CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

CBO

Changes in the 

Distribution of 

Workers’ Hourly 

Wages Between 

1979 and 2009

FEBRUARY 2011

10th Percentile

0

20

10

30

5

25

15

35

40

50th Percentile

90th Percentile

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Hourly Wages at Selected Percentiles for Workers Ages 16 to 64

2009 Dollars
Pub. No. 4153
The Congress of the United States O Congressional Budget Office

A

STUDY

CBO

Changes in the Distribution of Workers’ 

Hourly Wages Between 1979 and 2009

February 2011
CBO
Preface

CBO

This Congressional Budget Office (CBO) study, which was prepared at the request of the 

chairman and former ranking member of the Senate Committee on Finance, documents 

changes in the level and distribution of hourly wages received by workers in the United States 

between 1979 and 2009. It also reviews the leading explanations for changes in the supply of, 

and demand for, workers with different sets of skills as well as the role of labor market institutions in affecting wages. In keeping with CBO’s mandate to provide objective, impartial 

analysis, this study does not make any recommendations. A related CBO study published 

in October 2009 analyzed trends in the distribution of annual earnings (Changes in the 

Distribution of Workers’ Annual Earnings Between 1979 and 2007); a forthcoming CBO 

study will examine trends in the distribution of household income between 1979 and 2007.

Nabeel Alsalam of CBO’s Health and Human Resources Division wrote the study under the 

guidance of Greg Acs and Bruce Vavrichek. Sarah Axeen provided research assistance. Helpful 

comments came from Will Carrington, Molly Dahl, Naomi Griffin, Jonathan Schwabish, 

and Charles Whalen, all of CBO; from Melissa Kearney of the University of Maryland; 

Marvin Kosters of the American Enterprise Institute; and Frank Levy of the Massachusetts 

Institute of Technology. (The assistance of external reviewers implies no responsibility for the 

final product, which rests solely with CBO.)

Christine Bogusz edited the study, and Kate Kelly proofread it. Maureen Costantino 

designed the cover and prepared the report for publication, with assistance from Jeanine Rees. 

Monte Ruffin produced the initial copies, and Linda Schimmel coordinated the print 

distribution. The study is available on CBO’s Web site (www.cbo.gov). 

Douglas W. Elmendorf

Director

February 2011

Contents

CBO

Summary and Introduction 1

Changes in Wages Over Time 2

The Level and Distribution of Wage Rates 2

Wage Rates and Educational Attainment 5

Explaining Changes in Wages Over Time 6

Factors Affecting the Demand for Skilled Workers 6

Factors Affecting the Supply of Skilled Workers 11

Institutional Factors 13

Appendix A: Data Used in This Analysis 17

Appendix B: Additional Information on Very High Earners 21
VI CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009

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Tables

1. Hourly Wages at Selected Percentiles and in Selected Years for Men and 

Women Ages 16 to 64 5

2. Median Hourly Wages of Men and Women Ages 16 to 64, by 

Educational Attainment 8

A-1. Hourly Wages Between 1979 and 2009 at Selected Percentiles for 

Men and Women Ages 16 to 64 18

B-1. Growth in Wages and Earnings for High-Earning Men and Women 

Ages 25 to 54 22

Figures

1. Hourly Wages at Selected Percentiles for Men and Women Ages 16 to 64 6

2. Differences Between Selected Percentiles of Hourly Wages Among Men and 

Women Ages 16 to 64 7

3. Median Hourly Wage, by Educational Attainment, for Men and Women 

Ages 16 to 64 9

4. U.S. Imports and Exports 10

5. Educational Attainment at Ages 25 to 29 for Working Men and 

Women Born Between 1937 and 1981 11

6. Educational Attainment of Working Men and Women Ages 16 to 64 12

7. Hourly Wages at the 10th Percentile for Men and Women and the 

Federal Minimum Wage 14

Boxes

1. Dispersion in Hourly Compensation 3

2. Measuring Wage Dispersion 4
CBO

Changes in the Distribution of 

Workers’ Hourly Wages Between 1979 and 2009

Summary and Introduction

Wages are a key component of the overall economic wellbeing of individuals and families. Hourly wages and 

hours worked determine an individual’s earnings, and for 

most nonelderly adults, earnings constitute the bulk of 

their family’s income. This Congressional Budget Office 

(CBO) study documents changes in the level and distribution of hourly wages in the United States between 

1979 and 2009.1

 It also reviews the research literature on 

important factors that most likely underlie the observed 

trends in wages.

The wage rate (the wage per hour of work) received by 

workers in the middle of the wage distribution (the 50th 

percentile) increased by about 20 percent over the 1979–

2009 period after adjusting for inflation, reaching about 

$17 per hour in 2009. The dispersion of wages—the gap 

between wages at the top and bottom of the distribution—also increased over that period, but the pattern of 

changes at the top and bottom differed. For men and 

women alike, the gap between the wage rates received by 

high-wage (90th percentile) and middle-wage workers 

expanded throughout the 30-year period; the wage rates 

of high-wage women grew especially rapidly. In contrast, 

the gap between the wage rates received by low-wage 

(10th percentile) and middle-wage workers widened for 

both men and women early in the 1980s but has 

remained stable for the past 20 years.2

Wages are affected by market forces (the level and distribution of skills supplied by workers and employers’ 

demand for those skills) and institutional factors (such as 

minimum-wage laws and changes in the share of the 

workforce represented by unions).3

 Given the complex 

pattern of changes in the wage distribution during the 

past 30 years, it is not surprising that no single explanation can account for the entire pattern. 

In the category of market forces, innovations in information and computing technology in the 1990s and 2000s 

generated growing demand for skilled labor, particularly 

for highly educated workers, that outpaced growth in the 

supply of highly skilled, highly educated workers; that 

differential probably played a large role in the observed 

changes in the wage distribution. Shifts in international 

trade might also have contributed to increasing relative 

demand for skilled labor, as imports from low-wage 

countries substituted for some domestic production and 

employment; however, research on the significance of 

that effect is inconclusive. In addition, a rising number of 

foreign-born people in the workforce affected the relative 

supply of workers with different amounts of education, 

but that shift appears to have had only a modest effect on 

the distribution of wages. 

1. This analysis is not restricted to workers paid by the hour. For 

workers who are not paid by the hour, CBO estimated their effective hourly wage as their usual weekly earnings divided by their 

usual hours worked per week. 

2. See Congressional Budget Office, Changes in Low-Wage Labor 

Markets Between 1979 and 2005 (December 2006), for an earlier 

analysis of the changes in the lower half of the wage distribution.

3. More precisely, hourly compensation, which is the total cost to 

employers of an hour of a worker’s labor, is determined by those 

factors. Compensation includes cash wages—the focus of this 

study—plus the value of nonwage benefits such as paid leave, 

health insurance, and retirement plans provided by the employer. 

About 70 percent of compensation is currently in the form of cash 

wages; that share has declined somewhat over time. See Brooks 

Pierce, “Recent Trends in Compensation Dispersion,” in Katharine Abraham, James Spletzer, and Michael Harper, eds., Labor 

and the New Economy (Chicago: University of Chicago Press, 

2010). 
2 CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009

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Turning to institutional factors, the decreasing real 

(inflation-adjusted) value of the federal minimum wage 

probably increased wage dispersion in the bottom half of 

the wage distribution in the 1980s. Moreover, declining 

unionization rates contributed to increasing dispersion in 

the upper half of the wage distribution for men over that 

same decade. Neither of those factors is a plausible 

explanation for the changes in the wage distribution in 

the 1990s and 2000s, however. 

Although this study focuses on hourly wages, changes in 

the level and distribution of hourly compensation, which 

includes both wages and fringe benefits, are also important. Unfortunately, data on hourly compensation are 

more limited than data on hourly wages. Based on the 

data that are available, the dispersion in hourly compensation in the upper half of the distribution was similar to 

the dispersion of wages, on average, between 1987 and 

2007. In the lower half of the distribution, the dispersion 

of hourly compensation was somewhat greater than that 

for wages, on average, during the same period. Nevertheless, for both the upper and the lower halves of the 

distribution of compensation, the changes in dispersion 

over those two decades were similar to the changes in the 

dispersion of wages (see Box 1).

Changes in Wages Over Time

Although the distribution of wages may be described in 

many ways, the most straightforward approach is to 

compare wage rates at different parts of the distribution. 

This study documents the extent to which hourly wages 

differ between the middle and the upper end of the wage 

distribution (the 50th and 90th percentiles, respectively) 

and between the lower end and the middle of the wage 

distribution (the 10th and 50th percentiles)—in 1979, 

2009, and the intervening years. (For additional information on the measurement of wage distributions, see 

Box 2.) The data on wages used for this analysis are 

drawn from the Census Bureau’s monthly Current 

Population Survey. (For more information on those data, 

see Appendix A.)4

To better demonstrate wage patterns, this study examines 

the distribution of wages separately for men and women. 

