From 1973 to 2005, real hourly wages for individuals in the 90th percentile of income, typically those with college or advanced degrees, rose by 30% or more. For individuals in the 50th percentile or below, typically those with at most a high school diploma, real wages increased by only 5% to 10% (Source: FRBSF Economic Letter, December 1, 2006).

In large part, this increasing wage inequality is caused by a widening gap in wages between college graduates and those with a high school education or less. In spite of increased college enrollment, it appears that the demand for college graduates has been stronger than the supply. This increased demand is a result of increasing usage of technology, such as computers, which has changed the nature of work and the skills needed for that work. There is greater demand and higher wages for workers who have the skills to use these technologies effectively.

Another major factor in this inequality is increasing globalization of labor markets. The United States tends to export goods that use skilled labor and import goods that use less skilled labor. That places more demand in the United States for skilled labor and less demand for less skilled labor.

Job instability has also increased, which can affect a family's income. Approximately one in three workers change jobs every year, with approximately half doing so on a voluntary basis. Involuntary job loss results in unemployment for approximately four months, and new jobs typically pay 17% less than the former job (Source: FRBSF Economic Letter, December 1, 2006).

Due to all these factors, it is now increasingly likely for a family to experience a decline in annual income. The odds that a family will experience a 50% drop in yearly income has more than doubled since the early 1970s, rising to approximately one in six families (Source: FRBSF Economic Letter, December 1, 2006).