In yesterday’s RM column, I referenced a chart from the Sunday NYT (below).
click for larger graphic
Courtesy of the New York Times
The key takeaway from this is the ongoing increasing pressure on the middle class; Dan Gross called this the cram down decade.
Since the theme of the column was "Ignore Statistical Oddities at Your Peril," here is one to mull over: How much of an economic aberration is a large middle class?
For most of history, there has been landed gentry and working knaves. The middle was relatively narrow slice — larger in numbers than the wealthy, but obviously less numerous than the poor.
During the Roman Empire, the merchant class fully developed, including soldiers, traders, and all manner of craftsmen. The Middle Ages saw the rise of Guilds, as Coopers, Smiths, Innkeepers all rose above the indentured servants and free field hands. Perhaps some of our more knowledgable readers with a better grasp of histpory than I can address this in comments.
Following WWII, the United States saw an explosion in the number of people moving into the Middle Class. Those numbers may now be slowly reversing.
The funny thing to me is how your perspective can get easily skewed by your surroundings. To be in the top 1% of earners in the U.S., you need an annual wages/income of $237,000. Here in NYC, where there is an enormous concentration of wealth, you are (barely) upper middle income at that salary level — certianly not wealthy. And on Wall Street, half the people I personally know earn at least that much — and complain about it.
How this wealth distribution plays out may have significant repercussions on a variety of sectors — especially the balance between luxury and discount goods.
It is definitely worth keeping an eye on this in the near future . . .
Economic View: Income Inequality, and Its Cost
NYTimes, June 25, 2006
It will be interesting to see what sources of income the middle class generates to sustain itself.
Since outsourcing mainly hits the middle class from it’s lower factory jobs to the software engineers, accounts and lawyers, I would think the next couple of decades will witness a middle class creating new sources of income.
More involvement in entrepreneurship (starting new software companies or selling coins on eBay) or other interesting blends of talent and capital.
When the economy is consumer centric, the top 10% take over. When the economy is focused on infrastructure or goods and services for the masses, the middle class prospers.
Instead of adopting anti-government ideals, Americans should work together to try to make its leaders more efficient. With 300M people clinging to their personal rights and freedoms, government is a fact of life and QUITE important.
I think Keynes addresses this best here. The greatest problem with a “service” based economy is that the only factor of production that can be changed is wages. When the only comparative advantage one place has over another is wages, wages will decline.
“you fatten ’em up enough & them wealthy is good eatin'”
Class warfare is easy to wage (and extremely lucrative for the $ elites) in a society as aspirational as ours. History suggests however that it’s not cool to push around Ralph Cramden forever though.
Congressional acol pay raises? Tax cuts? Ungodly amounts of Corporate welfare (never got around to ending THAT “as we know it”) and Legislative largesse…Minimum wage increase shot down again (9 years running) Priceless citizen Ritholtz
In the same vein, see MSN story on “average” CEO making 269 times the average worker. For that kind of money they better be better than average, or backdating their options, or both. LOL if it weren’t so sad.
My error. 262 times the average worker. What a bargain.
Add in a negative savings rate, consumer debt, and real inflation and you come to the conclusion that most people are worse off as time goes by. What happens next?
The chart itself is not sufficient to show compression of the middle class. It may be happening but for comparative analysis we need to see a chart of the changes in income of the middle class in real dollars over the last 90 years as well because its possible for the upper class to increase its share while the middle class still increases its real dollar incomes if the pie is growing fast enough.
Anyone have access to such a chart. I would suspect it shows some slight compression in the last 6 years but I would bet it shows ever increasing growth up until about 2001 and that the real dollar income of the middle class is significantly higher than it was 50 years ago.
I agree that there are many storm clouds on the horizon that are going to make it more difficult for the middle class to continue to increase their real dollar incomes but the so called compression going on now I suspect is pretty minimal in comparison to where the middle class came from.
The problem is the middle class (as is every class) is used to spending at 2000 levels and to take a step back from that is extremely painful.
The only way the size of the pie would be relevant would be if you were to argue the middle class enjoys a lifestyle better than the prior generation despite lower proportional income. The chart is simply saying the middle class enjoy a smaller porportion of overall income.
