Category Archives: Income Inequality/Gap

Policy Challenges for the Next 50 Years

Source: Henrik Braconier, Giuseppe Nicoletti, Ben Westmore, Organisation for Economic Cooperation and Development (OECD), OECD Economic Policy Papers, No. 9, 2014

From the abstract:
This paper identifies and analyses some key challenges that OECD and partner economies may face over the coming 50 years if underlying global trends relating to growth, trade, inequality and environmental pressures prevail. For example, global growth is likely to slow and become increasingly dependent on knowledge and technology, while the economic costs of environmental damages will mount. The rising economic importance of knowledge will tend to raise returns to skills, likely leading to further increases in earning inequalities within countries. While increases in pre-tax earnings do not automatically transform into rising income inequality, the ability of governments to cushion this impact may be limited, as rising trade integration and consequent rising mobility of tax bases combined with substantial fiscal pressures may hamper such efforts. The paper discusses to what extent national structural policies can address these and other interlinked challenges, but also points to the growing need for international coordination and cooperation to deal with these issues over the coming 50 years.

Wealth Disparities Before and After the Great Recession

Source: Fabian T. Pfeffer, Sheldon H. Danziger, and Robert F. Schoeni, Annals of the American Academy of Political and Social Science, Vol. 650 no. 1, November 2013
(subscription required)

From the abstract:
The collapse of the labor, housing, and stock markets beginning in 2007 created unprecedented challenges for American families. This study examines disparities in wealth holdings leading up to the Great Recession and during the first years of the recovery. All socioeconomic groups experienced declines in wealth following the recession, with higher wealth families experiencing larger absolute declines. In percentage terms, however, the declines were greater for less advantaged groups as measured by minority status, education, and prerecession income and wealth, leading to a substantial rise in wealth inequality in just a few years. Despite large changes in wealth, longitudinal analyses demonstrate little change in mobility in the ranking of particular families in the wealth distribution. Between 2007 and 2011, one-fourth of American families lost at least 75 percent of their wealth, and more than half of all families lost at least 25 percent of their wealth. Multivariate longitudinal analyses document that these large relative losses were disproportionally concentrated among lower-income, less educated, and minority households.

The Pitchforks Are Coming… For Us Plutocrats

Source: Nick Hanauer, Politico Magazine, July/August 2014

Memo: From Nick Hanauer
To: My Fellow Zillionaires

You probably don’t know me, but like you I am one of those .01%ers, a proud and unapologetic capitalist. I have founded, co-founded and funded more than 30 companies across a range of industries—from itsy-bitsy ones like the night club I started in my 20s to giant ones like Amazon.com, for which I was the first nonfamily investor. … Seeing where things are headed is the essence of entrepreneurship. And what do I see in our future now? I see pitchforks. …

…But the problem isn’t that we have inequality. Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day. Our country is rapidly becoming less a capitalist society and more a feudal society. Unless our policies change dramatically, the middle class will disappear, and we will be back to late 18th-century France. Before the revolution.

And so I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last.

If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when…

Opportunity Since 1970: A historical report

Source: Opportunity Nation and Measure of America, June 2014

From the summary:
Central to our identity as Americans is a shared belief that, no matter how humble your origins, with hard work and perseverance, you can improve your prospects and give your children a shot at a secure and productive future. For generations, Americans lived this dream. But today, the American dream is too often just that—a dream. Increasingly, it’s your zip code that predetermines your destiny.

In 2011, Opportunity Nation and Measure of America created the annual Opportunity Index to analyze community conditions that impact opportunity. Now, it’s time to look back at the history of opportunity.

What did opportunity look like 40 years ago? New research by Opportunity Nation and Measure of America reveals that:
– Despite dramatic educational progress, many Americans still lack access to opportunity for upward mobility due to uneven economic progress.
– Post-secondary completion rates (the percentage of adults with at least an associate’s degree or higher) grew 105 percent over the past four decades.
– The rate of disconnected youth has increased since 1990, affecting nearly 15 percent of young adults in 2010.

Download our new Historical Report of Opportunity and explore the economic, educational and civic factors that impacted opportunity in the 1970s, 1980s, 1990s and 2000s for all 50 states and Washington, D.C.

