Income Inequality!

[scottagibson]

How large is the percentage of people in the bottom 20%?

Is this some kind of sneaky trick question?

[Perky_Goth]

Is this some kind of sneaky trick question?

I’m fairly sure he meant “How large is the percentage of people in the bottom 20% that doesn’t move up?”

[Soapyfrog]

“Stagnant” implies no movement over time, and “mobility” means movement over time. So if there is a lot of income mobility, then by definition the people in the bottom 50% won’t have stagnant wages.

Mobility in terms of changing jobs maybe. It is however irrelevant. How is it healthy for the economy to have extremely high wealth inequality at any point?

[Strollen]

But you still have 50% of our population, as a cohort, whether younger or what have you, having a much smaller percentage of our economy than the similar cohort, historically. Telling those folks to “suck it up, it’ll be better when you’re 50” is irrelevant.

If you’re arguing that we’ve now economically “evolved” so that economic adulthood is later in your economic life but that the results are roughly the same, now, I think we need to see some sort of lifetime earning information to know that. And, even if that was the case, I question how sustainable that situation is when so much wealth stays captured in the upper echelons.

Well the economy has changed. Not that long ago, brute strength and physical stamina were important attributes to doing many jobs. For instance longshoreman and had to physical unload/load the cargo of a ship, then we moved to containers and now most of what they do is operate a crane. About half of longshoreman make over 100K and they are almost always older. In the old days, a 60 year old guy couldn’t do the job as well as 20 year old. Now days 60 year old crane old is likely a better crane operator than a 20 year old and the pay reflect its. (OK the ILWU is a very effective union)

[Matt_W]

How large is the percentage of people in the bottom 20%? Where’s your data? Because I’ve already shown that 18% move up within a year, and almost 60% move up over a decade

As before:

If you extrapolate the idea that 58% of people move up over ten years (which was confirmed over two separate ten-year periods), then after 40 years, approximately 3% of the bottom 20% will still be in the bottom. I already did the math for you; do you need me to explain it again?

This is fraught. Some of those folks will move back down. To simplify, let’s say there are 2 income groups: A, the bottom 20% and B, the top 80%. If you’re in A, you have about a 60% chance of making it to B over a decade. If you’re in B, you have about a 30% chance to drop to A. (These numbers are approximately the ones from the sheet.)

In decade 1: 40% of group A stays in group A. A_remain_1=0.4
In decade 2: 40% of the 40% remaining in group A stays there, but 30% of the 60% that moved to group B moves back down to A. A_remain_2=(0.4x0.4)+(0.6x0.3)=0.34
In decade 3: A_remain_3=(0.34x0.4)+(0.66x0.3)=0.334
In decade 4: A_remain_4=(0.334x0.4)+(0.666x0.3)=0.3334

So, a third of folks will have either stayed in or returned to Group A after 4 decades. Obviously there are income gradients here and the farther people move up, the less likely they are to move back down, but the example demonstrates that your 0.4^4 calculation doesn’t produce any useful result.

Income inequality correlates well with both intergenerational immobility and income immobility, which is what you’d expect. The greater the difference between poor and rich, the harder it is to bridge that gap and the greater opportunities there are for the children of rich people.

[ravenight]

As the time increases, a larger and larger percentage move up.

You have two data points and no clear way to assess the trend on either side of them. Since .82^10 is .137, the fact that ~42% of people are still in the bottom quintile after a decade implies that there is some stickiness that isn’t accounted for by a steady rate of moving up. In other words, if everyone in the bottom 20% in 2009 had an 18% chance each year of moving up and staying up, then by 2019, only about 14% of them would remain.

It’s true that this data would be more informative if we could see how much money a person brought in over a period of 5 years or 10 years. That would reduce some of the volatility around those who are in the bottom 20% one year because they were out of work, but then found a job, and it would also smooth out early-career spikes in income (though you could also look only at data for people aged 30-54 or something like that and then separately look at data for people from the younger and older cohorts).

If there was complete mobility, so that everyone’s income was randomly assigned each year from some broader distribution, you could also see a drift in inequality if the tails of the distribution got longer. The average income over a period of time would narrow the distribution, though (and over infinite time, everyone would be at exactly the mean value). The difference between this setup and the real world would be measurable by looking at how well income in year 1 or average income in years 1-5 predicted average income in years 6-10. In the complete mobility case, there would be no relationship. In the real world, there would almost certainly be a strong relationship.

[SlyFrog]

And the article points out, some of the women in these positions have worked for years doing this work, so we’re talking about 50+ years of age, too far from retirement to just stop, but even worse off than mnf. and truck drivers because… no one seems to care.

I just think no matter what we do, retraining programs for anyone displaced, anyone, should be implemented across the country, financially well-supported, and easily accessible. If someone, mostly women but yeah some men, can handle administrative work like that, they’re more than capable of learning something else. Oh yeah and some sort of incentive for employers to higher from those programs too because yeah, it’s usually someone who worked awhile already so a little higher up there in age.

We would also need to end age discrimination somehow. Because people just don’t want to hire retrained 50 and 60 year olds.

[Nesrie]

Age discrimination is already illegal; it’s just really hard to enforce but there are many cases out there.