Over the 30-year period that CBO considered, the participation rate of men ages 16 to 64 in the labor force 

fell from 86 percent to 80 percent, whereas the participation rate of women ages 16 to 64 in the labor force 

increased from 59 percent to 69 percent. Although 

changes in the characteristics and composition of the 

workforce influenced the wages of men and women alike, 

the impact of those changes was probably greater on 

women because the distribution of workers across occupations, their educational attainment, and their hours of 

work changed more substantially for women than they 

did for men. For that reason, changes in men’s wages may 

provide a better gauge of how the market valuation of 

skills changed between 1979 and 2009.

The Level and Distribution of Wage Rates

Among working men, the median wage in 2009 was 

$18.50 (see Table 1 on page 5).5

 That wage translates to 

about $37,000 annually for a full-time, full-year worker. 

Toward the upper end of the distribution, the 90th percentile wage was $43.00 ($86,000 annually); toward the 

lower end of the distribution, the 10th percentile wage 

4. The data used for this analysis are not appropriate for an analysis 

of the wages of very high earners—chief executive officers, sports 

and entertainment stars, financial market traders, and so on—

because there are so few of them in the survey. Moreover, to protect the privacy of the relatively small number of very high-wage 

workers who are included, the Census Bureau does not report an 

individual’s earnings if they exceed a certain level but instead 

reports only the fact that earnings are above that level. (For information about very high earners, see Appendix B.) 

5. The recent recession substantially affected workers’ earnings, 

through lost hours, lost jobs, and increased difficulty in finding 

work. Among those working, however, the recession did not cause 

a discernable break in the trends in hourly wages observed over the 

1979–2009 period. Between 2007 (the last prerecession year) and 

2009, the inflation-adjusted median hourly wage for men 

increased by almost 4 percent, rising from $17.80 to $18.50. 

Wage rates at the 90th and 10th percentiles also registered 

increases during that period. The impact of the recession on the 

wage distribution depends on many factors. For example, if those 

who lose jobs are disproportionately lower-wage workers, then the 

median wage (and wages at any given point in the distribution) 

among those who retain jobs will be higher than before the recession. That type of change occurs commonly during economic 

downturns. See Gary Solon, Robert Barsky, and Jonathon Parker, 

“Measuring the Cyclicality of Real Wages: How Important Is 

Composition Bias?” Quarterly Journal of Economics, vol. 109, no. 1 

(February 1994), pp. 1–25. Nevertheless, individuals who lost 

jobs during the recession may have to accept jobs that pay less 

than their old jobs. According to the Department of Labor, 

among workers who lost full-time jobs between 2007 and 2009 

that they had held for over three years and were working in new 

full-time jobs in January 2010, more than half (55 percent) held 

jobs paying less than the ones they lost. See U.S. Department of 

Labor, “Worker Displacement: 2007–2009,” USDL-10-1174 

(news release, August 26, 2010), www.bls.gov/news.release/pdf/

disp.pdf. 
CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009 3

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was $8.90 ($17,800 annually). Between 1979 and 2009, 

the median wage rate of men increased by about 8 percent after adjusting for inflation (see the left panel of 

Figure 1 on page 6). The 90th percentile wage rate 

increased much faster, by 40 percent, whereas the 10th 

percentile wage rate increased slightly more slowly, by 

5 percent. (Wage levels are adjusted for inflation using 

the personal consumption expenditure price index. See 

Appendix A for more information about that index.) 

Among working women, the median wage in 2009 was 

$15.10 (see Table 1). That wage translates to about 

$30,200 annually for a full-time, full-year worker. The 

90th percentile wage rate was $33.50 ($67,000 annually),

Box 1.

Dispersion in Hourly Compensation

Hourly compensation comprises hourly wages, nonwage benefits provided voluntarily by employers 

(such as employment-based health insurance, pensions, and paid leave), and certain legally required 

benefits (such as employers’ contributions to Social 

Security and Medicare). In 2007, benefits represented 

27 percent of compensation per hour, on average. Of 

that amount, 8 percentage points were for health 

insurance, 3 percentage points were for retirement 

benefits, 6 percentage points were for paid leave, and 

1 percentage point was for other voluntarily provided 

benefits. Another 9 percentage points were for legally 

required benefits.1

The availability of data on hourly compensation is 

more limited than it is for hourly wages. However, 

from the data that are available, one can examine 

some of the differences in those two distributions. 

For the average employee, benefit costs to employers 

as a fraction of total compensation rose from 25 percent to 27 percent between 1987 and 2007.Although 

a smaller share of jobs provided health insurance 

benefits in 2007 than in 1987, the average cost of 

those benefits overall (including a cost of zero for jobs 

with no health insurance benefits) increased from 

5 percent to 8 percent of compensation over the two 

decades.

Dispersion in compensation exceeds dispersion in 

wage rates. The difference in dispersion occurs primarily within the lower halves of those distributions. 

For example, in 2007, the 10th percentile of wages 

was 50 percent less than the median wage, but the 

10th percentile of compensation was 56 percent less 

than the median compensation. That difference 

appears to result from the provision or nonprovision 

of benefits rather than from the value of those benefits that are provided. In particular, workers with 

wages near the median are more likely to receive 

health insurance and paid leave than workers with 

wages near the 10th percentile. There was less difference between dispersion in compensation and wages 

in the upper halves of those distributions. The 

90th percentile of wages was 129 percent more than 

the median wage, while the 90th percentile of compensation was 133 percent more than the median 

compensation.

The changes in the dispersion of hourly compensation between 1987 and 2007 appear to be similar to 

the changes in the dispersion of hourly wages. The 

gap between the 90th and 50th percentiles of hourly 

compensation widened by about as much as the gap 

in wage rates at those percentiles. Dispersion in compensation in the bottom half of the distribution was 

about the same in 2007 as in 1987. 

1. The statistics in this box (about compensation and wage 

dispersion) are taken from a study conducted at the Bureau 

of Labor Statistics; see Brooks Pierce, “Recent Trends in 

Compensation Dispersion,” in Katharine Abraham, James 

Spletzer, and Michael Harper, eds., Labor and the New 

Economy (Chicago: University of Chicago Press, 2010). That 

study used data from the employment cost index (ECI), an 

establishment-based survey. The workers in those establishments are similar, for the most part, to the workers surveyed 

in the Current Population Survey, which the Congressional 

Budget Office used for this analysis of changes in the distribution of workers’ hourly wages. The ECI, however, excludes 

agricultural workers, federal government workers, and 

private-household workers. 
4 CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009

CBO

whereas the 10th percentile rate was $8.00 ($16,000 

annually). Between 1979 and 2009, the median wage rate 

of women increased substantially, rising by 37 percent 

after adjusting for inflation (see the right panel of 

Figure 1). The 90th percentile wage grew even more 

rapidly, by 70 percent, whereas the 10th percentile wage 

grew much more slowly, by only 8 percent. 

To put those wage growth rates in context, real output 

per worker in the United States rose by 59 percent 

between 1979 and 2009. Several factors account for the 

large difference between the growth in output per worker 

and the growth in the median wage. For instance, workers’ compensation as a share of national income fell by 

about 3 percentage points over the period, declining from 

67 percent to 64 percent. That decline implies that owners of capital (such as stockholders and other owners of 

businesses) earned an increasing share of the income generated in the United States over that period. 

At the same relative places in their wage distributions, 

wage rates of women were lower than those of men. The 

median wage rate of women in 2009 was about 82 percent of the rate for men; at the 90th and 10th percentiles, 

the wage rates of women were 78 percent and 90 percent, 

respectively, of those of men. The gaps between men’s 

and women’s wages at the median and at the 90th percentile narrowed appreciably between 1979 and 2009, 

whereas the smaller gap at the 10th percentile did not 

change much. 

Changes in the Upper Half of the Distribution.

Dispersion in the upper half of the wage distribution, as 

measured by the difference between the 90th and 50th 

percentiles of wage rates, increased throughout the 

1979–2009 period for men and women (see Table 1 and 

Figure 2 on page 7). 

For men, the 90th percentile wage rose substantially 

faster than the median wage between 1979 and 2009.6

Consequently, dispersion in the upper half of the wage 

distribution increased significantly: In 1979, wages at the 

90th percentile were 80 percent higher than wages at the 

median; by 2009, the difference had reached 132 percent. 

Among women, as among men, growth in wages near the 

top of the distribution far outstripped growth in the middle. The difference between the 90th and 50th percentiles 

of women’s wage rates climbed from 79 percent in 1979 

to 122 percent in 2009, roughly matching the increase in 

the dispersion of men’s wages.

Changes in the Lower Half of the Distribution. 

Dispersion in the lower half of the wage distribution 

increased in the early 1980s for both men and women. 

