Andy do you believe everyone has a somewhat equal shot of ending up in the top 5% of income earners?
I’m going to have to take issue with this. The only “study” I know of is this article which is not a study just an observation and is far from compelling.
The premise seems to be both that divorces made more single parent households with children, and women compete with men on jobs lowering wages employers will pay.
However, if a one wage earner family earned enough before, but doesn’t now that points to wage deflation. There would be earning equivalence between a male widower with children in the 1950s and a single-parent divorced woman with children today. But a single earner then could support the children without the other partner while most single-income families today struggle regardless of if the partner is still present in the household or divorced!
Other economic studies also point that competition is not much of an issue either. First, more workers means more demand meaning more workers needed to make it. The issue is in part where those workers are that are meeting demand, which has nothing to do with gender pay here. Also, once you get out of the highly educated fields, much of the gender pay gap is due to female dominated fields paying less than male ones. So the men and the women are not competing here for the same jobs, making that a red herring when those field based discrepancies close.
There’s a huge amount of literature on this. Charles Murray latest book Coming Apart is focused on this. Basically, income inequality is increasing because high skilled people marry high skilled people. You’re doubling the earning premium as compared to lower-skilled or even single parent households. (Basically 2 effects. 1) the rise of single parent families that consist of 1 earner vs the rise of dual earner married couples 2) educated women now receive the same earnings premium that educated men get. And educated women are working more today than they worked 30 years ago, while for less educated women the trends are reverse(and this trend is souped up for men)
fun media reading.
http://www.nytimes.com/2012/06/13/world/europe/13iht-letter13.html?pagewanted=all
So while husbands and wives have become more equal, inequality between families appears to be on the rise. As Christine R. Schwartz, a professor of sociology at the University of Wisconsin, puts it: “Marriages are increasingly likely to consist of two high- or two low-earning partners,” rather than of one of each.
Looking at data on married couples in the United States from 1967 to 2005, Dr. Schwartz found that increases in general earnings inequality over that period would have been between 25 percent and 30 percent lower in the absence of more assortative mating.
Potentially widening the gap between rich and poor families further is the fact that women nearer the top of the income distribution have increased their hours of paid work relatively more than women nearer the bottom.
I’m guessing he heard about Burkhauser et. al. from some conservative blog (James Pethoukouis flogged it pretty heavily) and he’s just regurgitating it as best he can (obviously not well, given that he reversed where they got their data sets). Burkhauser uses the CPS in order to provide a better household view of inequality in America. In particular it captures the effects of tax units cohabitating, as well as untaxed government transfers and employer-provided health insurance.
What’s amusing is that, to a large degree, Burkhauser indicates that the share of market income for labor has in fact declined, but that decline has been somewhat offset by increased government transfers. What conservatives won’t point out when they’re flogging Burkhauser is that they view the “but” part of that statement as a problem that needs correcting.
Piketty=Saez’s trend data has a big problem with the tax law changes of '86. you have a level adjustment as people altered their tax filing statuses reporting more income on the individual returns. So if you’re trying to compare inequality over time, how do you correct for a huge amount of money entering as a result of exogenous change? I don’t think you can compare pre-and post 86 tax return data due to these changes.
Change in median household annual income has nothing to do with how long you have “been in line.” Don’t try to change the subject or make it sound like you were addressing the earlier comment, when you really weren’t.
Somewhat related, Greg Mankiw had an interesting post recently.
I’m shocked it hasen’t made the rounds, you would think people would make hay out of this.
From 2009 so right during the economy meltdown and doesn’t include state and local taxes. Not sure what you can really draw from that.
On the OP about the general issue of inquality, I get a kick out of the “inequality is central planning” argument:
“Wealthy people invest in financial assets; they create asset bubbles. When wealth is distributed more equally, you get more sustainable growth.”
There is an equivalent of a Laffer curve for inequality, but the variable of interest is economic growth rather than tax revenue. We know that a society with perfect equality does not grow at the fastest possible rate. When everyone gets an equal share of income, people lose the incentive to try and get ahead of others. We also know that a society where one person has almost everything while everyone else struggles to survive — the most unequal distribution of income imaginable — will not grow at the fastest possible rate either. Thus, the growth-maximizing level of inequality must lie somewhere between these two extremes.