[Strollen]

We would also need to end age discrimination somehow. Because people just don’t want to hire retrained 50 and 60 year olds.

Ending age discrimination is going to increase inequality. Peak income is between 55-60 and one of the biggest change since the 1960, due to Social Security and Medicare, is that over 65 group moved from being the 2nd poorest age group (behind 20-25 year olds) to the 2nd highest, and wealthiest.

This is really nice article on the impact of age and income.

Visualizing American Income Levels by Age Group

[Nesrie]

Ending age discrimination is going to increase inequality.

Except there isn’t a decision about ending age discrimination. It’s already illegal. It just needs to be enforced.

[Strollen]

Except there isn’t a decision about ending age discrimination. It’s already illegal. It just needs to be enforced.

I agree age discrimination is bad and many of my friends have just gone through it. I’m just pointing out the unintended consequences, all the boomer hanging around and working until they are 65 or more has kept the Gen X and Millennial from getting the well paying management and senior jobs.

[SlyFrog]

Ending age discrimination is going to increase inequality. Peak income is between 55-60 and one of the biggest change since the 1960, due to Social Security and Medicare, is that over 65 group moved from being the 2nd poorest age group (behind 20-25 year olds) to the 2nd highest, and wealthiest.

What’s the average peak income for 55 year olds who have been laid off because they’re old and can’t find another job because they’re old?

[Andy_Bates]

But you still have 50% of our population, as a cohort, whether younger or what have you, having a much smaller percentage of our economy than the similar cohort, historically.

Why does the percentage of the economy matter, if the amount you’re getting is greater? If I get a larger piece of pie, it doesn’t really affect me if the size of the pie has grown by an even greater amount.

Is this some kind of sneaky trick question?

I’m fairly sure he meant “How large is the percentage of people in the bottom 20% that doesn’t move up?”

Yes, exactly. Thanks for clarifying. I mistakenly assumed that he could read my response in the context of his original question.

Mobility in terms of changing jobs maybe. It is however irrelevant. How is it healthy for the economy to have extremely high wealth inequality at any point?

In this context, “mobility” refers to moving between income levels, not just changing jobs. And it’s poverty, not inequality, that harms the people in the lower income classes. If someone makes $30,000 a year, are you saying she’s worse off if Warren Buffett makes $100 billion versus $100 million?

[scottagibson]

I’m fairly sure he meant “How large is the percentage of people in the bottom 20% that doesn’t move up?”

It’s a question we’ve beaten to death, thus he already knows the answer or can refresh his memory by looking up thread. That he’s asking it again is a bad faith tactic and one I can’t be bothered to be charitable about.

[Soapyfrog]

If someone makes $30,000 a year, are you saying she’s worse off if Warren Buffett makes $100 billion versus $100 million?

Quite possibly yes.

[Juan_Raigada]

This is really nice article on the impact of age and income.

https://www.visualcapitalist.com/american-income-levels-by-age-group/

This graph neatly shows that while at certain ages higher percentile workers earn more, that’s not the same for lower percentile workers. It basically disproves any kind of real income mobility below median. The bottom half of 60 year olds is making the same as the bottom half of 35 year olds. So for at least 50% of the population there’s no real mobility at an statistical level.

It also shows very little mobility for the 50-90% percentile after 35 years old.

[Andy_Bates]

It’s a question we’ve beaten to death, thus he already knows the answer or can refresh his memory by looking up thread.

Yes, I do know the answer: It’s a tiny percentage, not the “very large percentage” that you’re claiming. And it’s a small enough percentage that those people would be better served by programs targeted at that specific demographic, rather than worrying about the majority of people who are able to move up on their own.

That he’s asking it again is a bad faith tactic and one I can’t be bothered to be charitable about.

No, I’m asking it again to see if you actually have support for your arguments. Clearly you don’t.

[Perky_Goth]

Why does the percentage of the economy matter, if the amount you’re getting is greater?

Because non-CPI measured costs (and consequent household debt) keeps shooting up, and because the employment to population ration says the statistic is missing a lot more people than the unemployment rate indicates.

And also because a lot of money buys a lot of political megaphones for people who are just fine with politicians who abuse power.

[CraigM]

it doesn’t really affect me if the size of the pie has grown by an even greater amount.

It does when certain things grow beyond the rate of general inflation.

For example, in 1970 the average US household value (in 2019 dollars) was between $99,000-111,000 depending on the inflation calculation used. However in real terms it is now 199,000 for 2019. Meaning that one of the largest, and mandatory, expenditures of a household has increased beyond inflation and beyond the growth in income at the bottom.

Inflation can be, and is, a very useful tool to capture changing economic data. And all data should capture that. However how inflation is calculated is not a perfect tool, and breaks down when you realize what is excluded from the calculation. I.e. it isn’t super helpful for someone at the bottom that general consumer goods like electronics are far cheaper when their housing costs have skyrocketed nullifying their ability to take advantage.

[Andy_Bates]

As before:

And as before, people who stay in the same income group is very different from people who move up to higher income groups and back down again. By your calculations, about 33% of people in the bottom quintile will be there after four decades…but that includes people who got a good job, made a bunch of money, and then retired on a fixed income. The percentage of people who stayed in the bottom quintile for 40 years would be closer to 1 or 2%, not 33%.