5 Reasons the Wage Gap Keeps Growing — and How To Land on the Wealthy Side

poor Asian woman hand open empty purse looking for money having problem  bankrupt broke after credit card payday.
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According to the Federal Reserve Bank of St. Louis, the top 10% of families in the U.S. command 69% of America’s total household wealth. The average among them is worth $6.8 million. On the other hand, the bottom 50% of households share just 2.4% of the nation’s wealth, with an average net worth of $48,000 each.

Income disparity is the root cause of this glaring wealth disparity, and the ever-widening wage gap ensures the rich will get richer while ordinary earners struggle to stay afloat between checks.

Your Check Is Puny for a Lot of Reasons — And You Can’t Control Them All

The challenge of income disparity probably wouldn’t feel so overwhelming if one root cause were to blame.

Unfortunately, it’s not that simple.

“The wage gap in America is a multifaceted issue, stemming from a blend of systemic factors, education disparities and historical contexts,” said Dennis Shirshikov, who teaches about the issue as a finance, economics and accounting professor at the City University of New York. “For instance, the outsourcing of jobs, automation, and the shift from a manufacturing-based economy to a service-based one have certainly played roles.”

But Shirshikov, who is also the head of growth at real estate investment site Awning, explained that corporate power dynamics play an even bigger role.

“CEOs and executives are often incentivized with stock options and bonuses, pushing their income higher, while many wage earners face stagnant salaries,” he said. “Add to this the influence of educational opportunities — where the wealthy often have access to better resources and networking — and it becomes clear how these disparities are perpetuated.”

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Here’s why the gap between small paychecks and big ones is wider than ever.

The 1%’s Piece of the Pie Has Grown Much Faster Than the Pie Itself

According to the Economic Policy Institute (EPI), the top 1% of earners take home 21% of all the income in the country. Although a yearly salary of $421,926 is technically enough to punch your ticket to the 1%, the average annual income of the top 1% is $1,316,985.

On the other hand, the average for everyone else is $50,107, which means the top 1% make 26.3 times more than the bottom 99%.

There have always been rich and poor in America, but the gap between them has never been wider. According to the EPI, the share of all income captured by the top 1% has surpassed historical highs dating back to 1917 — and that’s a trend more than 40 years in the making.

According to the Federal Reserve Bank of Minneapolis, “since 1980, the real income of the bottom 50% of the population has grown by about 20%. Meanwhile, the top 10% have enjoyed 145% growth.”

The Wage Floor Has Been Far Too Low for Far Too Long

The EPI says the average earner in the lower 99% makes a little over $50,000 a year. But if you toil for minimum wage, your annual take is more like $15,080.

The federal minimum wage has been an unlivable $7.25 an hour since 2009. That’s the longest period without an increase since its introduction in 1938, and thanks to inflation, today’s minimum wage earners have less purchasing power than at almost any other time in history. Someone earning $7.25 an hour in 2009 had roughly $5,000 more in real purchasing power than someone earning the same wage and working the same hours today.

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While many states have adopted minimum wages that are higher than the federal standard, many others have not. According to the Children’s Defense Fund (CDF), 1 million workers earned the minimum wage in 2020, 67% of whom were women. In 2022, there was not a single place in America where a full-time minimum-wage worker could afford a two-bedroom apartment.

Good Pay Is Often Tied to an Overpriced Education

According to the St. Louis Fed, households headed by someone with some college education have $0.30 for every $1 of wealth captured by families headed by someone who completed a four-year degree. Those with only a high school diploma have just $0.23, and those with less than a high school diploma get just $0.10 on the graduate’s dollar.

With such an obvious correlation between degrees and high-paying jobs, college might be a no-brainer for families that can afford to cover the costs. But for everyone else, the average $36,436 per student per year leaves only two choices. The first is to borrow their way in and join the 45.3 million Americans who hold an average of $37,338 each in student loan debt. The second is to refrain and settle for a non-college job that’s likely to pay less.

Geographical Income Disparity Is Entrenched and Complex

The accident of where you’re born has a lot of influence over your lifetime earnings. For example, the CDF reports that the median family income in Washington, D.C., is $132,700. In New Mexico, it’s $58,700.

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That kind of disparity is hardly isolated, and according to the Department of Commerce, “geographic inequality is on the rise in the U.S.”

Incomes in large metropolitan areas are 24% higher than in smaller metros, 39% higher than in micropolitan areas, and 51% higher than in non-metropolitan and non-micropolitan counties.

The DOC concludes, “Many of the lowest-income communities are in rural America.”

The Child Care Crisis Cripples the Earning Potential of Working Women

Few countries on earth provide less relief for their working mothers than the United States. The U.S. is one of only six countries in the world without some form of paid family leave, and child care is so cost-prohibitive that many mothers must trade their careers for their children.

Just before the COVID-19 pandemic, in 2019, the Center for American Progress wrote, “More mothers would increase their earnings and seek new job opportunities if they had greater access to reliable and affordable child care.”

Three years later in 2022, when employers were desperate to fill open positions in the post-pandemic economy, the New York Times wrote, “A lack of child care and elder care options has forced some women to limit their hours or sidelined them altogether, hurting their career prospects.”

With child care costs plundering nearly one-third of the average mother’s paycheck, educated, capable and experienced women are more likely to drop out of the workforce than their male counterparts, which harms their future earning potential as well as their current income.

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Pursuing the Right Side of the Wage Gap

Just as there isn’t a single cause of income inequality, there’s also no one-size-fits-all strategy for putting your paycheck on the favorable side of the equation, but there are some pathways to consider.

“Continuous learning and upskilling is crucial,” said Shirshikov. “Staying relevant in your field and even branching out to acquire new skills can pave the way for higher-paying opportunities.” Also, financial literacy is a key piece of the puzzle, even if your job has nothing to do with finance.

“Understanding how to invest, save and manage money can lead to wealth accumulation over time,” said Shirshikov. “Another interesting avenue is exploring side hustles or entrepreneurial ventures, though they come with their own set of risks. I remember a colleague of mine who started a small e-commerce business on the side. Initially, it was just a passion project, but with time, dedication and savvy financial decisions, it grew into a primary source of income, pushing her into a higher income bracket.”

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