That is precisely the question I am asking, and a chart of middle class income in real dollars would answer that question. I suspect the answer is increasing real dollar incomes up until about 2001. But having the data would answer it better than guessing.
Stop whining, you lowly serfs and remember Chimperor McFlightsuit’s command “MAKE THE PIE HIGHER”
Manufacturing creates a strong middle class and is the wealth of a nation. The US industrial complex should be the #1 priority of our nation like it is for Europe, Japan, China, etc. , not the bankers, the service economy, nor the owners of the shopping centers.
I think Barry’s comments about perspective are also pertinent. I live in San Francisco and a low 6 figure income does not buy a luxurious lifestyle here. If memory serves, it takes about $87,000 in income to qualify for the top 10% of income tax filers. If you adjust that for housing costs, local cost of living, etc I think there are lot more people who are “middle class” in terms of lifestyle than the graph above represents. I think any classification without these adjustments is flawed in a practical sense. I am not aware of any study that explores this.
The kids are learning to build guilds again, though – my kids are all about the gaming right now, with World of Warcraft and other massively multiplayer games, including Guild Wars, and live role playing games. They are learning about communities, working together with small groups, and forming guilds and alliances.
Funny that these skills are important to kids now, hmm?
It could be that the wage-earning middle class was a historical anomaly of the pre-globalized industrial age.
Another parallel that can be derived from the disappearing middle class is that as people’s debt levels have gone up it seems they have slowly slipped into a lower income bracket. Is this coincident or has the brainwashing by the banking system that tells people they need to borrow to get wealthy all been a crock?
We need correlations here.
I will also add that part of the problem was that huge surge of boomers that was fighting over the jobs the last 30 years. They created an environment favorable to management and owners thus driving down wages for the ‘common’ man.
As they begin to leave the work force supply/demand factors should start to shift once again in favor of labor. I don’t know how this will play out in the US with all that immigration flooding over the border but up in Canada companies are already reporting that many jobs are going unfulfilled. They are also begging the government to extend retirement and open up the borders.
I believe that this will be happening in Europe soon too as their populations age.
Will it happen in the US? That is the $64,000 question
I can’t believe half the people you know on Wall Street make less than $250k. Better count again.
For a very good read that’ll add historic perspective find a copy of the Fourth Turning. It presents a masterful thesis in a very usable metaphor. It was written in 1997 by Strauss and Howe. Avoid the tendency to think ahead while you read it and it’ll be an even better read. Then if you’re feeling brave go read RN Elliot’s thinking and put the two together and presto….a great perspective on the middle class and more.
The middle class has always been the tail end of a distribution that has it mode among the working poor. This tail is becoming thinner as the rich become wealthier.
Living standards double about every 50 years. While that is improvement, the lost growth in the last 6 years represents a substantial fraction of that. Moreover it leads to doubt about future progress entirely.
As they begin to leave the work force supply/demand factors should start to shift once again in favor of labor.
Or not. As they have to delay their retirements due to lack of savings and increasing number of jobs are outsourced offshore, the balance may not shift in favor of labor for decades.
Is this gap sustainable?
I would love to hear perspectives on that.
The middle class certainly can out vote any other class.
This gives them it seems to me some power to reverse this trend.
Since 1982 as income tax rates have been reduced several times, payroll tax rates have been raised even more. PR tax is taken with the first dollar earned, yet no earnings are taxed above $90k. The tax burden has thus become ever more un-progressive.
The massive shift in wealth from the middle class to the top has dwarfed any in the history of commerce. The supposed beneficiaries of trickle-down? They’re finding they’ve been p*ssed-on.
Read Ravi Batra’s recent book, “Greenspan’s Fraud” (Click Here) if you want a comprehensive and dispiriting analysis of how the middle class is returning to serfdom.
That may be. I still would like to see a chart of incomes in real inflation adjusted dollars for the middle class.
Its not complicated. I am not making a political statement. I am just trying to ascertain if the compression is relative or absolute. If its only compression relative to the ultra rich but the middle class is still increasing its overall real dollar incomes then the situation is not as dire as statistics can be made to show. If the compression is absolute then that would portend some serious consequences.
