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Don't blame the 1% for America's pay gap

April 24, 2012: 5:00 AM ET

It's time to end the myth that the nation's wealthy are getting rich off the backs of the poor. Instead let's figure out what they're doing right.

By Nina Easton, senior editor-at-large

FORTUNE -- What if I told you that there was a group of hard-driving workaholics who tend to have advanced degrees and bring a level of talent and skill to their jobs that attracts premium pay in the global economy? Scholars have found that this group is more likely than much of the population to raise their children in two-parent homes.

You might think this was a group people would admire, even emulate, right? Not so. For this is the much-maligned 1%, whose media infamy via the Occupy Wall Street protests, followed by President Obama's populist reelection message, is now firmly embedded in the American psyche.

The 1% club stands accused, accurately, of more than doubling its share of the nation's income since 1980. By 2007 it controlled nearly 24% of total income, the second highest in history, after 1929. (In 2009 its share dropped to 17%, suggesting that recessions aren't necessarily kind to the rich.)

Railing about the 1% club has become shorthand for expressing outrage not only over growing income disparity but also about the state of the nation's working class. Wages of men without college diplomas, for example, have dropped by a whopping third over the past three decades.

That's deeply troubling. Socially and politically, there are plenty of reasons to worry about the growing income gap. But rage against the 1% is misplaced. Income is not a zero-sum game: The rich aren't getting wealthier at the expense of the poor. Harvard's Lawrence Katz has calculated that even if all the gains of the top 1% were redistributed to the 99%, household incomes would go up by less than half of what they would if everyone had a college degree. In other words, the financial rewards of higher education are a big contributor to the income gap.

More: Five tax breaks Washington has given the rich

Indeed, researchers say the reasons for the rich getter richer are complex and nuanced. One-percenters are a large and varied lot, consisting of 1.38 million households, with total household incomes starting at $344,000 in 2009. (Nearly all scholars rely on income figures because of the difficulty in obtaining reliable net-worth data.) Yes, finance is well-represented in the 1% club, but there is also an especially high portion of the self-employed, along with a variety of other professions. And while CEO incomes rose astronomically through the 1990s, their incomes have actually declined over the past decade, according to University of Chicago's Steven N. Kaplan.

So what is behind the income gains of the 1%? Let's start with the global and technological changes that pump up the salaries of superstars in a range of professions: Call it the Yo-Yo Ma effect. In 1600 a famous cellist would have reached his career peak by playing for the king. Now Ma can stage concerts all over the world, with commensurate earnings. Apply that same concept to the in-demand skills of star lawyers or bankers or doctors in the 1% club, or of hungry entrepreneurs plying new markets.

Women in high-paying professions are another factor. Researchers from Indiana University and the Treasury Department studied the top 1% of households and found that by 2005 the number of taxpayers (largely men) with working spouses rose to almost 40%, up from 25% in 1979. That spouse tends to be a wealthy professional as well.

Scholars are also taking note of social issues underlying America's income divide. In his new book, Coming Apart, conservative social scientist Charles Murray documents far higher divorce rates and more children living with one parent in working-class communities. That's a trend that has also caught the attention of liberals like Harvard's Robert Putnam, who describes "gaps that didn't exist decades ago but are widening at an alarming rate today" and are reinforced as wealthy parents spend far more time with their children.

It's entertaining to wail about fat cats and the greedy rich. But if we're serious about addressing widening inequality, we should figure out what the 1% is doing right -- and apply some of those ideas to closing the gap.

Nina Easton is currently a fellow at the Harvard Kennedy School's Shorenstein Center. 

This story is from the April 30, 2012 issue of Fortune.

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About This Author
Nina Easton
Nina Easton
Fortune

An award-winning author, columnist, and TV commentator, Nina Easton offers insights at the intersection of economics and politics. For six years she has been a regular panelist on Fox News Sunday and Special Report, and has appeared on NBC's Meet the Press, CBS's Face the Nation, and PBS's Washington Week in Review and Charlie Rose. Easton is the author of the critically acclaimed Gang of Five: Leaders at the Center of the Conservative Ascendancy. Prior to joining Fortune, she won a number of national awards as a Los Angeles Times writer, and later served as the Boston Globe's deputy bureau chief in Washington. She is a native Californian and a graduate of the University of California at Berkeley.

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