After the early 1980s, the dispersion in men’s wages 

returned to its prior level, and the dispersion in women’s 

wages leveled off. 

The 10th percentile wage of men declined between 1979 

and 1986 and then rose again; it was the same in 1999 as 

in 1979, and it moved up a little more thereafter. Compared with the median wage of men, the 10th percentile 

wage was 50 percent lower in 1979 and fell to 56 percent 

lower in 1986. By 1989, the 10th percentile wage had 

Box 2.

Measuring Wage Dispersion

This study focuses on three points of the wage 

distribution—the 10th percentile, the 50th percentile (or median), and the 90th percentile—to 

study changes in wage dispersion. If wages are 

ranked from lowest to highest, 10 percent of all 

hourly wages paid fall below the 10th percentile 

and 90 percent fall above it. As such, the 10th 

percentile wage represents nearly the bottom of 

the wage distribution. The 50th percentile wage 

divides the distribution of hourly wages in half 

and represents the middle of the wage distribution. The 90th percentile wage marks nearly the 

top of the wage distribution, separating the top 

10 percent of wages from the bottom 90 percent. 

In this study, wage dispersion in the top half of 

the wage distribution is measured by the extent 

to which the 90th percentile wage exceeds the 

50th percentile wage. Likewise, wage dispersion 

in the bottom half of the distribution is measured 

by how much smaller the 10th percentile wage is 

than the 50th percentile wage. A larger percentage difference indicates greater wage dispersion.

6. Table A-1 (in Appendix A) shows data for each year between 1979 

and 2009.
CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009 5

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Table 1.

Hourly Wages at Selected Percentiles and in Selected Years for Men and Women 

Ages 16 to 64 

(2009 dollars)

Source: Congressional Budget Office based on monthly data from Census Bureau, Current Population Survey, Outgoing Rotation Groups, 

1979 to 2009. 

Note: Wages are converted to 2009 dollars using the personal consumption expenditure price index and rounded to the nearest 10 cents, 

and a worker’s wage is weighted by his or her hours worked. Data are shown for 1979, 1989, 1999, and 2007 because those years are 

all close to business-cycle peaks. Data for 1986 are shown to highlight important trends that shifted in the mid-1980s, and data for 

2009 are shown because they are the most recent available. See Table A-1 for data for all years between 1979 and 2009.

nearly returned to its 1979 level relative to the median 

and remained there through 2009. 

The 10th percentile wage of women followed a similar 

pattern to that of men, declining between 1979 and 1986 

and then rising again so that it was about the same in 

1999 as in 1979 and increased further thereafter. The 

10th percentile wage of women was 33 percent below 

the median wage in 1979, but it fell to 47 percent 

below the median in 1986. Unlike the gap between the 

10th percentile and median wage for men, however, the 

gap for women remained relatively constant in percentage 

terms after 1986. 

Wage Rates and Educational Attainment 

The most important source of widening dispersion in the 

top half of the wage distribution between 1979 and 2009 

was growth in the wages of college graduates compared 

with those of high school graduates.7

 For men and 

women alike, the difference between the wages received 

by college and high school graduates increased significantly during each of the past three decades. However, 

the rate of increase lessened over time, with the difference 

growing most during the 1980s, less during the 1990s, 

1979 8.50 17.10 30.70 -50 80

1986 7.60 17.20 33.60 -56 95

1989 7.80 16.10 32.30 -52 101

1999 8.50 17.30 37.00 -51 114

2007 8.70 17.80 40.50 -51 128

2009 8.90 18.50 43.00 -52 132

1979 7.40 11.00 19.70 -33 79

1986 6.30 11.90 22.50 -47 89

1989 6.30 12.00 23.80 -48 98

1999 7.50 13.50 28.60 -44 112

2007 7.80 14.70 32.60 -47 122

2009 8.00 15.10 33.50 -47 122

Percentile Percentage Difference

Men

Women

10th 50th 90th 10th vs. 50th 90th vs. 50th

7. See David Autor, Lawrence Katz, and Melissa Kearney, Residual 

Wage Inequality: The Role of Composition and Prices, Working 

Paper 11628 (Cambridge, Mass.: National Bureau of Economic 

Research, September 2005). Autor, Katz, and Kearney conclude, 

“The steady rise of upper tail inequality since the late 1970s 

appears almost entirely explained by ongoing between-group price 

changes (particularly increasing wage differentials by education) 

and residual price changes.” Also see Thomas Lemieux, “Postsecondary Education and Increasing Wage Inequality,” American 

Economic Review, vol. 96, no. 2 (May 2006), pp. 195–199. 

Lemieux’s calculations allow the quantity of skill to vary across 

and within education groups; when the price of skill increases, 

inequality rises both within and across education groups. He 

concludes that most of the increase in wage inequality between 

1973 and 2005 resulted from the dramatic increase in the return 

to postsecondary education. For a decomposition of wage 

inequality, see Autor, Katz, and Kearney, Residual Wage Inequality.

For a review of the earlier research, see Lawrence F. Katz and 

David H. Autor, “Changes in the Wage Structure and Earnings 

Inequality,” in O. Ashenfelter and D. Card, eds., Handbook of 

Labor Economics, vol. 3A (Amsterdam, The Netherlands: Elsevier 

Science, 1999), pp. 1463–1555. 
6 CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009

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Figure 1.

Hourly Wages at Selected Percentiles for Men and Women Ages 16 to 64

(2009 dollars)

Source: Congressional Budget Office based on monthly data from Census Bureau, Current Population Survey, Outgoing Rotation Groups, 

1979 to 2009.

Note: Wages are converted to 2009 dollars using the personal consumption expenditure price index and rounded to the nearest 10 cents, 

and a worker’s wage is weighted by his or her hours worked.

and even less during the 2000s. That slowing of the 

increase in dispersion held for both the difference 

between the wages of workers with bachelor’s degrees and 

high school diplomas or GEDs and the difference 

between the wages of workers with graduate courses or 

degrees and high school diplomas or GEDs. 

In 2009, the median wage for men ages 16 to 64 with 

bachelor’s degrees was 72 percent more than the median 

wage for men with only high school diplomas or GEDs 

(see Table 2 and the left panel of Figure 3 on page 9). 

That difference was nearly triple the 27 percent difference 

in 1979. The median wage of men with graduate courses 

or degrees was 126 percent more than that of men with a 

high school education in 2009, up from 41 percent more 

in 1979.

The differences in wages for women across education 

groups show a similar pattern. In 2009, the median wage 

of women ages 16 to 64 with bachelor’s degrees was 

68 percent higher than that of women with high school 

diplomas or GEDs, almost double the 36 percent difference in 1979 (see the right panel of Figure 3). 

Explaining Changes in Wages 

Over Time

Market forces were the principal drivers of the changes in 

the wage distribution during the 1979–2009 period. In 

particular, changes in the demand for and supply of 

workers with different levels of skill and education 

account for most of the widening gap between the wages 

of college graduates and high school graduates. The post–

World War II period saw steady growth in demand for 

college graduates that put upward pressure on their relative wages. For most of that period, growth in the supply 

of college graduates offset that pressure, but beginning in 

the early 1980s, that growth slowed because people 

entering the workforce did not have significantly more 

education than those retiring and leaving the workforce. 

Institutional factors, such as changes in the minimum 

wage and unionization, also contributed to changes in the 

wage distribution, particularly during the 1980s.

Factors Affecting the Demand for Skilled Workers

Technological innovations and related organizational 

changes are probably responsible for most of the 

increased demand for workers with more education and 

skills. The steadily increasing demand for more-educated 

workers relative to those with less education that occurred 

through much of the 20th century is commonly referred 

Men Women

1979 1984 1989 1994 1999 2004 2009

0

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10

15

20

25

30

35

40

45

0

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10

15

20

25

30

35

40

45

10th Percentile

50th Percentile

90th Percentile

1979 1984 1989 1994 1999 2004 2009

0

5

10

15

20

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0

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10th Percentile

50th Percentile

90th Percentile
CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009 7

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Figure 2.

Differences Between Selected 

Percentiles of Hourly Wages Among 

Men and Women Ages 16 to 64

(Percentage difference from the median wage)

Source: Congressional Budget Office based on monthly data from 

Census Bureau, Current Population Survey, Outgoing 

Rotation Groups, 1979 to 2009.

Note: A worker’s wage is weighted by his or her hours worked.

to as skill-biased technological change. Since the late 

1980s, skill-biased technological change has been embodied to an important extent in advances in the microchip 

and related technologies. Those technologies decreased 

the relative demand for workers doing routine cognitive 

work typical of “middle-skilled” jobs and increased the 

relative demand for highly skilled workers doing more 

complex analysis, evaluation, and decisionmaking. 

(Although skill is difficult to measure directly, it is 

strongly related to education because education imparts 

skills and because more-skilled individuals may be more 

likely to obtain more education.)

