Category Archives: Income Inequality/Gap

Class Warfare: The Disappearance of Low-Income Litigants from the Civil Docket

Source: Myriam E. Gilles, Emory Law Journal, Vol. 65, No. 6, 2016

From the abstract:
In recent years, much attention has been paid to the startling disparities in income and wealth in contemporary U.S. society. The enormous concentration of economic power in the top 1% is the culmination of decades of significant income and wealth gains for the top, combined with stagnant or decreasing growth for the majority – a trend that continues apace. But nowhere is the gap more glaring than in the civil docket, where class actions brought by or on behalf of low-income consumers and employees are on the verge of disappearing.

To be sure, the decline in class actions is only part of the larger story, as procedural and substantive constraints on legal access are visible everywhere – from the “justice gap” and problems of non-representation, to cuts in funding for legal aid and court administration, to heightened pleading standards, increasingly restrictive views of standing to sue, and the modern penchant for the privatization of justice. But the thesis of this essay is that the unavailability of class litigation is disproportionately more harmful to low-income groups – in ways both real and expressive, short- and long-term – than any other, single factor for a number of interrelated reasons. For one, economically-disadvantaged groups are more susceptible to abusive practices in the marketplace and the workplace, suffering disproportionate instances of predatory lending, consumer fraud, unfair wages, and discrimination. More brutally, the impact of class relief – particularly injunctive relief – is more acutely felt by low-income groups. Recent studies show that, to a large and disturbing extent, the poor stay poor. So when members of low-income groups suffer from group-based wrongdoing, they are likely to experience the same or similar wrongdoing again in the future. The failure to detect and deter bad actors who prey on the poor only promotes chronic exploitation and the perpetuation of intractable poverty.

The essay ends by examining an important by-product of the disappearance of low-income claims from the civil docket: as contemporary judges see fewer civil cases brought by or on behalf of poor people, one might expect that they grow will further out of touch with and ill-equipped to manage these claims; and as this reservoir of wisdom empties, judicial attitudes towards the poor harden, growing disdainful and ungenerous. Accordingly, when judges are sporadically faced with the legal claims of low-income groups, it becomes harder to spot (or easier to ignore) patterns of exploitative, abusive conduct by corporate or governmental actors.

Fighting for a Better Life: How Working People Across America are Organizing to Raise Wages and Improve Work

Source: AFL-CIO, January 2016

From the blog post:
Marking nearly one year since the first ever Raising Wages Summit, the AFL-CIO today released a new report detailing the successes, struggles and path ahead to raise wages for working people. The report, “Fighting for a Better Life: How Working People Across America are Organizing to Raise Wages and Improve Work,” finds that over the last year income inequality has shifted from a problem we discuss to a problem we can solve. The report points to clear and unequivocal steps for a path forward. Armed with the solutions outlined in the report, the central conclusion is that America is ready to move beyond the discussion of income inequality and is beginning to write new rules that will shape the economy….. The report goes well beyond direct wage increases, highlighting successes that demonstrate the all-encompassing nature of the raising wages agenda. Numerous organizing victories, paid sick leave laws in multiple states and municipalities and new protections against wage theft if five states are outlined as part of the effort to create an economy built on raising wages. The report also outlines hurdles to further victories, and challenges that remain as the raising wages agenda grows…..

The Dynamics of Inequality

Source: Xavier Gabaix, Jean-Michel Lasry, Pierre-Louis Lions, Benjamin Moll, Centre for Economic Policy Research (CEPR), CEPR Discussion Paper No. DP11028, December 2015
(subscription required)

From the abstract:
The past forty years have seen a rapid rise in top income inequality in the United States. While there is a large number of existing theories of the Pareto tail of the long-run income distributions, almost none of these address the fast rise in top inequality observed in the data. We show that standard theories, which build on a random growth mechanism, generate transition dynamics that are an order of magnitude too slow relative to those observed in the data. We then suggest two parsimonious deviations from the canonical model that can explain such changes: “scale dependence” that may arise from changes in skill prices, and “type dependence,” i.e. the presence of some “high-growth types.” These deviations are consistent with theories in which the increase in top income inequality is driven by the rise of “superstar” entrepreneurs or managers.

An Economy For the 1%: How privilege and power in the economy drive extreme inequality and how this can be stopped

Source: Deborah Hardoon, Sophia Ayele and Ricardo Fuentes-Nieva, Oxfam International, ISBN 978-1-78077-993-5, January 2016

From the press release:
Pre-Davos report shows how 1% now own more than rest of us combined.

Runaway inequality has created a world where 62 people own as much as the poorest half of the world’s population, according to an Oxfam report published today ahead of the annual gathering of the world’s financial and political elites in Davos. This number has fallen dramatically from 388 as recently as 2010 and 80 last year.