And as I mentioned, I think there is a good chance we could be heading towards absolute compression. My suspicion however is that so far the compression is only relative to the rich. I think its the next generation that is likely to come out worse off than the current generation.
«It could be that the wage-earning middle class was a historical anomaly of the pre-globalized industrial age.»
The chart above is a nicer looking version of a chart in the Economist that I have mentioned in other comments, and my take was and is that it is not coincidental that the lower part of the graph coincides almost exactly with the Cold War.
It looks as if a robust middle class with a stake in the success of capitalism was considered a regrettable necessity to secure the home front in the war against the USSR, and once the war ended, to be disposed of.
Of course this can influence trading a lot: Buffett has made a very large amount of money investing in companies selling to the middle classes, as they have enjoyed better-than-GDP growth and margins during the Cold War.
Some economists (as a recent article in the Economist reports) now think that better than average growth will happen for companies and workers targeting markets and jobs of interest to the top 10% or 1% of consumers, not the mass market of the middle class.
So perhaps among brands Gillette and Coca-Cola will underperform, and Vuitton and Tiffany will outperform.
A great read is the NYT series ‘Class matters’ http://www.nytimes.com/pages/national/class/index.html
DavidB, local/national supply and demand do not mean very much for the jobs that are subject to outsourcing. So immigration is not the problem, nor is outsourcing. The long term problem is the failing education system and the short term problem is the weak safety net, a better job reeducation program needs to be in place so manufacturing efficiencies can be realized.
The middle class have held steady in absolute terms but even this has been tenuous and is showing weakening especially due to accelerating inflation. Looking at the real income of income deciles or income thresholds of them would demonstrate this.
Another interesting way to look at these issues is via the Gini coefficient: http://en.wikipedia.org/wiki/Gini_coefficient
“The Gini coefficient is a measure of inequality of a distribution, defined as the ratio of area between the Lorenz curve of the distribution and the curve of the uniform distribution, to the area under the uniform distribution. It is often used to measure income inequality. It is a number between 0 and 1, where 0 corresponds to perfect equality (i.e. everyone has the same income) and 1 corresponds to perfect inequality (i.e. one person has all the income, while everyone else has zero income). It was developed by the Italian statistician Corrado Gini and published in his 1912 paper “Variabilità e mutabilità” (“Variability and Mutability”). The Gini coefficient is equal to half of the relative mean difference. The Gini index is the Gini coefficient expressed as a percentage, and is equal to the Gini coefficient multiplied by 100.”
Here’s a cool graph:
Not a strict measure of middle class income but interesting…
Interesting quote from that NYT article:
Unchecked inequality may also tend to create still more inequality. Edward L. Glaeser, a professor of economics at Harvard, argues that as the rich become richer and acquire greater political influence, they may support policies that make themselves even wealthier at the expense of others. In a paper published last July, he said, “If the rich can influence political outcomes through lobbying activities or membership in special interest groups, then more inequality could lead to less redistribution rather than more.”
There is a very big (and very wrong) assumption in that article: that increased redistribution reduces inequality. It actually increases it.
There is a reason why your average billionaire favors higher taxes and death taxes; he can afford to pay them, and the pile is already made.
Think about the pain of taxes (forced redistribution) relative to income. Those who are wealthy can afford to be redistribution inclined because the extra tax bite causes no pain for them. The utility on a few million lost to the taxman is less than the perceived moral / psychological gain.
The irony is that policies of redistribution tend to hit the up-and-coming harder than anyone else. It isn’t the poor man who despises higher marginal tax rates, but the aspiring man (or woman) trying to overcome the headwinds of excessive taxation. It’s a lot harder to make that million, or turn your business into a multi-million dollar enterprise, when you have to hand over such a big chunk of your precious earnings to uncle sam.
Historically the greatest instances of inequality have occurred in socialist countries, not capitalist ones. In the old soviet union, political connections were a sort of unearned wealth. The ability to work the system was a sort of unproductive productivity. And the inequality represented by those at the top of the food chain was far more ugly, and more permanent, than anything in capitalist society today.