Changing patterns of international trade may also have 

increased the relative demand for workers with more education by changing the goods and services that the United 

States produces domestically. However, the evidence on 

the effect of globalization on the wage distribution is 

inconclusive.

Skill-Biased Technological Change. Skill-biased technological change arises from innovations that favor moreeducated workers with the skills to use new technology 

productively relative to less-educated and less-skilled 

workers.8

 Numerous researchers conclude that, on balance, the technological changes of the past six decades—

and perhaps the entire past century—increased employers’ demand for workers with higher skills and more education. That increase (along with changes in the supply of 

workers with more education, discussed later) generated 

substantial changes in the relative wages of college and 

high school graduates. Specifically, in the 1980s, technological changes caused increases in demand for higherskilled relative to lower-skilled workers; in the 1990s 

through 2000s, technological changes caused increases in 

demand for higher- and lower-skilled workers relative to 

middle-skilled workers.

Over the past century, new technologies have had a profound impact on how Americans live and work.9

 During 

the first few decades of the 1900s, the development of 

batch production processes and the electrification of 

homes and factories led to the widespread use of many 

new products, such as automobiles, home appliances, 

processed foods, and chemicals. Transportation advances 

in the 1950s and 1960s allowed for faster, safer, and 

lower-cost travel, which opened up many new economic 

opportunities. During the past few decades, a surge of 

new information technologies making use of the microchip have fundamentally changed the economy. Personal 

computers, laser printers, e-mail, Web sites, search 

engines, laptops, cell phones, bar codes, touch screens, 

and online commerce are some of the technologies that 

have matured in recent decades and dramatically affected 

Americans’ lives and work.

In particular, new technologies have created tools to aid 

workers, changed the production of goods and services, 

altered the organization of work, and improved connections between producers and consumers—all of which 

have affected the skills that firms need in their employees. 

As just one example, the development and widening use 

of factory robots have shifted demand away from production workers and toward positions requiring greater skills. 

Although the technologies used in firms and the methods 

1979 1984 1989 1994 1999 2004 2009

-100

-50

0

50

100

150

200

90th Percentile Wage

10th Percentile Wage

Men

Women

Women

Men

8. Not all technological changes are skill biased. For example, the 

shift from production by craftsmen and artisans in the 19th century to production in factories with production lines (as with the 

Ford Model T) in the 20th century was not skill biased because it 

increased the relative demand for unskilled workers. See Claudia 

Goldin and Lawrence F. Katz, The Race Between Education and 

Technology (Cambridge, Mass.: Belknap Press, 2008). 

9. Ibid. 
8 CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009

CBO

Table 2.

Median Hourly Wages of Men and Women Ages 16 to 64, by 

Educational Attainment

Source: Congressional Budget Office based on monthly data from Census Bureau, Current Population Survey, Outgoing Rotation Groups, 

1979 to 2009.

Notes: The survey question on educational attainment changed in 1992 to put more emphasis on credentials obtained rather than years 

completed. Wages are converted to 2009 dollars using the personal consumption expenditure price index and rounded to the nearest 

10 cents, and a worker’s wage is weighted by his or her hours worked.

n.a. = not applicable.

they used to organize their work are extremely diverse, 

the collective effect of new technologies over recent 

decades has been to increase the relative demand for 

skilled workers.10

The effects of those developments can be seen not only in 

the higher relative wages of more-educated workers but 

also in increased employment in occupations demanding 

higher levels of education. One way to gauge employers’ 

demand for higher levels of education is to group 

occupations by their workers’ average education. Some 

occupations are composed of workers whose average education is above that of the workforce as a whole; other 

occupations have workers whose average education is 

close to or even below that level. Between 1980 and 

1990, before the surge in information technologies, the 

share of total employment in low-education occupations 

fell, while the share in average- and high-education occupations rose. That rise in the demand for education was 

reflected in the widening gaps in wages during that 

decade between workers at the 10th percentile and the 

1979 13.30 16.80 17.70 21.40 23.70

1989 11.10 14.90 16.20 22.50 27.00

1999 10.10 15.00 17.20 24.70 31.20

2009 11.10 15.20 17.50 26.20 34.30

1979 8.60 10.60 11.60 14.40 17.60

1989 7.90 10.80 12.60 16.80 20.90

1999 8.20 11.40 13.20 19.20 24.90

2009 9.00 12.10 14.00 20.30 26.60

1979 -21 n.a. 5 27 41

1989 -26 n.a. 9 51 81

1999 -33 n.a. 15 65 108

2009 -27 n.a. 15 72 126

1979 -19 n.a. 9 36 66

1989 -27 n.a. 17 56 94

1999 -28 n.a. 16 68 118

2009 -26 n.a. 16 68 120

Median Hourly Wage (2009 dollars) 

Percentage Difference in Median Hourly Wage Relative to That of High School Graduates

Men

Women

Men

Women

Less Than 

High School

High School 

Diploma or GED

Some College or 

Associate's Degree

Bachelor's 

Degree

Graduate 

Courses or Degree

10. Ibid. 
CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009 9

CBO

Figure 3.

Median Hourly Wage, by Educational Attainment, for Men and Women 

Ages 16 to 64

(2009 dollars)

Source: Congressional Budget Office based on monthly data from Census Bureau, Current Population Survey, Outgoing Rotation Groups, 

1979 to 2009.

Note: Wages are converted to 2009 dollars using the personal consumption expenditure price index and rounded to the nearest 10 cents, 

and a worker’s wage is weighted by his or her hours worked.

median as well as between workers at the 90th percentile 

and the median.

Since at least 1990, the microchip and related technologies have affected the demand for skilled workers in a 

particular way: Those technologies have increased the 

demand for nonroutine cognitive work relative to routine 

cognitive work while leaving the relative demand for 

manual work largely unaffected.11 Specifically, new information technologies complemented nonroutine cognitive 

work (such as analysis, evaluation, and decisionmaking), 

thereby increasing demand for the highly skilled, moreeducated workers that perform those tasks. In contrast, 

those technologies reduced demand for routine cognitive 

work (such as typing and filing), thereby holding down 

demand for workers who perform those tasks. And the 

technologies had little effect on the demand for routine 

manual work that must be done in a specific location or 

that involves interacting with people; therefore, they had 

little impact on the demand for workers such as janitors, 

waiters, and home health aides. 

Those more recent shifts in demand led to additional 

changes in the distribution of employment across occupations. The share of total employment in high-education 

occupations (those most involved with nonroutine 

cognitive tasks) increased relative to the share in averageeducation occupations (those in which workers perform 

routine cognitive tasks). Furthermore, the employment 

share in low-education occupations (whose workers generally perform manual tasks) rose relative to the share in 

average-education occupations.12 Among low-education 

occupations, the share of employment (and average 

Men Women

1979 1984 1989 1994 1999 2004 2009

0

5

10

15

20

25

30

35

40

0

5

10

15

20

25

30

35

40

1979 1984 1989 1994 1999 2004 2009

0

5

10

15

20

25

30

35

40

0

5

10

15

20

25

30

35

40

High School Less Than High School

Diploma or GED

Some College or Associate's Degree

Bachelor's Degree

Graduate Courses or Degree

High School Less Than High School

Diploma or GED

Some College or Associate's Degree

Bachelor's Degree

Graduate Courses or Degree

11. David Autor, Frank Levy, and Richard Murnane, “The Skill Content of Recent Technological Change: An Empirical Exploration,” 

Quarterly Journal of Economics, vol. 118, no. 4 (2003), pp. 1279–

1333. See also Daron Acemoglu and David Autor, Skills, Tasks, 

and Technologies: Implications for Employment and Earnings, 

Working Paper 16082 (Cambridge, Mass.: National Bureau of 

Economic Research, June 2010). For critiques of skill-biased 

technological change as an explanation for recent trends in wage 

inequality, see David Card and John E. DiNardo, “Skill-Biased 

Technological Change and Rising Wage Inequality: Some 

Problems and Puzzles,” Journal of Labor Economics, vol. 20, no. 4 

(September 2002), pp. 733–783; and Thomas Lemieux, 

“Increased Residual Wage Inequality: Composition Effects, Noisy 

Data, or Rising Demand for Skill?” American Economic Review, 

vol. 96, no. 3 (June 2006), pp. 461–497.

12. See Autor, Levy, and Murnane, “The Skill Content of Recent 

Technological Change”; and David Autor, The Polarization of 

Job Opportunities in the U.S. Labor Market: Implications for 

Employment and Earnings (Washington, D.C.: Center for American Progress and the Hamilton Project, April 2010), Figure 1. 
10 CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009

CBO

Figure 4.

