More importantly, many regularly scheduled bonuses that were scheduled for January or February were moved up to December in order to benefit the employees and give them extra tax benefit."

However, very few employees around the country get a significant year-end bonus, if they get one at all.

"Yes, the surge in income at the end of 2012 was mostly high income earners," said economist and blogger Bill McBride. "How many middle-class earners can move income forward?"

For those workers who get a bonus, the amount is scaled to what they are paid. For example, operations analysts at Goldman Sachs (GS) earned an average bonus of $51,000 last year -- slightly more than the median pay for U.S. workers -- and got a year-end bonus of around $8,000, or 15 percent of their salary, according to Glassdoor, a job-search site where people can anonymously report how much they earn. Vice presidents at the investment firm on average earned about $154,000 and got a year-end bonus of roughly $87,000, or more than 50 percent of their salary.

Goldman is among the most profitable financial services companies, so these bonuses are significantly larger than those for most workers, even within the financial industry. Yet as hefty as those bonuses were for Goldman  vice presidents, they weren't big enough to have much of an impact on the national salary report, according to McBride.

"I don't think it was those earning three or four times the median income [who influence the report numbers, it was people making 50 times the median income, or more," he said.

McBride and many others see this as another example of the nation's increasing wage gap. Over the past 40 years, those in the top 1 percent of earners saw their real annual wages go up by nearly 131 percent, according to the Economic Policy Institute. Wages for those in the 90-99th percentile rose 45 percent. For everyone else, wages increased 15.2 percent.

There is a lag of several years between when the Commerce Department releases the general income numbers and when numbers for different income groups are released. Until then we really won't know how most Americans income fared last month, or even last year.

  • Constantine von Hoffman On Twitter»

    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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