As you noted, your perspective is skewed by your surroundings. However, the data suggests that you are overweighting your social scene when looking at the concentration of wealth in New York City. 237k is a huge amount of money anywhere, even in NYC.
A quick google search pulled up a slightly dated analysis of wealth disparity in NYC vs. the nation.
New York has higher mean wealth, but it has lower median wealth than the nation as a whole because fewer people own property.
In addition, I think the definition of middle class is being used in a social manner, rather than an income manner when you assert that a person making 237k is middle class. I am always forced to argue this point with folks making more than 100k a year that, technically, they are at least upper middle class, if not upper class. Being in the top 2-3% of earners for multiple years should automatically qualify a person for upper class status. Cost of living is a red herring. You can cram 8 or 9 people into a 2 bedroom apartment to live in New York or San Francisco while earning a living working at burger king. As long as that is the case, people making more than 100k need a reality check.
Some detailed income info is available at http://www.census.gov/hhes/www/income/histinc/h01ar.html
In constant 2004 dollars, the upper limit of the fourth quintile, 80%, and lower limit of the upper 5% were
1970 61,765 97,633
1980 68,352 109,999
1990 77,366 132,782
2000 89,688 159,290
2004 $88,029 $157,185
There is a tendency toward greater extremes of wealth in a free society over time. The increase in knowledge allows the increase in creation of value. This is not at the expense of the poor & middle class.
As far as Federal Income taxes go, the affluent pay in greater proportion than their degree of affluence. In example, the bottom 50% of earners pay about 5% of the tax–tho’ they receive well more than 5% of the income.
Having said that, I aver that CEO’s are grossly over-paid. As are basketball players, actors, singers, et al.
Rumsfeld, I take it you don’t live in or anywhere near NYC? Come on over and see what $237k buys you in our town. The average 1 bedroom apartment rents for $3000 a month. The average purchase price of an apartment is around $1 million with coop fees easily topping $1k a month. Throw in a car, parking at $600 a month for a lot (forget parking on the street), NYC taxes of 4% on top of federal and state portions and the overall higher cost of living and $237k doesn’t really get you all that far. Note I didn’t even point out the cost of education for children as you wouldn’t dare send them to the public schools. That’ll run you back $15-$20k a year per child.
Redistribution can have any effect that is desired. Communist countries use redistribution to favor politically connected people. Corporatist countries (like the US) also use redistribution to favor politically connected people. The difference is that communists claim that they are helping the poor while corporatists claim they are enabling free markets.
When done properly, socialism reduces poverty and other similar problems. The Soviet Union and China have never been socialist. Sweden is a good example of a socialist economy. They have good, universal health care and strong unemployment insurance. They have good education for everyone. As a result, they have a happy, healthy population.
The problem with socialism is that people tend to get carried away. The right way to do it is to guarantee a minimum standard of living for everyone. The guaranteed lifestyle should be good enough that you don’t have to worry about dieing from starvation but bad enough that you aren’t interested in freeloading. Anything beyond that is counterproductive.
Income equality isn’t a very worthwhile goal. If you have perfect income equality, you have no incentives. A much better goal is the elmination of poverty. We could easily afford that if we decided to.
I would be willing to significantly reduce my chances of becoming rich someday in exchange for a guarantee that I will never be starving, homeless, or unable to recieve regular health care for financial reasons regardless of how unlucky I am or how badly I screw up. If we get a severe recession right now, I suspect a lot of other people will decide that is a worthwhile trade-off. All it will take is an honest politican with a good plan and it will happen. Given how badly conservative economic policies have worked out for most people, it is almost a sure thing that we will start moving towards socialism by the end of the decade.
There is no way the middle class will go down without a fight. Now that the majority of people have had a middle-class lifestyle, there will be rioting if things get too bad for the middle class while the rich prosper. Any rich person who arrogantly states that you’ll have to pry their money out of their cold, dead hands may find that the majority of people are more willing to do so than to be squashed down to poverty.
The important question is not how rich the rich are getting. It is how well the middle-class is doing. Any economy that keeps the majority of people fed, housed, and entertained can survive indefinitely, regardless of how bad the inequalities are.