U.S. Imports and Exports

(Percentage of U.S. gross domestic product)

Source: Congressional Budget Office based on data from Bureau of 

Economic Analysis, national income and product 

accounts.

wages) in occupations that involve in-person service 

increased relative to that in production occupations.13

The rough stability of dispersion in the lower half of the 

wage distribution after 1990 also results from the slower 

growth in the demand for routine cognitive work relative 

to nonroutine manual work. After the surge in information technologies, the 10th percentile of wages (typical 

of what low-skilled workers engaged in manual but nonroutine tasks earn) stopped falling relative to median 

wages (which are typical of what workers engaged in 

routine cognitive tasks earn). Meanwhile, the continued 

widening in the dispersion of wages between the 90th 

percentile and both the median and 10th percentile 

reflects the surge in demand for highly skilled workers 

engaged in nonroutine cognitive tasks.

Globalization. International trade has increased in importance for the U.S. economy over the past three decades. 

Since 1979, imports and exports alike have risen markedly as a share of the nation’s economic output, especially 

if one looks at the trend through the business-cycle peak 

in 2007 rather than into the recession in 2009 (see 

Figure 4). The excess of imports over exports increased 

from less than 1 percent of output in 1979 to 5 percent in 

2007 before decreasing to 3 percent in 2009. Furthermore, imports of manufactured goods from developing 

countries (where wages tend to be lower than in the 

United States and other developed countries) have more 

than doubled as a share of output in the past two decades, 

climbing from about 2 percent in 1989 to more than 

5 percent in 2006.14

Those changes probably reduced the wages of some types 

of workers in the United States. To the extent that U.S. 

consumers switched to buying goods and services produced overseas and U.S. firms switched to buying parts 

and services required for their businesses from overseas, 

the demand for U.S. labor that would have produced 

those goods or services declined. And, to the extent that 

the domestic goods and services that were replaced by 

imports were disproportionately produced using lowskilled workers, the demand for those workers in the 

United States would have fallen. In turn, the wages of 

those workers would have declined relative to those of 

high-wage workers engaged in the production of goods 

and services that were not being replaced by imports. 

Globalization and computerization often have similar 

effects on the demand for workers. Many of the tasks that 

are amenable to computerization because the steps to 

complete them can be readily described in a step-by-step 

process are also amenable to being sent abroad to be completed by lower-wage workers, despite the disadvantages 

of distance. In addition, computerization may be one factor leading to increased globalization of labor markets. 

Advances in long-distance communications and reductions in its cost lessen the disadvantages of sending work 

abroad to be completed. Consequently, not only can 

computerization directly affect the demand for workers 

across occupations, it can also affect it indirectly by 

increasing purchases of services from abroad.

13. David H. Autor and David Dorn, Inequality and Specialization: 

The Growth of Low-Skill Service Jobs in the United States, Working 

Paper 15150 (Cambridge, Mass.: National Bureau of Economic 

Research, July 2009), Table 1. 

1979 1984 1989 1994 1999 2004 2009

0

2

4

6

8

10

12

14

16

18

Imports

Exports

14. See Paul Krugman, “Trade and Wages, Reconsidered,” Brookings 

Papers on Economic Activity, vol. 2008, no. 1 (Spring 2008), 

Figures 1 and 3, pp. 103–154. Most of that growth resulted from 

increased trade with China and Mexico, where wages of manufacturing workers average just 4 percent and 13 percent, respectively, 

of the wages of manufacturing workers in the United States. See 

Department of Labor, Bureau of Labor Statistics, “International 

Comparisons of Hourly Compensation Costs in Manufacturing, 

2008” (news release, August 26, 2010), www.bls.gov/news.release/

pdf/ichcc.pdf.
CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009 11

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Figure 5.

Educational Attainment at 

Ages 25 to 29 for Working Men and 

Women Born Between 1937 and 1981

(Average years of education completed)

Source: Congressional Budget Office based on data from Census 

Bureau, March Current Population Survey, 1962 to 2010.

Note: The value for a particular birth year is based on information 

from five years. For example, for people born in 1980, the 

value shown represents the average years of education 

completed for people age 25 in 2005 through those age 29 

in 2009.

However, research on the importance of globalization 

in explaining changes in the wage distribution during the 

past few decades has produced mixed results. One study 

found that between 15 percent and 24 percent of the 

increase in the share of wages paid to nonproduction 

workers during the 1980s was associated with increased 

purchases by firms of products and services from 

overseas.15 Another study concluded that although 

increasing trade with developing countries may have contributed to growing dispersion of wages over the 1995–

2005 period, the impact was fairly small.16 Yet another 

analysis concluded that the impact cannot be accurately 

estimated using existing data, because those data do not 

show the amount of labor of different types that is used in 

the production of imported goods.17

Factors Affecting the Supply of Skilled Workers

Between 1979 and 2009, improvement in the educational attainment of the workforce slowed, which tended 

to increase the wages of more-educated workers. One factor behind that trend was a slowdown in the improvement in educational attainment of recent birth cohorts 

entering the workforce compared with that of earlier ones 

leaving the workforce. Two other factors—an influx of 

foreign-born workers and rising participation of women 

in the labor force—also affected the availability of 

workers with different levels of education. The influx 

of foreign-born workers with little education tended to 

put downward pressure on the wages of workers who had 

not completed high school, and the influx of foreignborn workers and women with college degrees tended to 

offset some of the upward pressure on the wages of college graduates resulting from technological change and 

globalization.

Slowing Growth in the Educational Attainment of 

Workers. Educational attainment of successive birth 

cohorts had been rising sharply up to the cohorts born 

around 1950; at that point, educational attainment 

stopped increasing among men and increased much more 

slowly among women than it had earlier (see Figure 5). 

That change primarily reflected a slowdown in the rate of 

increase of college graduation. As a result, the educational 

attainment of young people entering the workforce 

increased much more slowly after about 1970 than it had 

before that. Despite the slowdown, the average educational attainment of the entire workforce has continued 

to increase because workers who are retiring have less 

education than those who are entering the workforce; 

however, that growth has been much slower since the 

early 1980s than it had been before then (see Figure 6). 

Between 1969 and 1979, the average years of education 

completed by workers increased by 1.0 year (from 11.5 

years to 12.5 years); between 1979 and 1989, it increased 

by only 0.5 years; and between 1989 and 2009, it 

increased by just 0.4 years per decade. That slowdown in 

the improvement in educational attainment combined 

with growing demand for more-educated workers drove 

15. See Robert C. Feenstra and Gordon H. Hanson, “Global 

Production Sharing and Rising Inequality: A Survey of Trade and 

Wages,” in E. Kwan Choi and James Harrigan, eds., Handbook of 

International Trade: Volume 1(Malden, Mass.: Blackwell, 2003), 

pp. 146–185.

16. See Robert Lawrence, Blue Collar Blues: Is Trade to Blame for 

Rising U.S. Income Inequality? (Washington, D.C.: Peterson 

Institute for International Economics, 2008).

1937 1948 1959 1970 1981

0

11

12

13

14

15

Birth Year

Women

Men

17. See Krugman, “Trade and Wages, Reconsidered.” 
12 CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009

CBO

Figure 6.

Educational Attainment of Working 

Men and Women Ages 16 to 64

(Average years of education completed)

Source: Congressional Budget Office based on data from Census 

Bureau, March Current Population Survey, 1962 to 2010.

the wage premium for college graduates higher—a key 

reason for the increasing wage dispersion in the top half 

of the wage distribution.18

The Influx of Foreign-Born Workers. Among all workers 

ages 16 to 64, the share of foreign-born workers jumped 

from 6.5 percent in 1980 to 15.5 percent in 2009.19

Although that influx of foreign-born workers affected the 

distribution of wages, the evidence suggests that the 

effects have been fairly small. 

Foreign-born workers in the United States have lower 

levels of educational attainment, on average, than their 

native-born counterparts. In 2009, 27 percent of foreignborn workers lacked a high school credential, compared 

with 6 percent of native-born workers.20 The disproportionate share of foreign-born workers with low levels of 

educational attainment exerted downward pressure on 

wages for U.S. workers near the bottom of the wage distribution. By one estimate, the increase in foreign-born 

workers reduced the wages of native-born workers without high school credentials by as much as 9 percent 

between 1980 and 2000 (compared with what those 

wages would have been without that immigration) 

and decreased the wages of high-school graduates by 

2 percent.21

However, the increase in foreign-born labor also had 

broader economic effects. For example, reducing the 

wages of day laborers engaged in hauling and demolition 

lowers the cost of construction projects, thereby increasing the demand for other workers, such as delivery drivers, carpenters, electricians, and plumbers (as well as the 

demand for the tools and equipment used in construction). One study that tries to account for those broader 

changes estimates that the negative impact of foreignborn workers on the wages of native-born workers who 

have not completed high school drops from 9 percent to 

4 percent. In addition, the estimated impact on the wages 

of high school graduates reverses; rather than lowering 

the wages of native-born high school graduates by 2 percent, the influx of foreign-born workers raises those wages 

by 2 percent.22

Furthermore, many foreign-born workers have high levels 

of educational attainment: 31 percent hold at least a 

bachelor’s degree, just a little below the 35 percent of 

native-born workers who hold at least a bachelor’s degree. 

