Category Archives: Income Inequality/Gap

The future of work in black America

Source: Kelemwork Cook, Duwain Pinder, Shelley Stewart III, Amaka Uchegbu, Jason Wright, McKinsey October 2019

From the summary:
There is a well-documented, persistent, and growing racial wealth gap between African American families and white families in the United States. Studies indicate the median white family in the United States holds more than ten times the wealth of the median African American family.

Apart from its obvious negative impact on African American individuals, families, and communities, the racial wealth gap constrains the entire US economy. In a previous report, we projected that closing the racial wealth gap could net the US economy between $1.1 trillion and $1.5 trillion by 2028.

Despite this, the racial wealth gap threatens to grow as norms, standards, and opportunities in the current US workplace change and exacerbate existing income disparities. One critical disrupter will be the adoption of automation and other digital technologies by companies worldwide. According to estimates from the McKinsey Global Institute, companies have already invested between $20 billion and $30 billion in artificial intelligence technologies and applications. End users, businesses, and economies are hoping to significantly increase their productivity and capacity for innovation through using such technologies.

Related:
The economic impact of closing the racial wealth gap
Source: Nick Noel, Duwain Pinder, Shelley Stewart III, and Jason Wright, McKinsey, August 2019

From the summary:
The persistent racial wealth gap in the United States is a burden on black Americans as well as the overall economy. New research quantifies the impact of closing the gap and identifies key sources of this socioeconomic inequity.

The United States has spent the past century expanding its economic power, and it shows in American families’ wealth. Despite income stagnation outside the circle of high earners, median family wealth grew from $83,000 in 1992 to $97,000 in 2016 (in 2016 dollars).

Beyond the overall growth in top-line numbers, however, the growth in household wealth (defined as net worth—the net value of each family’s liquid and illiquid assets and debts) has not been inclusive. In wealth, black individuals, families, and communities tend to lag behind their white counterparts. Indeed, the median white family had more than ten times the wealth of the median black family in 2016 (Exhibit 1). In fact, the racial wealth gap between black and white families grew from about $100,000 in 1992 to $154,000 in 2016, in part because white families gained significantly more wealth (with the median increasing by $54,000), while median wealth for black families did not grow at all in real terms over that period…..

Financial Asset Inequality and Its Implications for Retirement Security

Source: Nari Rhee, Tyler Bond, National Institute on Retirement Security, Issue Brief, September 2019

From the summary:

A new research brief finds that financial asset inequality among Americans continues to increase, and the inequality is consistent across generations. This wealth inequality, combined with dangerously low retirement savings among most households, poses a significant threat to retirement for working Americans.

The new analysis indicates that from 2004 to 2016, the share of financial assets owned by the top 25 percent of Baby Boomer households grew from 86 percent to 91 percent. Meanwhile, the share of assets owned by the bottom 50 percent of Baby Boomer households shrank from three percent in 2004 to below two percent in 2016.

Among GenX households, the wealthiest top 25 percent owned 87 percent of financial assets in 2016. Millennials in 2016 reached a comparable degree of financial asset concentration, with 85 percent of financial assets owned by the wealthiest 25 percent.

The research brief also recommends three well-established public policies to help improve retirement security for working Americans:

Why Are Some Places So Much More Unequal Than Others?

Source: Jaison R. Abel and Richard Deitz, Federal Reserve Bank of New York, Economic Policy Review, Forthcoming [2019]

From the abstract:
This study examines the magnitude and sources of regional wage inequality in the United States. The authors find that, as in the nation as a whole, wage inequality has increased in nearly every metropolitan area since the early 1980s, though there is significant variation among places in both the degree of wage inequality and the pace at which it has risen. The most unequal places tend to be large urban areas that have benefited from strong demand for skill and agglomeration economies, with these factors leading to particularly rapid wage growth for high-skilled workers. The least unequal places tend to have seen weak demand for labor, largely as a consequence of technological change and globalization, and this weakness has led to lackluster wage growth across the entire wage distribution— particularly for middle- and lower-skilled workers. These findings suggest that a relatively low level of regional wage inequality is often the result of a weakening local economy, while relatively high regional wage inequality is often a consequence of strong but uneven economic growth.

Closing the Gender Pay Gap

Source: Tamara Lytle, HR Magazine, Vol. 64 no. 2, Summer 2019
(subscription required)

The gender pay gap has been stubbornly hard to close, but the tide may be turning.

…. These pay gaps are due to many factors, including women’s stepping out of the workforce for family obligations, the concentration of women in certain relatively low-paying “pink collar” occupations (such as teaching and hospitality), stereotypes that women aren’t tough negotiators on pay and plain old bias, whether conscious or not. ….

…. Big-Picture Questions on Pay Disparities

• Do women generally wait longer than men for promotions?
• Are female workers shunted into lower-paying jobs?
• Are performance reviews based on subjective factors that can be clouded by unconscious bias?
• Is the company culture welcoming to women?
• Are there gender differences in nonsalary compensation such as bonuses, overtime opportunities and stock options?

The Rich Can’t Get Richer Forever, Can They?

Source: Liaquat Ahamed, New Yorker, August 26, 2019

Inequality comes in waves. The question is when this one will break. ….