The answer is that an extreme concentration of wealth at the center of our market economy has led to a form of central planning. The concentration of wealth is now in so few hands and is so extreme in degree, that the combined liquid financial power of all of those not in this small group is inconsequential to determining the direction of the economy. As a result, we now have the equivalent of centralized planning in global marketplaces. A few thousand extremely wealthy people making decisions on the allocation of our collective wealth. The result was inevitable: gross misallocation across all facets of the private economy.
Uhm, yeah. You can read, kudos. He notes those limitations. But I think you can “draw” something from the results, they are pretty startling. But if it threatens some of your sacred cows then please ignore.
Woah. Someone put too much snark in your coffee? What gives.
If those limitations threaten your sacred cows then, please, ignore.
Conversation reboot! Went back to the original post and original question.
Inequality is not bad. What is bad is the inability of the lower rungs of the economic ladder to:
- Live (get food, housing, health care, etc)
- Take Opportunities (choose where to live [within reason], be able to switch careers, etc)
- Advance (be educated, obtain skills for better jobs, etc)
With the proper framework in place to ensure everyone can do those things, it wouldn’t matter how much more was made by the folks above them. So far, we haven’t been able to create such a framework, in large part because paying for it requires taking some of the wealth created at the upper end of the scale and redistributing it to the lower end. And those at that upper end naturally resent and fight against this, seeing such measures as enabling lazy people at the cost of themselves. Plus it’s hard to do such redistribution in an efficient way that does not encourage freeloading.
The gap between rich and poor isn’t the issue. The proper way to maintain standard of living and opportunity for the lower ends of the economic ladder is the question.
Softer skills are more important than wealth redistribution. Education (which has seen a massive funding boost) is key. But so is family structure. An intact married family is a key factor in mobility and even inequality.
I believe that one of the reasons mobility may be lower in the future is because college folks are far more likely to be married and have lower divorce rates. This reinforces softer skills that aid in mobility.
Question for the class: What is the role of society/government to promote intact families and discourage divorce?
http://www.pewstates.org/uploadedFiles/PCS_Assets/2010/Family_Structure.pdf
What you can draw from it is that Mankiw is playing for Team Republican again. He’s best ignored unless he’s publishing an actual paper; his non-research commentary is very hit or miss.
It is straight up CBO data? But they are biased.
You always always have the same response when something challenges your ideals: attack the messanger. Pathetic.
What I “drew” from the results is that Mankiw has chosen comparisons that are provocative at best and misleading at worst. He is specifically contrasting market income to federal transfers. Market income excludes Social Security income, which is taxed at a low rate or not at all. So if you are retired and rely mainly on Social Security, according to Mankiw you are probably receiving hundreds or thousands of dollars of “government largess” for every “dollar earned”.
I take issue with his presupposition that federal benefits like SS are not “earned”. I also think his claims about what the “typical family” takes in and gives back are misleading. There is no typical family, just like there aren’t really any families with 2.3 children.
But all that aside, it should come as no suprise that as more and more middle quintile baby boomers retire, they pay fewer and fewer taxes and draw more and more federal benefits. The only way baby boomers can avoid bringing down the average is to retire at a higher quintile than they worked, and apparently that’s not happening. Go figure.
New article over at the Atlantic that answers the thread title:
I’m not sure it really lives up to the title, since the ending has a lot of “may be” and “potentially” in it. Still, it’s at least some interesting data in the argument.
The rich make the rules, and the rules: they seem to benefit the rich, rape the poor.
Freakonomics posted a link recently to an article that identifies financial illiteracy as a factor in financial inequality:
Our simulations show that endogenous financial knowledge accumulation has the potential to account for a large proportion of wealth inequality.
I didn’t initially understand what “endogenous financial knowledge accumulation” actually meant, but a little dictionary work and looking at the context in the article made it clear: all else being equal, those who have fewer financial resources tend to have less financial knowledge. Makes sense, but unfortunately, one important factor in increasing financial resources is to have the knowledge to use those resources wisely. Sounds to me like an argument for investment in education.