Having a greater number of highly educated workers has 

offset some of the upward pressure on wages in the upper 

part of the wage distribution.23 And just as having a 

greater number of less-skilled foreign-born workers in 

the labor force generates some demand for more highly 

skilled workers, having a greater number of more-skilled 

18. Goldin and Katz, The Race Between Education and Technology, 

Chapter 8, pp. 287–323.

19. Because information on the foreign-born population is not available in the Current Population Surveys before 1994, tabulations 

in this section are based on Public Use Samples from the 1980, 

1990, and 2000 censuses and the 2009 Current Population 

Survey. See Steven Ruggles and others, “Integrated Public Use 

Microdata Series: Version 5.0” [Machine-readable database] 

(Minneapolis: University of Minnesota, 2010).

20. Congressional Budget Office, The Role of Immigrants in the U.S. 

Labor Market: An Update (July 2010), Table 4.

1962 1974 1986 1998 2010

0

10

11

12

13

14

15

Women

Men

21. George J. Borjas, “The Labor Demand Curve Is Downward 

Sloping: Reexamining the Impact of Immigration on the Labor 

Market,” Quarterly Journal of Economics, vol. 18, no. 4 (2003), 

pp. 1335–1374.

22. George J. Borjas, Wage Trends Among Disadvantaged Minorities, 

Working Paper 05-12 (Ann Arbor: University of Michigan, 

National Poverty Center, August 2005), p. 26.

23. George J. Borjas, “Immigration in High-Skill Labor Markets: The 

Impact of Foreign Students on the Earnings of Doctorates,” in 

Richard B. Freeman and Daniel L. Goroff, eds., Science and Engineering Careers in the United States: An Analysis of Markets and 

Employment (Cambridge, Mass.: National Bureau of Economic 

Research, June 2009), pp. 131–162.
CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009 13

CBO

foreign-born workers stimulates demand for other 

workers in the economy by creating new products and 

production processes.

All together, the estimated impact of foreign-born workers on wage dispersion appears to have been modest. An 

earlier CBO study concluded that the increasing percentage of the workforce that is foreign born had a negligible 

impact on wage dispersion as measured by the difference 

between the median and the 10th percentile.24 Another 

study found that immigration accounted for about 

5 percent of the growth in overall wage inequality 

between 1980 and 2000.25

The Influx of Working Women. One important change in 

the U.S. labor force over the past 30 years has been the 

substantial increase in the participation rate of women, 

which rose from 59 percent in 1979 to 69 percent in 

2009 among those ages 16 to 64. Consequently, women’s 

share of the workforce increased from 38 percent to 

44 percent over that period. 

The increase in the female share of the labor force over 

the past three decades was particularly high among college graduates: Between 1979 and 2009, the share of all 

college-educated workers who were women grew from 

32 percent to 46 percent. Without that influx of highly 

educated women, the growth in the number of college 

graduates in the workforce would have been significantly 

slower than it was. The likely consequence would have 

been that the upward pressure on wages of college graduates would have been even greater than it was, and the 

wages of college graduates would have risen even more 

than they did. 

Institutional Factors

Although market forces were the principal drivers of 

changes in the wage distribution during the past 30 years, 

changes in the minimum legal wage and rates of unionization also played a role. 

Changes in the Federal Minimum Wage. The extent to 

which minimum-wage laws influence the wage structure 

depends on the level of the minimum wage and how 

employers and workers respond to it. Particularly during 

the 1980s, the falling value of the minimum wage after 

adjusting for inflation contributed to a decline in hourly 

wages at the low end of the wage distribution relative to 

hourly wages higher in the distribution.

An increase in the minimum wage affects the structure of 

wage rates in three ways:

 It directly increases the wage rate of workers previously 

earning less than the new minimum who remain 

employed;

 To the extent that employers attempt to maintain 

relative wage rates across workers with different levels 

of skill and experience, it boosts the wage rates of 

some workers previously earning more than the new 

minimum; and

 It leads to a small number of workers’ losing their jobs, 

which results in those workers being omitted from the 

group used to calculate dispersion in wage rates.26

Between 1979 and 2009, the federal minimum wage was 

adjusted upward periodically, but between those upward 

adjustments its inflation-adjusted value fell as rising 

prices eroded its nominal value (see Figure 7). Between 

1979 and 1989, the real value of the minimum wage fell 

by almost 30 percent.27 Similarly, following a statutory 

increase in 1997, the minimum wage declined in real 

24. See Congressional Budget Office, Changes in Low-Wage Labor 

Markets Between 1979 and 2005, Box 3.

25. David Card, Immigration and Inequality, Working Paper 14683 

(Cambridge, Mass.: National Bureau of Economic Research, 

January 2009).

26. The effect of the minimum wage on employment of low-wage 

workers, such as teenagers and those working in food service 

establishments, has been studied extensively. Although findings 

from those studies vary greatly, the weight of the evidence suggests 

that raising the minimum wage has a small negative effect on the 

employment of low-wage workers. For a review of that literature, 

see David Neumark and William L. Wascher, “Minimum Wages 

and Employment,” Foundations and Trends in Microeconomics, 

vol. 3, no. 1–2 (2007), pp. 1–182.

27. States also have minimum-wage laws that, in many cases, mandate 

wages that are higher than the federal minimum (in which case 

employers must comply with the higher wage). In 2007, before 

the federal minimum wage was increased in a series of three steps, 

30 states had minimums above the federal minimum of $5.15 

per hour. By the beginning of 2010, only 14 states had minimumwage rates above the federal hourly minimum of $7.25 (see 

www.dol.gov/whd/minwage/america.htm). Also, not all employees are covered by the Fair Labor Standards Act, which establishes 

standards for federal minimum wages, overtime pay, recordkeeping, and child labor. In late 2009, the Department of Labor 

estimated that about 130 million (out of 140 million) private- and 

public-sector workers were covered by that law (see www.dol.gov/

compliance/guide/minwage.htm). 
14 CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009

CBO

Figure 7.

Hourly Wages at the 10th Percentile 

for Men and Women and the 

Federal Minimum Wage

(2009 dollars)

Sources: Congressional Budget Office based on monthly data from 

Census Bureau, Current Population Survey, Outgoing 

Rotation Groups, 1979 to 2009; and the U.S. Department 

of Labor.

Note: Wages are converted to 2009 dollars using the personal 

consumption expenditure price index and rounded to the 

nearest 10 cents, and a worker’s wage is weighted by his or 

her hours worked.

terms by almost 19 percent by 2007.28 The most recent 

increase in the minimum wage occurred in July 2009, 

when it was raised to $7.25 per hour; adjusted for 

inflation, the minimum wage was higher in 2009 than it 

hadbeen for more than two decades but still slightly 

below its value in 1979.29

A key difference between the 1979–1989 period and the 

1997–2007 period was the level of the minimum wage 

relative to the 10th percentile wage in the economy. 

Between 1997 and 2007, the 10th percentiles of men’s 

and women’s inflation-adjusted wages were significantly 

higher than the minimum wage (see Figure 7). As a 

result, the minimum wage probably did not play an 

important role in supporting the lower end of the wage 

distribution during that period. In contrast, between 

1979 and 1983, the 10th percentiles of men’s and 

women’s real wages were close to the federal minimum 

wage and declined at about the same rate (adjusted for 

inflation). That pattern suggests that during the early 

1980s, the minimum wage may have been supporting the 

lower part of the wage distribution. After that point, as 

the real value of the minimum wage fell further, the 

10th percentiles of men’s and women’s inflation-adjusted 

wages stopped declining as rapidly as the minimum wage. 

Research finds that the decrease in the real value of the 

federal minimum wage between 1979 and 1989 accounts 

for a significant part of the increase in the dispersion of 

wages between the median and the 10th percentile for 

men and women during that period, with the evidence 

being particularly strong for women.30

Declining Union Coverage. A decline in unionization, 

especially in the 1980s, contributed to increased wage 

dispersion for men in the upper half of the wage distribution. Unions affect the dispersion of wage rates in two 

principal ways. First, union contracts generally standardize wages on the basis of just a few worker characteristics 

and, consequently, wage dispersion among unionized 

workers is generally less than among similar nonunionized workers. Second, unionization generally raises 

the wages of union members relative to nonunion 

28. Minimum Wage Increase Act of 1996, Public Law 104-188, 

Sec. 2104 (August 20, 1996), 110 Stat. 1928-29.

29. Fair Minimum Wage Act of 2007, P.L. 110-28, Sec. 8102 

(May 25, 2007), 121 Stat. 188-89.