An Economy for the 1%, shows that the wealth of the poorest half of the world’s population – that’s 3.6 billion people – has fallen by a trillion dollars since 2010. This 41 per cent drop has occurred despite the global population increasing by around 400 million people during that period. Meanwhile the wealth of the richest 62 has increased by more than half a trillion dollars to $1.76tr. Just nine of the ’62’ are women.

Although world leaders have increasingly talked about the need to tackle inequality, the gap between the richest and the rest has widened dramatically in the past 12 months. Oxfam’s prediction – made ahead of last year’s Davos – that the 1% would soon own more than the rest of us by 2016, actually came true in 2015, a year early….
English summary
English methodology note
English Excel data file
Spanish paper
Spanish summary
French paper
French summary

Martin Luther King Jr. Celebrations Overlook His Critiques of Capitalism and Militarism

Source: Zaid Jilani, The Intercept, January 18, 2016

America’s celebrations of Martin Luther King Jr. typically focus on his civil rights activism: the nonviolent actions that led to the Civil Rights Act of 1964 and the Voting Rights Act of 1965.
The last few years of King’s life, by contrast, are generally overlooked. When he was assassinated in 1968, King was in the midst of waging a radical campaign against economic inequality and poverty, while protesting vigorously against the Vietnam War…..

Basic income for all could lift millions out of poverty – and change how we think about inequality

Source: Ralph Callebert, The Conversation, January 15, 2016

The idea of a basic income for every person has been popping up regularly in recent years. Economists, think tanks, activists and politicians from different stripes have toyed with the idea of governments giving every citizen or resident a minimum income off which to live. This cash transfer could either replace or supplement existing welfare payments. Pilot projects and feasibility studies have been run or are under way in the Netherlands, India, Canada, Finland, France and elsewhere. Even in the U.S., the idea finds support. Alaska, for example, already divides its oil revenues among its residents. Most arguments in favor or against basic income have focused on its feasibility, simplicity, promotion of personal independence or effectiveness at reaching those who fall through the cracks of the welfare state. However, the most important advantage of basic income may not be in its practical application but rather in how it could change the way we think and talk about poverty and inequality…..

Trading Down: Unemployment, Inequality and Other Risks of the Trans-Pacific Partnership Agreement

Source: Jeronim Capaldo and Alex Izurieta with Jomo Kwame Sundaram, Tufts University, Global Development And Environment Institute, GDAE Working Paper 16-01, January 2016

From the summary:
Proponents of the Trans-Pacific Partnership agreement (TPP), the trade and investment treaty recently agreed by the United States and eleven Pacific Rim nations, emphasize the prospective economic benefits, with economic growth increasing due to rising trade and investment. Widely cited projections suggest GDP gains for all countries after ten years, varying from less than half a percentage point in the United States to 13 percent in Vietnam.

In this GDAE Working Paper, the authors employ a more realistic model that incorporates effects on employment excluded from prior TPP modeling. They find that benefits for economic growth are more limited, and they are negative in some countries such as the United States. More importantly, they find that TPP would lead to losses in employment and increases in inequality. This is true particularly for the United States, where GDP is projected to fall slightly, employment would decline, and inequality is projected to increase as labor’s share of income falls.

For this analysis, the authors use existing projections of TPP’s trade impacts and derive alternative macroeconomic projections using the United Nations Global Policy Model (GPM). This model provides more sensible projections because it allows for changes in employment and inequality and incorporates the impact those changes have on aggregate demand and economic growth. A previous GPM-based analysis of the Transatlantic Trade and Investment Partnership (TTIP) between the United States and Europe projected rising unemployment and inequality in Europe with negative impacts on aggregate demand and economic growth.

In this TPP study, the authors find:
– TPP would generate net losses of GDP in the United States and Japan. For the United States, they project that GDP would be 0.54 percent lower than it would be without TPP, 10 years after the treaty enters into force. Japan’s GDP is projected to decrease 0.12 percent.
– Economic gains would be negligible for other participating countries – less than one percent over ten years for developed countries and less than three percent for developing ones. These projections are similar to previous findings that TPP gains would be small for many countries.
– TPP would lead to employment losses in all countries, with a total of 771,000 lost jobs. The United States would be the hardest hit, with a loss of 448,000 jobs. Developing economies participating in the agreement would also suffer employment losses, as higher competitive pressures force them to curtail labor incomes and increase production for export.
– TPP would lead to higher inequality, as measured by changes in the labor share of national income. The authors foresee competitive pressures on labor income combining with employment losses to push labor shares lower, redistributing income from labor to capital in all countries. In the United States, this would exacerbate a multi-decade downward trend.
– TPP would lead to losses in GDP and employment in non-TPP countries. In large part, the loss in GDP (3.77 percent) and employment (879,000) among non-TPP developed countries would be driven by losses in Europe, while developing country losses in GDP (5.24%) and employment (4.45 million) reflect projected losses in China and India.
Executive Summary
The Trans-Atlantic Trade and Investment Partnership: European Disintegration, Unemployment and Instability
Source: Jeronim Capaldo, Tufts University, Global Development And Environment Institute, GDAE Working Paper 14-03, October 2014

What Do Unions Do for the Middle Class?