Speaking of perspective.
Size of their Middle Class:
Japan …………… 90.0%
Sweden ………… 79.0%
Norway ………… 73.4%
Germany ……..… 70.1%
Switzerland ……. 67.2%
Netherlands ….… 62.5%
Canada …….…… 58.5%
United Kingdom .. 58.5%
United States …… 53.7%
(Now the data is a little stale, but I’m sure it’s still respectively relevant. In this instance a “Middle Class” is standardized as, those people with incomes between 33% less than the national median and 50% more than the national median, for comparison.)
I wonder how much the changing income distribution accounts for the fact that we have had so much asset price inflation while prices of goods and services have been relatively stable. Giving money to the top of the distribution seems likely to shift the preference of the average dollar of income away from consumption of goods and services and towards ownership of assets. I wonder how much of the high stock P/Es, housing price rises etc are explained by that effect?
“Working class” people actually pay a higher percentage of income in taxes than the rich do.
Workers pay roughly 25% in Federal and local taxes and roughly 20% of income to Social Security (which is spent immedately and not invested). That “retirement” tax is eliminated completely after income rises above $90K.
The rich earn income from dividends (15% rate)
Real estate (deductions painted all over)
Etc with loopholes scattered liberally
While most workers (above 75%) claim the standard deduction.
One problem I note for the society that can “reduce my chances of becoming rich someday in exchange for a guarantee that I will never be starving, homeless, or unable to recieve [sic] regular health care for financial reasons regardless of how unlucky I am or how badly I screw up.” usually stifles innovation. It would be interesting to see how is Sweden doing in Nobel prize winners? New patents? large multinational business on the cutting edge? Well, there’s IKEA.
My guess is the utopian Sweden has been largely freeriding off the innovation of those heartless capitalist innovators.
Guarantee a minimum standard of living and many, many people will say, “thanks, that’s good enough for me” and not give anything in return.” Usually enough so that a large % of the people are working double plus good to pay for other’s people’s negative input to the minimum standard system.
As Hayek noted here is the conundrum in a nutshell: “All it will take is an honest politican with a good plan and it will happen.”
Honest politician with a Good Plan. Isn’t that a double oxymoron?
Barry may be referring to the enormous army of support people that work on Wall Street and earn significantly less than the 237k amount.
«Redistribution can have any effect that is desired. Communist countries use redistribution to favor politically connected people. Corporatist countries (like the US) also use redistribution to favor politically connected people. The difference is that communists claim that they are helping the poor while corporatists claim they are enabling free markets.»
An amusing and not unfair summary :-)
«If we get a severe recession right now, I suspect a lot of other people will decide that is a worthwhile trade-off.»
Not in the USA; as The Economist never tires to point out, most of USA citizens think they will up in top 10%. This the same culture under which, as the Financial Times points out, 20% of USA citizens think they will be among the victims of a terrorist attack.
When popular culture is like that, ah well.
«[ … ] it is almost a sure thing that we will start moving towards socialism by the end of the decade. There is no way the middle class will go down without a fight. Now that the majority of people have had a middle-class lifestyle, there will be rioting if things get too bad for the middle class while the rich prosper.»
I think that there won’t be socialism, but high sustained inflation instead of a severe recession; because the middle classes will vote for government to bail them out of their mortgages; it is negative net worth that would be «too bad». Bu then too bad is hard to avoid for those with ARMs, they will curse Easy Al to their grave and beyond :-).
«Size of their Middle Class: [ … ] In this instance a “Middle Class” is standardized as, those people with incomes between 33% less than the national median and 50»
Interesting and not unexpected numbers, but the definition of ”middle class” given is both too wide and misleading. I would define it more in sociometric than income terms, at least for ”rich” countries, like marketers do.
«Giving money to the top of the distribution seems likely to shift the preference of the average dollar of income away from consumption of goods and services and towards ownership of assets.»
Which should have the effect of reducing demand for consumer goods and raising that for luxury goods.
«I wonder how much of the high stock P/Es, housing price rises etc are explained by that effect?»
