As I understand there are gains, for the top 20%, but much of that is concentrated on the top 5% or less.

Colvin's conclusions do not seem to correspond to the reality I encounter daily.

I believe IT salaries are increasing but by less than inflation so real salaries are still falling.

Starting salaries for recent college graduates in this are still falling as well.

Lower entrance requirement, lots of available money = college grads are more numerous and mostly mediocre. I don't think it's offshoring, but a dilution of college degrees' worth.
There is so much available loans that colleges are incentivised to accept more (and lower quality) students. Unfortunately, in order to keep those students, the rigor of colleges has also suffered.
To employers, have a degree has become less of a garauntee of quality, so pay is down (competition and training costs are up).
Plus, there has grown up around college (among students) an unseriousness that has fed into this.

I think too many kids are shuffled off to college with out serious consideration of why or what they expect out of it.

The US slowdown early in this decade came despite fairly good growth in consumption. A good bit of the labor in the consumption chain takes place at the low end, so it may be that, while the recession worked its usual magic on the top 20%, it had less impact on the low end. Delivering consumer goods to retail shelves and homes is a low-skill job. Fed-Ex has put on lots of workers.

It might be worth looking at clustering of wages. In order for improvement at the low end to show up in quintile stats, the improvement has to be from the bottom of the bottom quintile to the top, but not lift too many of those lucky workers into the second quintile. When we deal with quintiles, don't the dividing lines between quintiles drift around as distribution of income changes, making the shifts tricky to track? Could it be that a chunk of second quintile workers slipped into the high end of the bottom quintile, so that a deterioration relative living standard for the former 2nd quintile group showed up as an improvement for the bottom quintile?

And yes to what save-the-rustbelt said. Not only is it the top 5% lifting the top quintile, but I think it was Krugman who argued that it is the top fraction of 1% lifting the top 5%. Krugman is arguing that changes within the top quintile are very important in the performance of the quintile as a whole. I'm suggesting, without evidence, the same thing may account for the apparent improvement in the bottom quintile.

In my particular case, I have ridden the income roller coaster since the end of April 2001. In IT consulting, I saw rates plummet to a low by the summer of 2004. Rates in Dallas had been low since the Spring of 2001, and this was partly driven by the availability of cheap Indian software developers and by the financial condition of companies that caused them to want to drastically reduce spending on IT. The IT consulting market in Minneapolis was better for a longer time, but the expense of being there was almost prohibitive. My situation has improved only since August 2005, and has stabilized at a higher level. At least in the Dallas area, the market is still not anywhere near what it was prior to the Spring of 2001. Offshore outsourcing has not been a factor in the market in which I function. Rates have been driven by the dual factors of companies financial condition being worse than in the past, and by the availability lower-cost (even if lower capability) foreign workers, primarily Indian, who are willing to work for less.

Paul Craig Roberts has written extensively about the jobs shift. He, too, attributes much to outsourcing, as well as a steep increase in H1-B visas given to foreign workers to come and work (at a discount, naturally) in the US. Here's an excerpt from a recent column:

Information technology workers and computer software engineers have been especially heavily hit by offshore jobs outsourcing. During the past five years (Jan 01 - Jan 06), the information sector of the US economy lost 645,000 jobs or 17.4% of its work force. Computer systems design and related lost 116,000 jobs or 8.7% of its work force. Clearly, jobs outsourcing is not creating jobs in computer engineering and information technology. Indeed, jobs outsourcing is not even creating jobs in related fields.

We continue slowly toward a return to feudalism, with a few rich Barons (owners of capital) and a lot of poverty-stricken Techno-Peasants and service workers (notably domestic servants). This is the inevitable result of global mobility of capital + productivity effects of technology.

Vast income inequality is the corollary. I'd be interested to know whether the numbers used above (to compute income inequality) are after-tax?

Funny that Roberts, an inexorable critic of the current administration, was once in the Treasury under Reagan.

Daniel raises an apparent paradox with IT salaries - they are falling but also rising. No paradox at all, however, when you look at what actually happened since late 2000.

In the 2001-2003 period, IT salaries fell off a cliff. How much they fell depended upon the particular specialty but a rule of thumb is that the more R&D oriented the IT specialty the worse the fall. The operations people running existing systems also took a whack but not as harsh.

We're talking about salary cuts averaging between 30 and 40% for the R&D types (programmers, analysts, and even architects. Possibly 15-25% for operations people.

After that there was a slight upturn in IT salaries with raises in the area of 2 or 3% a year. This has increased a bit over the last year or so.

Even so, all you have to do is a little math. Assume that your salary in 2000 was 100 and it fell to 65 by 2003. At a rate of increase of 3% a year how long will it take to get back to 100? Without whipping out a calculator I'd guess about 10 years or until about 2013. Even then you're not even because inflation is not considered.

Thankfully the story is probably better than that. I estimate that the true rebound might be as high as 10% a year - now. That still leaves many IT people with a lower salary than in 2000, a condition which may persist until 2009 or 2010 when inflation is factored in. Any way you look at it an effect like that is significant - and not only for individuals but also for labor markets.

One more note: I don't believe that offshoring caused the crash in IT and other R&D salaries - it was at most an exacerbating factor.

The actual cause was a triple whammy. A mild recession combined with the dot.com boom and bust combined with the collapse of many of the traditional leading companies in the telecoms sector due to several technical revolutions all happening at once. Bankrupt companies and companies holding on by their fingernails don't spend money on R&D.

I agree with Elam-I think college is just a growing expectation in the suburbs. Everyone I know goes to college-even if they have no goals in their life, or go just to party, or take 7 years to finish an under grad program. They still go..and I also see the low quality education that some of my peers are recieving at state schools, and wonder at how valuable a diploma really is!?

This says increasing poverty between 200-2004. Who knows?

Ddi see this... gates is such a rich dude -

Microsoft's Gates Ridicules $100 Laptop Project

As a trustee of a top ranked liberal arts college, I learned that for the last few years over half of the seniors are still looking for work when they graduate. The quality of the students measured by grades and SAT scores remains high and the popular majors - biology and economics - have application in the job market. However, their maturity and commitment to a career are not obvious.

college grads are more numerous and mostly mediocre

This hasn't stopped accounting and finance majors from getting ahead. One thing we can thank Ebbers and Skilling for, I guess.

One thing about the thesis doesn't quite pass the sniff test - the magnitude of the supposed drop in real earnings of college grads:

The real annual earnings of college graduates actually declined 5.2 percent

A 5.2% drop is a helluva lot. Let's admit that IT workers and other R&D type workers took a helluva whack - perhaps as much as 30% on average. But how many of those workers are there? I think maybe as many as 4 or 5 million all told. Out of a US labor force of maybe 110 million?

How many of those are college grads? At least 40-45 million. The worst-affected workers amount to 10% or fewer of the total US college-educated workforce. A 30% cut in pay for 10% of the college-educated workforce works out to a 3% drop over the entire group. Which leaves a further drop of 2.2% to explain. It seems like an awful big gap.....

Before analyzing why incomes are converging, first one must check the facts. The Census estimates of income disperison by household tell a different story. In their data income inequality peaks in 2001 falls in 2002 and then begins climbing again, with the Gini coefficient retruning to its 2001 level in 2004. Thus the clear trend claimed by Colvin in Furtune, is anything but clear. Most likely the source of any recent narrowing is the dropin interest rates and thedrop in interest income at the top end. Interest income is very concentrated at the top.