Category Archives: Middle Class

The fading American dream: Trends in absolute income mobility since 1940

Source: Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren, Robert Manduca, Jimmy Narang, Science, April 24, 2017

From the abstract:
We estimated rates of “absolute income mobility”—the fraction of children who earn more than their parents—by combining data from U.S. Census and Current Population Survey cross sections with panel data from de-identified tax records. We found that rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s. Increasing GDP growth rates alone cannot restore absolute mobility to the rates experienced by children born in the 1940s. However, distributing current GDP growth more equally across income groups as in the 1940 birth cohort would reverse more than 70% of the decline in mobility. These results imply that reviving the “American dream” of high rates of absolute mobility would require economic growth that is shared more broadly across the income distribution.

Escaping Poverty Requires Almost 20 Years With Nearly Nothing Going Wrong

Source: Gillian B. White, The Atlantic, April 27, 2017

The MIT economist Peter Temin argues that economic inequality results in two distinct classes. And only one of them has any power. ….

…. Temin argues that, following decades of growing inequality, America is now left with what is more or less a two-class system: One small, predominantly white upper class that wields a disproportionate share of money, power, and political influence and a much larger, minority-heavy (but still mostly white) lower class that is all too frequently subject to the first group’s whims. Temin identifies two types of workers in what he calls “the dual economy.” The first are skilled, tech-savvy workers and managers with college degrees and high salaries who are concentrated heavily in fields such as finance, technology, and electronics—hence his labeling it the “FTE sector.” They make up about 20 percent of the roughly 320 million people who live in America. The other group is the low-skilled workers, which he simply calls the “low-wage sector.” ….

Distributional National Accounts: Methods and Estimates for the United States

Source: Thomas Piketty (Paris School of Economics); Emmanuel Saez (UC Berkeley and NBER); Gabriel Zucman (UC Berkeley and NBER). December 2, 2016

This paper combines tax, survey, and national income in the United States since 1913. Our distributional national accounts capture 100% of national income, allowing us to compute growth rates for each quantile of the income distribution consistent with macroeconomic growth. We estimate the distribution of both pre-tax and post-tax income, making it possible to provide a comprehensive view of how government redistribution affects inequality. Average pre-tax national income per adult has increased 60% since 1980, but we find that it has stagnated for the bottom 50% of the distribution at about $16,000 a year. The pre-tax income of the middle class| adults between the median and the 90th percentile| has grown 40% since 1980, faster than what tax and survey data suggest, due in particular to the rise of tax-exempt fringe benefits. Income has boomed at the top: in 1980, top 1% adults earned on average 27 times more than bottom 50% adults, while they earn 81 times more today. The upsurge of top incomes was first a labor income phenomenon but has mostly been a capital income phenomenon since 2000. The government has offset only a small fraction of the increase in inequality. The reduction of the gender gap in earnings has mitigated the increase in inequality among adults. The share of women, however, falls steeply as one moves up the labor income distribution, and is only 11% in the top 0.1% today.

The Fading American Dream: Trends in Absolute Income Mobility Since 1940

Source: Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren, Robert Manduca, Jimmy NarangNational Bureau of Economic Research Working Paper No. 22910, 2016

We estimate rates of “absolute income mobility” – the fraction of children who earn more than their parents – by combining historical data from Census and CPS cross-sections with panel data for recent birth cohorts from de-identified tax records. Our approach overcomes the key data limitation that has hampered research on trends in intergenerational mobility: the lack of large panel datasets linking parents and children. We find that rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s. The result that absolute mobility has fallen sharply over the past half century is robust to the choice of price deflator, the definition of income, and accounting for taxes and transfers. In counterfactual simulations, we find that increasing GDP growth rates alone cannot restore absolute mobility to the rates experienced by children born in the 1940s. In contrast, changing the distribution of growth across income groups to the more equal distribution experienced by the 1940 birth cohort would reverse more than 70% of the decline in mobility. These results imply that reviving the “American Dream” of high rates of absolute mobility would require economic growth that is spread more broadly across the income distribution.
Related:
Slides: PDF | PPT

Waiting for the Payoff: How Low Wages and Student Debt Keep Prosperity Out of Reach

Source: Allyson Fredericksen, People’s Action Institute, Job Gap Economic Prosperity series, People’s Action Institute, October 2016

From the summary:
Education is often lauded as the great equalizer and a solution to the growing income gap. But, as the cost of college breaks family budgets and requires students to take out thousands of dollars in educational loans, wages, even for those with a degree, have not kept pace, and have even declined in many occupations.