That’s what many people think too. Easy Al, offshoring and immigration have moved a lot of GDP from workers to asset owners, and this has meant that demand for things typically purchased by workers has been lower than it could have been, so muted inflation for tradable manufactures, and demand for things typically purchased by the well off has zoomed, which probably includes all of assets, as the well off save more than they spend (unless they are Trump perhaps :->).
«“Working class” people actually pay a higher percentage of income in taxes than the rich do.
Workers pay roughly 25% in Federal and local taxes and roughly 20% of income to Social Security (which is spent immedately and not invested).»
Not quite that bad, the total (state+federal) tax take is more or less a flat 27-29% across all incomes, except the very high or very low, where it is somewhat lower. There is a cute summary from 2002 which is still mostly reliable here (found it in another set of comments):
«It’s a lot harder to make that million, or turn your business into a multi-million dollar enterprise, when you have to hand over such a big chunk of your precious earnings to uncle sam. »
Well said! Those unambitious work shirkers whose problem is to find the money to pay the dentist just can’t understand the pain of having your path to millionaire status undermined by taxation… :-)
«Historically the greatest instances of inequality have occurred in socialist countries, not capitalist ones. In the old soviet union, political connections were a sort of unearned wealth.»
The Soviet Union had a corporatist attitude as you describe; someone defined Soviet Communism as ”a system run for the benefit of management”, which might apply elsewhere too… :-)
But it sounds ridiculous to me to argue that the Soviet Union or other ex-communist dictatorships were most inequal; because one of their few achievements was equal mediocrity for all, and ”management” enjoyed much coveted privileges like a country cottage or a car or foreign travel or good quality meat which were not that much more luxurious than the lifestyle of most of the population, which was usually well educated and fairly secure, even if living in a sort of genteel poverty. Except for the Gulag prisoners of course.
The really unequal countries are/were the feudal dictatorships (e.g. Iraq under Saddam) or the countries with a pervasive two-tier system based on racism. ‘Damian’ mentioned the Wikipedia page on the Gini coefficient, and it has another very nice map:
Even if Russia has become much more unequal in the past 15 years, it is still about as equal as Egypt or India (and this unfortunately is because most of its citizens are poor), and the really bad places are South America (the two tiers are criollo and native), central african countries (arab and black), and the southern african ones (white and black or feudal).
Can it really be that quick that we have forgotten the sickness that was the Soviet Union only 20 years ago.
The USSR was not a country of mediocrity. It was a mass of barely above subsistence peasants lorded over by a dictator class who rose to the level, by western standards, of mediocrity, but by the insulated system of the USSR they were multiple times wealthier than their serfs. They ruled by oppression, secret police, random incarceration and “disappearances”. The whole system only fell apart when even the mediocrity that was the mandarin class realized they were going down the tubes with everyone else, when their serfs shrugged and preferred death or alcoholism over continuing to slave for their masters.
Equality of opportunity is much more important than equality of results. Where there is opportunity there is hope. Where there is equality of results there is “dumbing down” to the lowest common denominator.
“The important question is not how rich the rich are getting. It is how well the middle-class is doing. Any economy that keeps the majority of people fed, housed, and entertained can survive indefinitely, regardless of how bad the inequalities are.”
Hooray for bread and circuses.
I believe that it is important to consider the effects of inflation on the process of cramming down the mid class. I was personally very curious as to the average prevailing wage in the country before 1971’s delinking of the $ from gold and found that a reasonable estimate was $2.50/hr. This was corroborated by an op ed piece in the local news paper where the writer stated that he entered the work force at 1.95/hr in 1967.
$2.62/ hr in 1969 was the equiv of 3 ozs of gold/week.
(2.62 x 40 = 105 and $35 x 3 = 105)
Today at $580/oz a salary of 3 ozs per week would be the equiv of over $90,000. How many average coll grads will ever make more than 90G / year in their lifetimes? Today’s median income is just north of $45,000. And the punch line is, of course, that they paid a smaller percentage of their incomes in taxes back in 69.
Thank you for that data. It confirms exactly what I suspected. Constantly increasing real dollar incomes adjusted for inflation up until about 2000 or 2001 and then a very slight fall off.