Source: Richard Freeman, Eunice Han, Brendan Duke, David Madland, Center for American Progress, January 2016

From the introduction:
….This report examines the role that the decline of labor unions over the past 30 years has played in the hollowing out of the U.S. earnings distribution. We* expect that the decline of unions has reduced the share of middle-class workers because union workers are more likely to be middle class than nonunion workers. Unions represent workers in the middle of the income distribution, which raises the earnings of workers who would otherwise fall below the middle-class threshold. We call the higher share of union workers among middle-class workers the union equality effect.

In this report, we use a technique—known as a shift-share decomposition—that breaks down the falling share of middle-class workers into three factors associated with unionism:
– The first part is due to the decline in union coverage, namely the fact that when a smaller share of workers are in unions, fewer workers benefit from the union equality effect.
– The second part is due to a decline in the union equality effect. As earnings have polarized over the past 30 years, the middle-class share of union workers fell from 83 percent to 72 percent, which is more than the decrease in the share of nonunion workers in the middle class. This reduces the union equality effect.
– The third part is associated with the interaction between the decline in union coverage and the union equality effect.

The decomposition leaves a residual part with no direct connection to unionism that is instead due to the decline in the middle-class share of nonunion workers.

Our main findings are that the decline in union coverage accounts for 35 percent of the falling share of middle-class workers and that the combination of the shrinking share of union workers and the reduction in the union equality effect explains almost half of the decline in middle-class workers. To the extent that union-induced wage increases spill over from union to nonunion workers and that union advocacy produces economic and social policies that benefit the middle class, our results understate the impact of the weakening labor movement on the hollowing out of the U.S. middle class…..

How Republican Approaches to Social Spending Increase Income Inequality in the United States

Source: Christopher Faricy, Scholars Strategy Network, Key Findings, November 2015

From the summary:
Political parties in control of government can modify social spending in ways that either increase or decrease inequality in America. According to the conventional wisdom, social spending goes up when Democrats are elected to office, leading to reduced inequality. But this is only part of the story, because it ignores alternative kinds of social expenditures and the role of the Republican Party and other conservatives in shaping social policy. Republicans, it turns out, also tend to increase federal social spending – on policies that benefit the privileged.

Both political parties, not just Democrats, have incentives to increase federal social spending because many Americans, including most Republican voters, demand that the federal government play an active role in the provision of social benefits and services. For the GOP, the challenge is how to meet such expectations in ways that align with an avowed small-government philosophy. The solution for many Republicans has been to create and expand tax subsidies (also called tax expenditures) for social spending by businesses, individuals, and other private interests, while cutting back on direct public spending. Good examples include tax breaks received by employers who provide private health insurance plans and tax exclusions to citizens who donate to charities and nonprofits. Such tax reductions amount to transfers of resources to the rich largely at the expense of tax revenues that could pay for broad-based public social benefits that help the middle and working classes. With few exceptions, income inequalities increase as a result of such transfers….

Economic consequences of workplace injuries in the United States: Findings from the National Longitudinal Survey of Youth (NLSY79)

Source: Xiuwen Sue Dong, Xuanwen Wang, Julie A. Largay and Rosemary Sokas, American Journal of Industrial Medicine, Early View, Article first published online: January 4, 2016
(subscription required)

From the abstract:
Background: This study explored economic consequences of work-related injuries using a longitudinal data source.

Methods: Data were from the National Longitudinal Survey of Youth, 1979 cohort. Short-term consequences were measured when the injury was reported. “Difference-in-differences” approach was applied to estimate income and wealth disparities between injured and non-injured workers before and after injury. Fixed effects models were used to identify variations over time.

Results: The annual earnings growth was $3,715 (in 2000 dollars) less for workers with DAFW injury and $1,152 less for workers with NDAFW injury compared to non-injured workers during a 10-year follow-up. Lost wages and disability following injury contributed to income loss for injured workers, but the loss was moderated by union membership. After controlling for confounders, income disparities persisted, but family wealth differences did not.

Conclusions: Occupational injuries exacerbate income inequality. Efforts to reduce such disparities should include workplace safety and health enforcement.