…. Tocqueville, who was the youngest son of a count, was deeply impressed by how equal the economic conditions in the United States were. It was, at the time, an accurate assessment. The United States was the world’s most egalitarian society. Wages in the young nation were higher than in Europe, and land in the West was abundant and cheap. There were rich people, but they weren’t super-rich, like European aristocrats. According to “Unequal Gains: American Growth and Inequality Since 1700,” by the economic historians Peter H. Lindert and Jeffrey G. Williamson, the share of national income going to the richest one per cent of the population was more than twenty per cent in Britain but below ten per cent in America. The prevailing ideology of the country favored equality (though, to be sure, only for whites); Americans were proud that there was a relatively small gap between rich and poor. “Can any condition of society be more desirable than this?” Thomas Jefferson bragged to a friend.

Today, the top one per cent in this country gets about twenty per cent of the income, similar to the distribution found across the Atlantic in Tocqueville’s day. How did the United States go from being the most egalitarian country in the West to being one of the most unequal? The course from there to here, it turns out, isn’t a straight line. During the past two centuries, inequality in America has been on something of a roller-coaster ride. …..

US Labor Studies in the Twenty-First Century: Understanding Laborism Without Labor

Source: Jake Rosenfeld, Annual Review of Sociology, Vol. 45, July 2019
(subscription required)

From the abstract:
In recent years, labor studies has flourished even as labor unions in the United States have continued their long-term downward trajectory. One strain of this research has situated the labor movement, and its decline, at the center of economic inequality’s rise in the United States. Another has explored the labor movement’s interconnections with political dynamics in the contemporary United States, including how labor’s demise has reshaped the polity and policies. This body of scholarship also offers insights into recent stirrings of labor resurgence, ranging from the teachers’ strikes of 2017 to the Fight for 15 minimum wage initiatives. Yet the field’s reliance on official union membership rates as the standard measure of union strength, and on official strike statistics as the standard measure of union activism, prevents it from fully understanding the scope and durability of worker activism in the post-Wagner age.

The Wage Gap: No One’s Responsibility, But Everyone’s Problem

Source: Lori Allen Ford, Bryan J. Deptula, Compensation & Benefits Review, OnlineFirst, Published August 7, 2019
(subscription required)

From the abstract:
Wage inequality in America is ballooning. The issue is receiving significant attention in the public discourse but to what avail? It is an issue that affects the entire economy although the suffering thus far has focused primarily on the lower 90% of wage earners. The long-term impacts, however, may be even more encompassing. Regardless of the potential costs, under the currently understood societal roles of corporate leaders and politicians, the issue of wage inequality is currently no one’s specific responsibility to address, but everyone’s problem. We examine the current wage status of the economic classes, the compensation practices that contribute and potential societal and economic costs if no action is taken. Finally, we consider the roles that potential players currently perform and should consider in the future to strategically address this issue.

Tackling the Global Profitarchy: Gender and the Choice of Business Sector

Source: Markus Goldstein, Paula Gonzalez Martinez, Sreelakshmi Papineni, World Bank Policy Research Working Paper No. 8865, May 24, 2019

From the abstract:
Sectoral segregation is often used to explain a large part of a well-documented gender earnings gap in business profits. Women tend to sort into different sectors than men, and the sectors dominated by women tend to be less profitable. This paper investigates the horizontal dimension of sectoral segregation by studying global data on female and male enterprises operating in sectors that are typically dominated by the same and opposite sex. The analysis uses the novel Future of Business dataset, which spans 97 countries and was administered to enterprise owners, managers, and employees who use Facebook. The analysis finds that some of the earnings gap can indeed be explained by sector choice: female-owned businesses in male-dominated sectors make significantly higher profits than those in traditionally female sectors. The evidence points to a hierarchy of earnings, with male-owned businesses in male-dominated sectors earning the most, women in male-dominated sectors and men in female-concentrated sectors in the middle tier, and women in female-concentrated sectors at the bottom. Correlational analysis suggests that women who own businesses in male-dominated sectors are younger, married, and more likely to have inherited the business than women in female-concentrated sectors. They have similar education to women in female-concentrated sectors and present higher self-efficacy but lower entrepreneurial identity and commitment to the sector. Male support networks appear to be key for female-owned firms, with co-ownership with husbands and male role models factoring into the decision to cross over.

Stranded! How Rising Inequality Suppressed Us Migration and Hurt Those Left Behind

Source: Tamim Bayoumi, Jelle Barkema, International Monetary Fund (IMF), IMF Working Paper No. 19/122, June 2019

From the abstract:
Using bilateral data on migration across US metro areas, we find strong evidence that increasing house price and income inequality has reduced long distance migration, the type most linked to jobs. For those migrating uphill, from a less to a more prosperous location, lower mobility is driven by increasing house price inequlity, as the disincentives from higher house prices dominate the incentives from higher earnings. By contrast, increasing income inequality drives the fall in downhill migration as the disincentives from lower earnings dominate the incentives from lower house prices. The model underlines the plight of those trapped in decaying metro areas-those ‘left behind’.

Is Technology Widening the Gender Gap? Automation and the Future of Female Employment

Source: Mariya Brussevich, Era Dabla-Norris, Salma Khalid, IMF Working Paper No. 19/91, May 2019

From the abstract:
Using individual level data on task composition at work for 30 advanced and emerging economies, we find that women, on average, perform more routine tasks than men/tasks that are more prone to automation. To quantify the impact on jobs, we relate data on task composition at work to occupation level estimates of probability of automation, controlling for a rich set of individual characteristics (e.g., education, age, literacy and numeracy skills). Our results indicate that female workers are at a significantly higher risk for displacement by automation than male workers, with 11 percent of the female workforce at high risk of being automated given the current state of technology, albeit with significant cross-country heterogeneity. The probability of automation is lower for younger cohorts of women, and for those in managerial positions.