The question is where it goes from here. If the fall of continues and accelerates it will eventually create serious problems. However if it is stopped and reverts back up then it will not be a problem.
There will be the usually complaints about the rich getting rich, which they are. But if the middle class is also getting richer even at a slower pace, I don’t see how that will lead to any kind of disaster.
Only if the middle class is dying, starving, not able to get an education, etc, will it be a problem.
Perhaps price trends will take us there but until such time, richer rich does not mean disaster unless you also get poorer poor and poorer middle class and poorer cannot be defined as some percent of total wealth or increasingly raised arbitrary poverty level. It can only be defined in constant inflation adjusted dollers. If that number doesn’t go down, then no one is getting poorer.
« Interesting and not unexpected numbers, but the definition of ”middle class” given is both too wide and misleading. I would define it more in sociometric than income terms, at least for ”rich” countries, like marketers do. »
Good luck. Those societies are far too different for that kind of comparison. The definition I referenced is the standard utilized to make international comparisons.
“as The Economist never tires to point out, most of USA citizens think they will up in top 10%” – Blissex
I have always found the phenomenon of mass delusion interesting and the extent of ignorance in regard to income distribution puzzling. But only to a degree, for the interesting bits you do need to search (a little)
Example, from the Dew-Becker/Gordon “Where Did the Productivity Growth Go?” paper
Between 1972 and 2001 the wage and salary income at the :
90th percentile distribution rose 34 percent (roughly 1 percent/yr)
99th percentile rose 87 percent (roughly 3 percent/yr)
99.9th percentile rose 181 percent (roughly 6 percent/yr)
99.99th percentile rose 497 percent (roughly 16.5 percent/yr)
And how do these percentile break out? Tax Policy Center estimates that for 2006 the:
99th percentile will correspond to an income of $402,306*
99.9th percentile will correspond to an income of $1,672,726
No number for the 99.99th percentile, but everyone’s guessing in the $6 million range.
And taxes! Well….
Another time perhaps.
*Barry’s $237,000 remember is the lower end of a range of incomes
The rich got poorer and made less during 2001-2004, and the average, poor, and middle-class Americans all made more money.
NYTimes, Feb 24, 2006:
“The savings of people at the top 10 percent of the income scale declined by 6 percent, …their income, on average, fell by about the same proportion. (Meanwhile, the typical American’s income rose by 1.6%.)”
Top 10% average income fell by 6.297% according to the FRB survey of Consumer finances.
The poorest 20% made 1.8% more over that time frame.
Never thought I’d see the NYT admit the poor got richer and the rich got less. All numbers are real, that is, inflation-adjusted.
I framed the paper copy of this article for my wall.
You brought up the “ignore statistical oddities at your own peril” issue and whenever I look at any figure over time I try to do just that.
I make sure I “deconstruct” the variables on the axis and think, “what anamolous events could skew one variable over time”. Easy things might be something like a potato blight pushing immigration from one are which might tilt a decade of NYC relgious figures (and would be more about potatos than comparative appeals of a religion)
I truly wonder about the “income” figure… annectdotally it may be correct however I wonder if the issue is really so pronounced.
A higher fluctuation in income could also easily explain the chart without any real growign disparity in earnings. For example, if a persons compensation were deffered either as an entrepeneur building then selling a buisness, or an employee recieving stock options that they cashed in once every five years, the years where compensation were realized could easily be 5 times their normal earnings. Simlar issues might be involved with the sale of a home, a roth ira conversion etc if such were included in “income”.
Even if income were restricted to “salary” and “wage” type earnings, the chart could be vastly skewed if there had been a decade trend (which I think there may have been) to have more and more incentive “pay” in “middle class” type earners.
Certainly the lottery aspect of two equally skilled engineers picking companies with different stock performances and hence vastly diferent finacial compensation over a decade is still related to rich get richer. If an engineer were too make 580k one year of 5 and 80k the other four, the chart should reflect 180k annual earnings if you wanted it to be a useful historical indicator and such winfalls are a major stuctural shift in compensation.
I am pretty sure these sort of thinks would flatten out the curve.