We envision the Historical Report as a tool to explore what policies, programs, investments and events have expanded opportunity in some places over time, and stunted or diminished it in others. We must take these lessons from the past so we can expand opportunity for today.

Union Strength, Neoliberalism, and Inequality: Contingent Political Analyses of U.S. Income Differences since 1950

Source: David Jacobs, Lindsey Myers, American Sociological Review, Published online before print, June 9, 2014
(subscription required)

From the abstract:
Do historically contingent political accounts help explain the growth in family income inequality in the United States? We use time-series regressions based on 60 years to detect such relationships by assessing interactive associations between the neoliberal departure coincident with Ronald Reagan’s election and the acceleration in inequality that began soon after Reagan took office. We find evidence for this and for a second contingent relationship: stronger unions could successfully resist policies that enhanced economic inequality only before Reagan’s presidency and before the neoliberal anti-union administrations from both parties that followed Reagan. Politically inspired reductions in union membership, and labor’s diminished political opportunities during and after Reagan’s presidency, meant unions no longer could slow the growth in U.S. inequality. Coefficients on these two historically contingent interactions remain significant after many additional determinants are held constant. These findings indicate that political determinants should not be neglected when researchers investigate the determinants of U.S. inequality.

States Respond to Wealth Gap

Source: Jake Grovum, Stateline.org, June 12, 2014

…Polls show inequality to be a growing public concern. A Pew Research Center survey this year found 65 percent of all Americans believed inequality was growing, and Gallup found similar results. Partisan differences abound: 90 percent of Democrats in the Pew poll thought there was “a lot” or “some” actions government could take about inequality. Half of Republicans said there was “not much” or “nothing” government could do.

Those differences carried over to the states, where responses in blue versus red states seemed at times as vast as research has shown the wealth gap itself to be. This year, lawmakers sought to do something about inequality, from giving tax breaks to individuals and businesses to bolstering safety net programs and clamping down on corporate pay….

Some patterns emerge from the inequality data:
∙ Among the top 10 most unequal counties, six are in the South, including two in Georgia;
∙ Eighteen of the most unequal 25 counties are in the South;
∙ Three are in the area around New York City, while the city itself has the most billionaires in the world.

CEO Pay Continues to Rise as Typical Workers Are Paid Less

Source: Lawrence Mishel and Alyssa Davis, Economic Policy Institute, Issue Brief #380, June 12, 2014

From the summary:
The 1980s, 1990s, and 2000s were prosperous times for top U.S. executives, especially relative to other wage earners and even relative to other very high wage earners (those earning more than 99.9 percent of all wage earners). Executives constitute a larger group of workers than is commonly recognized, and the extraordinary pay increases received by chief executive officers of large firms had spillover effects in pulling up the pay of other executives and managers.1 Consequently, the growth of CEO and executive compensation overall was a major factor driving the doubling of the income shares of the top 1.0 percent and top 0.1 percent of U.S. households from 1979 to 2007 (Bivens and Mishel 2013). Income growth since 2007 has also been very unbalanced as profits have reached record highs and, correspondingly, the stock market has boomed while the wages of most workers (and their families’ incomes) have declined over the recovery (Mishel et al. 2012; Mishel 2013). It is useful to track CEO compensation to assess how well this group is doing in the recovery, especially since this is an early indication of how well other top earners and high-income households are faring through 2013. This paper presents CEO compensation trends through 2013 and finds:

Trends in CEO compensation last year:
∙ Average CEO compensation was $15.2 million in 2013, using a comprehensive measure of CEO pay that covers CEOs of the top 350 U.S. firms and includes the value of stock options exercised in a given year, up 2.8 percent since 2012 and 21.7 percent since 2010.

Longer-term trends in CEO compensation:
∙ From 1978 to 2013, CEO compensation, inflation-adjusted, increased 937 percent, a rise more than double stock market growth and substantially greater than the painfully slow 10.2 percent growth in a typical worker’s compensation over the same period.
∙ The CEO-to-worker compensation ratio was 20-to-1 in 1965 and 29.9-to-1 in 1978, grew to 122.6-to-1 in 1995, peaked at 383.4-to-1 in 2000, and was 295.9-to-1 in 2013, far higher than it was in the 1960s, 1970s, 1980s, or 1990s.
∙ If Facebook, which we exclude from our data due to its outlier high compensation numbers, were included in the sample, average CEO pay was $24.8 million in 2013, and the CEO-to-worker compensation ratio was 510.7-to-1….