1979 1984 1989 1994 1999 2004 2009

0

5

6

7

8

9

Women

Men

Federal Minimum Wage

30. See David S. Lee, “Wage Inequality in the United States During 

the 1980s: Rising Dispersion or Falling Minimum Wage?” Quarterly Journal of Economics, vol. 114, no. 3 (August 1999), pp. 997–

1023. To identify the effect of federal and state minimum wages 

on the wage distribution, Lee uses differences across states in how 

binding the federal (and state) minimum wages are, as the general 

level of wages is higher in some states than in others. He concludes 

that the decline in the real value of the minimum wage between 

1979 and 1989 accounts for all of the increase in the dispersion of 

wages between the 50th and 10th percentiles for men and women 

alike during the 10-year period. For a recent reanalysis that makes 

additional adjustments for statistical issues that Lee did not 

address, see David Autor, Alan Manning, and Christopher Smith, 

The Contribution of the Minimum Wage to U.S. Wage Inequality 

Over Three Decades: A Reassessment, Working Paper 16533 

(Cambridge, Mass.: National Bureau of Economic Research, 

November 2010). Those adjustments reduce the estimated effects 

of the falling minimum wage by about half. 
CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009 15

CBO

members.31 How that relative increase affects wage 

dispersion is not straightforward, however, because it 

depends on where the affected workers fall in the wage 

distribution. Some unions cover highly educated workers, 

such as elementary and secondary school teachers and airline pilots; others cover workers with little or no education beyond high school, such as janitors and hotel service workers. 

The share of workers covered by a union contract 

declined sharply from 27 percent in 1979 to 20 percent 

in 1986; it then continued to fall, but more slowly, dropping to 14 percent in 2009. Much of the decline in 

unionization occurred in the private sector, especially in 

manufacturing and construction. For example, unions 

represented 38 percent of workers in manufacturing in 

1979, but only 12 percent in 2009. Furthermore, manufacturing’s share of employment fell from 24 percent to 

11 percent over the period, which added to the decline in 

the share of all workers covered by a union contract.32

However, among public-sector workers—such as postal 

workers, police officers, fire fighters, and teachers—the 

unionization rate remained high over the 30-year period, 

just inching down from 44 percent in 1979 to 41 percent 

in 2009. Public-sector employees, who tend to have more 

education than private-sector employees, now account for 

half of union-covered workers, up from 30 percent in 

1979. Consequently, the power of unions to lift the wages 

of low-skilled and middle-skilled workers has probably 

declined even more than would be suggested by the overall reduction in union membership.

By one estimate, the decline in unionization between 

1979 and 1988 accounts for about one-third of the 

increase in dispersion in the upper half of the wage 

distribution for men during that period but none of the 

increase in the bottom half.33 Among women, unionization is concentrated among higher-wage workers. 

Because unionization among women has been shown to 

increase differences in wages between more- and lessskilled workers, a decline in unionization tends to reduce 

wage dispersion.34 For that reason, the decline in unionization cannot account for rising dispersion in wages 

among women, and, in fact, may have slowed that rise. 

31. For estimates of the union wage premium in 2007, see Lawrence 

Mishel, Jared Bernstein, and Heidi Shierholz, The State of Working 

America 2008/2009 (Ithaca, N.Y.: ILR Press), Chapter 3, Table 

3.32. The effects of wages and benefits in union-negotiated contracts can spill over to firms whose workers are not represented by 

a union. On the one hand, nonunion firms may increase wages 

and benefits to nonunion workers to reduce their incentive to 

obtain union representation. On the other hand, higher costs may 

reduce employment at unionized firms and force more workers to 

seek work at nonunion firms, thereby reducing the pressure on 

those firms to increase wages and benefits. 

32. See Barry T. Hirsch and David A. Macpherson, “Union Membership and Coverage Database from the Current Population Survey: 

Note,” Industrial and Labor Relations Review, vol. 56, no. 2 

(January 2003), pp. 349–354, www.unionstats.com.

33. See Thomas Lemieux, “The Changing Nature of Wage Inequality,” Journal of Population Economics, vol. 21, no. 1 (January 

2008), pp. 21–48. The estimates used in that analysis were 

eventually published in Sergio Firpo, Nicole Fortin, and Thomas 

Lemieux, “Unconditional Quantile Regressions,” Econometrica,

vol. 77, no. 3 (May 2009), pp. 953–973.

34. David Card, Thomas Lemieux, and W. Craig Riddell, “Unions 

and Wage Inequality,” Journal of Labor Research, vol. 25, no. 4 

(Fall 2004), pp. 519–562.

APPENDIX

CBO

A

Data Used in This Analysis

This study used monthly data from the Current 

Population Survey (CPS) to examine the level and 

distribution of hourly wages between 1979 and 2009.1

In particular, the analysis focused on the one-quarter of 

the sample in each month called the “outgoing rotation 

group.” Unlike other respondents in the survey, that 

group was asked for their hourly wage (if they were paid 

by the hour) and their usual weekly earnings and hours of 

work (if they were not). About 60 percent of the workers, 

on average over those years, were paid on an hourly basis. 

For the other workers, the Congressional Budget Office 

(CBO) calculated the hourly wage rate as their usual 

weekly earnings divided by their usual number of hours 

worked per week. If the respondent indicated the number 

varied, then the number of hours worked the previous 

week was used instead. Self-employed people were 

excluded from the analysis because the division of their 

earnings between their work and their investment in the 

business was not known. Unpaid workers in family businesses also were excluded because presumably they were 

compensated in other ways. Data for the 12 months of a 

calendar year were combined to generate average annual 

estimates. 

Hourly wages in this study were converted to 2009 dollars using the personal consumption expenditure price 

index (PCEPI) for the particular month in which the 

wage was reported. The PCEPI is constructed by the 

Bureau of Economic Analysis as part of its national 

income and product accounts. Unlike the better-known 

consumer price index (CPI), the PCEPI fully accounts 

for the fact that consumers adjust their spending patterns 

as some prices change relative to other prices.2

The hourly wages in this study were calculated for all 

wage and salary workers between the ages of 16 and 64.3

The statistics were weighted by the number of hours 

worked per week, so wages paid for part-time work influenced the statistics less than wages paid for full-time 

work.4

 In particular, a worker’s wage was represented in 

the distribution of wages in proportion to the number of 

hours he or she worked. Consequently, at the 50th percentile, for example, the percentage of hourly wages 

below the value shown among all hours worked was 

50 percent.

1. The CPS is conducted by the Census Bureau for the Bureau of 

Labor Statistics. In 1994, the Census Bureau adopted computerassisted interview methods to collect data. Any substantial change 

in methodology (such as that one) has the potential of creating an 

artificial jump in a series of data over time. In this case, however, 

any impact on wages and wage dispersion were small relative to 

the overall trends. (See Table A-1.) For a bibliography of studies 

aimed at understanding the effects of the changeover, see 

www.bls.gov/osmr/cps.catalog.htm.

2. The average annual inflation rate over the 1979–2009 period was 

3.2 percent as measured by the PCEPI and 3.4 percent as measured by the CPI (the version based on all items in the typical 

market basket of goods and services consumed by all urban consumers during a base period). See Congressional Budget Office, 

Using a Different Measure of Inflation for Indexing Federal Programs 

and the Tax Code (January 2010), for a more detailed discussion of 

alternative measures of inflation.

3. The information on hourly wages and weekly earnings was not 

available for some respondents. (One reason was that some 

respondents answered on behalf of other members in the household and may not have had that information.) For those respondents, the Census Bureau filled in the missing information using 

comparable information from other respondents with similar 

characteristics. 

4. Part-time workers generally are paid less per hour than full-time 

workers who otherwise have similar skills and do similar work. In 

2002, the average part-time wage was 14 percent less than the 

average full-time wage after accounting for age (as a proxy for 

experience), education, and occupation. The reason for that difference may be that each worker imposes certain costs on an 

employer related to hiring, training, insurance, bookkeeping, and 

fringe benefits. The employer, in effect, deducts those costs from 

the worker’s pay. For a part-time worker, there are fewer hours 

over which to distribute those deductions, so the worker is paid 

less per hour.
18 CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009

CBO

Table A-1. 

