This publication is the result of an effort by the McKinsey Global Institute (MGI) and McKinsey Social Sector Office (SSO) with the support of McKinsey practice experts around the world. This effort builds on nearly two decades of MGI’s research experience in conducting detailed analysis on labor productivity, global economic restructuring, the economic impact of offshoring, and other labor market developments.

In an effort to provide a comprehensive, well-founded explanation of income dispersion to policymakers and other interested parties, MGI and SSO conducted a study of changes in income dispersion and their causes from 1991 to 2005.

Very specifically, the goals of the study were to provide facts on differential rates of growth in household income, map links between the patchwork US labor market and differential growth in labor incomes (the dominant component of household incomes), and explain the main drivers of differential growth in labor incomes and their relative significance to different groups of workers.

Diana Farrell, former director of MGI, provided strong leadership on this project. Martha Laboissière, an associate principal in our San Francisco office worked closely with us to provide leadership to the project team which included Imran Ahmed, Jan Peter aus dem Moore, Tilman Eichstadt, Lucia Fiorito, Alexander Grunewald (Alum), Jorge Hargrave, James Hoyt (Alum), Diana Kapsa, Tanya Khakbaz (Alum), Thomas Lamatsch, Dorothy Liao, Jenny Liao, Robin Matthias, Sara Parker (Alum), Ying Shi, Claudia Steinwender, and Soyoko Umeno.

Our steering committee, including Martin Baily, a senior academic advisor to MGI, Eric Beinhocker, Heino Faßbender, Axel Borsch-Supen, Dominique Turcq, and Laura Tyson, provided ongoing support to the team.

Many McKinsey colleagues, including Jonathan Ablett, Lowell Bryan, Toos Daruvala, Michael Patsalos-Fox, Ezra Greenberg, Ted Hall, Claudia Joyce, Michael Jung, Nancy Killefer, Jürgen Kluge, Simon London, Paul Mango, Frank Mattern, Tim McGuire, Thomas Mitschke, Stefan Niemeier, Wilhelm Rall, Nick Semaca, Zubin Taraporevala, Patrick Viguerie, Tim Welsh, and Eckart Windhagen, provided valuable insight and advice.

Significant input was provided by outside advisors. We owe a special debt of gratitude to Tammy Johns from Manpower. In addition to providing ongoing support and advice to the team, Manpower shared their data to enrich our analysis. We would also like to thank Sascha Stürze and the team at Analyx for insightful discussions and for providing analytical assistance.

We also benefitted from numerous interviews with public and private sector leaders, including Richard Burkhauser, Carl Camden, M. Susan Chambers, Pablo Farias, Gina Glantz, Allan Goldstein, Ted Grant, Ron Haskins, Robert Lawrence, Matt Miller, Lawrence Mishel, Helen Neuborne, Janice Nittoli, Howard Paster, Judith Rodin, Isabelle Sawhill, and Chris Weller.

We would also like to acknowledge, Gina Campbell, MGI senior editor, and Katherine Hinkebein for their editorial help; Deadra Henderson, MGI’s practice administrator; Roberta Blanco and José Carlos de Sousa for their help in report production; our executive assistants, Ixchel Cook and Jacqui Miranda; and Rebeca Robboy in MGI external communications, who supported the effort throughout. (PREFACE)

Visit Changing the fortunes of America’s workforce: A human capital challenge Download Page

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CONTENTS
Executive summary 9
Changing the fortunes of America’s workforce: A human capital challenge 15
Technical Notes 73
Bibliography 81

EXECUTIVE SUMMARY
Rising income dispersion in the United States and other advanced nations has become a source of concern. Since the early 1970s, incomes for the highest U.S. earners have raced ahead, while those at the bottom of the income distribution have stood still and those in the middle barely increased. Strikingly, even in the current recession, this underlying trend is not reversing.

In an effort to provide a comprehensive, well-founded explanation to policymakers and other interested parties, the McKinsey Global Institute and McKinsey Social Sector Office have conducted a study of changes in income dispersion and their causes from 1991 to 2005, the height of the economic cycle.

The study analyzed a broader, deeper data set than previous research in the area, making it the first attempt to estimate the contribution to rising dispersion of fundamental changes in the U.S. economy’s mix of industries and occupations. Its findings show that redeveloping America’s human capital should be the focus of labor market policy coming out of the recession. ...

ABOUT MCKINSEY GLOBAL INSTITUTE
The McKinsey Global Institute (MGI), founded in 1990, is McKinsey & Company’s economics research arm. MGI’s mission is to help business and government leaders develop a deeper understanding of the evolution of the global economy and provide a fact base that contributes to decision making on critical management and policy issues.

MGI’s research is a unique combination of two disciplines: economics and management. By integrating these two perspectives, MGI is able to gain insights into the microeconomic underpinnings of the broad trends shaping the global economy. MGI has utilized this “micro-to-macro” approach in research covering more than 15 countries and 28 industry sectors, on topics that include productivity, global economic integration, offshoring, capital markets, health care, energy, demographics, and consumer demand.

MGI’s research is conducted by a group of full-time fellows based in offices in Brussels, London, San Francisco, Shanghai, and Washington, DC. MGI project teams also include consultants drawn from McKinsey’s offices around the world and are supported by McKinsey’s network of industry and management experts and worldwide partners. In addition, MGI teams work with leading economists, including Nobel laureates and policy experts, who act as advisers to MGI projects.

MGI’s research is funded by the partners of McKinsey & Company and not commissioned by any business, government, or other institution. Further information about MGI and copies of MGI’s published reports can be found at www.mckinsey.com/mgi.

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