St. Louis Fed Report Finds Dramatic Rise in Income Inequality

ST. LOUIS — While workers with more education expect to earn more than those with less education, the inequality between the two is growing rapidly. That's one conclusion from an analysis by the Federal Reserve Bank of St. Louis. The analysis was conducted by Christopher H. Wheeler, a former research officer for the Reserve Bank. The full report is available on the St. Louis Fed's website.

The report found that workers with a bachelor's degree in 2000 were paid approximately 50 percent more, on average, than a high school graduate. Workers with a master's, doctoral or professional degree were paid 69 percent more. By 2006, these figures had risen to 54 percent and 78 percent, respectively.

The factors that have driven this rise in income inequality are:

• a shrinking manufacturing sector with fewer jobs;
• a growing fraction of foreign-born workers who are earning lower wages;
• rising rates of unemployment; and
• increased fractions of workers with advanced degrees.

The analysis also notes that this inequality is a concern to economists, policymakers and society in general because of the effect on low-wage earners' ability to generate adequate income, and the creation of an environment where perceptions of unfairness can lead to social conflict and political clashes.

Wheeler's analysis suggests several potential solutions to the problem, including policies that will increase the number of skilled workers through more formal education, job training and skills training.

With branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. The St. Louis Fed is one of 12 regional Reserve banks that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. As the nation's central bank, the Federal Reserve System formulates U.S. monetary policy, regulates state-chartered member banks and bank holding companies, and provides payment services to financial institutions and the U.S. government.

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