Can High Income Consumers Increase Within-Industry Wage Inequality?

Abstract

High income consumers make up a growing portion of the US domestic consumer base. This study asks whether dependence on high income consumers can increase wage inequality in the industries that serve them. High income consumers bid up high status products, and reward small differences in producer output. If successful producers share rents, or pay more for talented workers, these tendencies could skew elite-oriented industries toward unequal wage structures. I examine the relationship between industry revenue dependence on consumers making more than $150,000 per year, and wage inequality within industries. I find that industry dependence on elite consumers is associated with increased within-industry wage inequality, even after removing variation in wages due to occupations, education, and industry-level characteristics. These findings suggest a new channel through which income inequality can become self-perpetuating: as the US economy becomes more dependent on high income consumers, this dependence could further polarize the wage structure.