Hourly Wages Between 1979 and 2009 at Selected Percentiles for 

Men and Women Ages 16 to 64

(2009 dollars)

Continued

The CPS does not report the value of very high hourly 

wages or weekly earnings but instead reports particular 

maximum values for each, which were adjusted upward 

in 1989 and 1998. The percentage of affected workers 

was small, and the maximum value for reported hourly 

wages was well above the 90th percentile wage in all 

years. When hourly wages must be computed on the basis 

of usual weekly earnings and hours of work, however, the 

computed hourly wage may fall below the 90th percentile, even if the weekly earnings are at the maximum 

value, because the hours worked may be very high. To 

reduce systematic underestimation of wages at the 

90th percentile, CBO followed the convention of 

multiplying earnings set at the maximum value by 1.5.5

1979 8.50 17.10 30.70 -50 80

1980 8.30 16.90 30.00 -51 78

1981 8.20 16.70 30.50 -51 83

1982 8.00 16.80 31.10 -52 85

1983 7.70 16.80 31.80 -54 89

1984 7.60 16.70 32.50 -54 95

1985 7.60 16.70 32.80 -54 96

1986 7.60 17.20 33.60 -56 95

1987 7.70 17.00 34.30 -55 102

1988 7.70 16.60 34.90 -54 110

1989 7.80 16.10 32.30 -52 101

1990 7.60 16.00 32.90 -53 106

1991 7.40 16.00 32.80 -54 105

1992 7.20 15.80 32.90 -54 108

1993 7.30 15.70 33.20 -54 111

1994 7.40 15.60 33.50 -53 115

1995 7.50 15.90 33.40 -53 110

1996 7.70 15.70 33.60 -51 114

1997 7.70 16.00 34.30 -52 114

1998 8.10 16.60 36.20 -51 118

1999 8.50 17.30 37.00 -51 114

2000 8.50 17.30 38.10 -51 120

2001 8.70 17.90 39.00 -51 118

2002 8.80 17.70 39.90 -50 125

2003 8.80 17.80 40.20 -51 126

2004 8.90 17.90 40.70 -50 127

2005 8.60 17.60 40.40 -51 130

2006 8.60 17.80 40.70 -52 129

2007 8.70 17.80 40.50 -51 128

2008 8.90 17.90 41.30 -50 131

2009 8.90 18.50 43.00 -52 132

Men

10th 50th 90th 10th vs. 50th 90th vs. 50th

Percentile Percentage Difference 

5. Again, the share of affected workers was small: The share of male 

workers whose earnings were above the so-called top-coded levels 

was generally less than 2 percent and always less than 5 percent. 

The percentage of female workers affected by that top-coding was 

even smaller.
APPENDIX A CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009 19

CBO

Table A-1. Continued

Hourly Wages Between 1979 and 2009 at Selected Percentiles for 

Men and Women Ages 16 to 64

(2009 dollars)

Source: Congressional Budget Office based on monthly data from Census Bureau, Current Population Survey, Outgoing Rotation Groups, 

1979 to 2009.

Note: Wages are converted to 2009 dollars using the personal consumption expenditure price index and rounded to the nearest 10 cents, 

and a worker’s wage is weighted by his or her hours worked.

1979 7.40 11.00 19.70 -33 79

1980 7.20 11.00 19.80 -35 80

1981 7.20 10.90 20.40 -34 87

1982 6.90 11.30 20.70 -39 83

1983 6.60 11.40 21.30 -42 87

1984 6.50 11.50 21.80 -43 90

1985 6.40 11.50 22.50 -44 96

1986 6.30 11.90 22.50 -47 89

1987 6.30 12.00 23.20 -48 93

1988 6.30 12.20 23.60 -48 93

1989 6.30 12.00 23.80 -48 98

1990 6.40 12.10 24.10 -47 99

1991 6.60 12.20 24.70 -46 102

1992 6.70 12.30 25.10 -46 104

1993 6.70 12.50 25.50 -46 104

1994 6.70 12.30 26.00 -46 111

1995 6.60 12.30 26.10 -46 112

1996 6.60 12.50 26.20 -47 110

1997 6.80 12.80 26.90 -47 110

1998 7.30 13.00 27.80 -44 114

1999 7.50 13.50 28.60 -44 112

2000 7.40 13.60 29.30 -46 115

2001 7.70 14.30 29.80 -46 108

2002 8.00 14.30 30.60 -44 114

2003 8.10 14.70 31.20 -45 112

2004 7.90 14.60 31.70 -46 117

2005 7.70 14.50 31.70 -47 119

2006 7.70 14.80 32.00 -48 116

2007 7.80 14.70 32.60 -47 122

2008 7.90 14.90 33.00 -47 121

2009 8.00 15.10 33.50 -47 122

Women

Percentile Percentage Difference 

10th 50th 90th 10th vs. 50th 90th vs. 50th
20 CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009

CBO

To the extent that the procedure overstates earnings, the 

90th percentile may be overestimated. That may account 

for the noticeable drop in the 90th percentile wage 

among men between 1988 and 1989 (see Table A-1). 

Conversely, to the extent that the procedure understates 

earnings, the 90th percentile may be underestimated, 

and that may account for the noticeable rise in the 

90th percentile wage among men between 1997 and 

1998.

Finally, when dividing usual weekly earnings by usual 

hours worked, the result was sometimes an implausibly 

low value for the hourly wage. Nonetheless, those values 

were included in the analysis because there were too few 

to affect the 10th percentile of hourly wages.6

6. Errors in reporting are likely to occur in all surveys. Some errors 

(such as very low hourly wages) can be more easily identified than 

others (such as very high hourly wages). So as not to be biased in 

either direction, CBO’s approach was to use all of the data. 
APPENDIX

CBO

B

Additional Information on Very High Earners

For this analysis, the Congressional Budget Office 

used wage rates at the 90th percentile to represent hourly 

wages at the top of the distribution. Hourly wages above 

the 90th percentile grew faster than wage rates at the 

90th percentile. For example, among men between 1989 

and 2005, the 95th percentile of hourly wages increased 

by 30 percent compared with 22 percent growth at the 

90th percentile (see Table B-1). 

The range of possible causes for what may have driven 

pay at the 90th percentile is more settled than it is for pay 

at the 95th or 99th percentiles. In addition to the factors 

leading to rapid wage growth for high earners discussed 

earlier, causes of more rapid wage growth among very 

high earners include the following:

 Substantial reductions in top marginal income tax 

rates in 1982 and 1988, which increased the aftertax benefit of receiving a higher wage; 

 Growth in the size of the largest firms, which 

increased the consequences of their top managers’ 

decisions, leading to higher compensation for those 

managers; 

 Increases in the ability of top managers to extract high 

pay from their boards of directors, especially during 

the booming economy of the 1990s; and 

 Increasing returns to “superstars” driven by advances 

in media and communication technologies.1

The dramatic increase in top wages seen in the United 

States (especially top executive compensation) was not 

seen in continental Europe or Japan. Changes in paysetting institutions (such as unions) and social norms 

may have removed some implicit barriers to higher wages 

in the United States but not in other countries.2

1. See Frank Levy and Peter Temin, Inequality and Institutions in 

20th Century America, Working Paper 13106 (Cambridge, Mass.: 

National Bureau of Economic Research, May 2007); and Lucian 

Arye Bebchuk and Yaniv Grinstein, “The Growth of Executive 

Pay,” Oxford Review of Economic Policy, vol. 21, no. 2 (Summer 

2005), pp. 283–303. 

2. See Thomas Piketty and Emmanuel Saez, “Income Inequality in 

the United States, 1913–1998,” Quarterly Journal of Economics, 

vol. 118, no. 1 (February 2003), pp. 1–39; and Piketty and Saez, 

“The Evolution of Top Incomes: A Historical and International 

Perspective,” American Economic Review, vol. 96, no. 2 (May 

2006), pp. 200–205. 
22 CHANGES IN THE DISTRIBUTION OF WORKERS’ HOURLY WAGES BETWEEN 1979 AND 2009

CBO

Table B-1. 

Growth in Wages and Earnings for High-Earning Men and Women Ages 25 to 54

(2009 dollars)

Sources: Congressional Budget Office based on monthly data from Census Bureau, Current Population Survey, Outgoing Rotation Groups, 

1989 and 2005; and Congressional Budget Office, Changes in the Distribution of Workers’ Annual Earnings Between 1979 and 2007

(October 2009), Table 3.

Note: Wages are converted to 2009 dollars using the personal consumption expenditure price index and rounded to the nearest 10 cents, 

and a worker’s wage is weighted by his or her hours worked.

1989 33.90 40.80 1,550 1,880 76,900 99,400 213,700

2005 41.50 52.90 1,860 2,340 91,500 123,400 278,100

Percentage Change 22.4 29.7 20.0 24.5 19.0 24.1 30.1

1989 25.10 30.20 1,000 1,230 48,000 57,900 86,800

2005 33.00 41.50 1,330 1,680 62,200 79,400 139,100

Percentage Change 31.5 37.4 33.0 36.6 29.6 37.1 60.3

Men

Women

90th

Percentile

95th

Percentile

90th

Percentile

95th 99th

Percentile

Hourly Wages Weekly Earnings Annual Earnings

Percentile

90th

Percentile

95th

Percentile

INSIDE MAIL

WASHINGTON, DC 20515CONGRESSIONAL BUDGET OFFICECONGRESS OF THE UNITED STATES