have changed the trajectory of inequality. as interesting as these statistics on inequality are, they obscure a key part of the story – one that has been an important part of our identity as americans : whether a family has the ability, through hard work, to attain a better standard of living. and on that point, we find that households in the middle and lower parts of the earnings distribution have experienced, at best, only modest improvements in inflation - adjusted income. 10 between 1979 and 2007, households in the middle quintile of the income distribution – a functional definition of the middle class – saw their real labor income ( adjusted for household size ) rise only about 3 percent. meanwhile, households in the bottom one - fifth of the distribution did a bit better, experiencing about a 24 percent rise, although this figure reflects an improvement of just 1 percent per year, and that from a very low base. in contrast, income rose more than 70 percent among households in the top one - fifth of the earnings distribution. this measure of income accounts for total compensation, including health benefits, and capital income, government transfers, and taxes while also adjusting for household size. see congressional budget office ( 2011 ), trends in the distribution of household income between 1979 and 2007 ( washington : cbo, october ). this measure of income covers total compensation, including benefits, and adjusts for household size. see congressional budget office, trends in the distribution of household income, in note 9. bis central bankers ’ speeches the polarization of the labor income distribution has been mirrored in the types of jobs we are creating. since the 1990s, job gains have been concentrated at the upper and lower ends of the earnings distribution. there have been healthy gains in employment in highly paid occupations, such as computer and information systems managers, and a rise in lowpaid jobs, such as home health - care workers, but growth has been much slower in occupations with earnings in the middle of the distribution, such as machinists. this trend accelerated during the great recession and the ensuing recovery. for example, food services, retail, and employment services, all low - wage industries, accounted for nearly 45 percent of net employment growth from the start of the recovery through early 2012, while employment in a number of industries that offer good jobs for mid - wage workers – including construction, manufacturing, and finance, insurance, and real estate – did not grow in those years or grew too slowly to make up for their job losses during the recession. 11

responds to higher levels of perceived risk. but once the adjustment is completed, productivity growth should resume at rates in excess of those that prevailed in the quarter - century preceding 1995. it is worth noting that increased production to enhance security will be counted in measured output without contributing to our standards of living, as was the case during our military buildup of the cold war. our productivity measures have always endeavored to capture increased productive efficiency, not increased well - being. we are, in effect, currently using part of our increase in efficiency to supply increased security. of course, given the heightened risks we face, these investments in security are, doubtless, quite sound. in any event, such costs are likely to fall short of the costs we incurred for security during the height of the cold war. nobody has the capacity to fathom fully how the effects of the tragedy of september 11 will play out in our economy. but in the weeks ahead, as the initial shock continues to wear off, we should be able to better gauge how the ongoing dynamics of these events are shaping the immediate economic outlook. for the longer term, prospects for ongoing rapid technological advance and associated faster productivity growth are scarcely diminished. those prospects, born of the ingenuity of our people and the strength of our system, fortify a promising future for our free nation.