Optimal Taxation, Inequality and Top Incomes

Source: Yuri Andrienko Sr., Patricia F. Apps, Ray Rees, Sydney Law School Research Paper No. 14/103, May 30, 2014

From the abstract:
In a number of high-income countries over the past few decades there has been a large growth in income inequality and at the same time a shift in the burden of taxation from the top to the middle of the income distribution. This paper applies the theory of optimal piecewise linear taxation to the issue of the taxation of top incomes. Our results suggest that an appropriate response to rising inequality is a shift towards a more progressive multi-bracket income tax system, with a more differentiated structure of rates in the top percentiles.

Working Poor in America

Source: Oxfam America, 2014

From the summary:
Low-wage workers are everywhere in the US. It’s time for Congress to come together and ensure people earn a decent wage.

Millions of Americans do arduous work in jobs that pay too little and offer too few benefits. They serve food, clean offices, care for the young and elderly, stock shelves, and deliver pizza. They work these jobs year after year, while caring for their children and parents, trying to save for college, and paying their bills. And yet despite their best efforts, these low-wage workers fall further and further behind….
Related:
Download Working Poor in America Rankings of State Congressional District
Download Methodology for Minimum wage worker map

Special Issue on Inequality

Source: Science, Vol. 344 no. 6186, May 23, 2014

From the introduction:
The Science of Inequality – What the numbers tell us
Gilbert Chin, Elizabeth Culotta

In 2011, the wrath of the 99% kindled Occupy movements around the world. The protests petered out, but in their wake an international conversation about inequality has arisen, with tens of thousands of speeches, articles, and blogs engaging everyone from President Barack Obama on down. Ideology and emotion drive much of the debate. But increasingly, the discussion is sustained by a tide of new data on the gulf between rich and poor.

This special issue uses these fresh waves of data to explore the origins, impact, and future of inequality around the world. Archaeological and ethnographic data are revealing how inequality got its start in our ancestors (see pp. 822 and 824). New surveys of emerging economies offer more reliable estimates of people’s incomes and how they change as countries develop (see p. 832). And in the past decade in developed capitalist nations, intensive effort and interdisciplinary collaborations have produced large data sets, including the compilation of a century of income data and two centuries of wealth data into the World Top Incomes Database (WTID) (see p. 826 and Piketty and Saez, p. 838).

Articles include:
The ancient roots of the 1%
H. Pringle
Don’t blame farming. Inequality got its start among resource-rich hunter-gatherers.

Our egalitarian Eden
E. Pennisi
Today’s economic inequality goes back thousands of years but in evolutionary time it is relatively recent.

Physicists say it’s simple
A. Cho
If the poor will always be with us, an analogy to the second law of thermodynamics may explain why.

Inevitable inequality?
A. Deaton
The distribution of wealth between and within countries stems from progress in health and wealth that began 250 years ago.

Inequality in the long run
T. Piketty and E. Saez
Everything you wanted to know and weren’t afraid to ask about income and wealth.

Tax man’s gloomy message: the rich will get richer
E. Marshall
With a massive database of income tax records, a French superstar challenges conventional wisdom on inequality.

A world of difference
Emily Underwood
New data allow researchers to map inequality the world over.

Can disparities be deadly?
E. Underwood
Controversial research explores whether living in an unequal society can make people sick.

The intergenerational transmission of inequality
A. Aizer and J. Currie
Helping needy mothers helps their children.

On the psychology of poverty
J. Haushofer and E. Fehr
Being poor exacts psychological costs, too.

While emerging economies boom, equality goes bust
M. Hvistendahl
Inequality spikes in developing nations around the world.

Income inequality in the developing world
M. Ravallion
Growth does not widen the gap between rich and poor.

Skills, education, and the rise of earnings inequality among the “other 99 percent”
D. H. Autor
A rising tide lifts some people’s boats, but capsizes others

Tracking who climbs up—and who falls down—the ladder
J. Mervis
Researchers seek new ways to understand social mobility and opportunity in America

More on the science of inequality
J. Mervis
How two social scientists got unique access to tax records, the meaning of “IGE” and more…