Though campaigns to increase the minimum wage have been won in cities and states across the country, current minimum wage rates do not provide a living wage for even a single adult. Research on living wage rates produced by People’s Action Institute shows that, nationally, a living wage for a single adult is $17.28 per hour. For those with student debt, that living wage rises to $18.67 per hour.

Increasing the minimum wage to a living wage and abolishing the tipped subminimum wage will help more workers make ends meet, but student debt forgiveness is also vital. And, because systemic barriers mean women and people of color are disproportionately impacted by low wages and student debt, more must be done to strengthen and enforce equal opportunity statutes.

At a minimum, working full-time should ensure financial stability, including the ability to pay off student loan debt. It’s time for elected officials to take action to make that a reality.
Table 1: Single Adult Living Wage vs Minimum Wage by State
Table 2: Median Student Debt and Monthly Payment for Graduates by State
Table 3: Traditional Single Adult Living Wage vs Student Debt Living Wage by State
Related:
Executive summary

Do Grandparents and Great-Grandparents Matter? Multigenerational Mobility in the US, 1910-2013

Source: Joseph Ferrie, Catherine Massey, Jonathan Rothbaum, National Bureau of Economic Research (NBER), NBER Working Paper No. 22635, September 2016
(subscription required)

From the abstract:
Studies of US intergenerational mobility focus almost exclusively on the transmission of (dis)advantage from parents to children. Until very recently, the influence of earlier generations could not be assessed even in long-running longitudinal studies such as the Panel Study of Income Dynamics (PSID). We directly link family lines across data spanning 1910 to 2013 and find a substantial “grandparent effect” for cohorts born since 1920, as well as some evidence of a “great-grandparent effect.” Although these may be due to measurement error, we conclude that estimates from only two generations of data understate persistence by about 20 percent.

Raising Wages and Rebuilding Wealth: A Roadmap for Middle-Class Economic Security

Source: Carmel Martin, Andy Green, Brendan Duke, Center for American Progress, September 2016

From the introduction:
The American middle class is finally seeing economic gains after more than a decade of declining economic security. Yet millions of Americans are still feeling the effects of a painful economic period.

Middle-class wages and incomes grew rapidly during the 1990s, but that growth came to an end around 2001. Seven years of stagnant middle-class income growth were followed by the financial crisis of 2008 and the Great Recession, which ravaged middle-class jobs and savings. And in recent years, ill-advised austerity policies have slowed the recovery of jobs and wages while income inequality has reached new heights. Add to this the growing costs of child care, health care, higher education, and housing, and families are feeling squeezed. On top of that, saving for retirement has become a monumental challenge, since far too many middle-class families are barely able to get by….

….In January 2017, the next president and the U.S. Congress will have the opportunity to generate policies that grow and support the middle class. A policy agenda that raises wages and reduces the burdens of major expenses would help families rebuild their wealth and afford the pillars that make up a secure, middle-class life. This report provides a roadmap for doing just that…..
Related:
What Would It Take to Save the Middle Class? Drastic change
Source: Gillian B. White, The Atlantic, September 8, 2016

Dream On

Source: David Brodwin, U.S. News and World Report, August 22, 2016

Growing inequality has made the American ‘rags to riches’ story more myth than reality. ….

….If you work hard and play by the rules you will get ahead, according to the American Dream. But working hard and playing by the rules now feels like running in place to a lot of Americans. The past few years of economic data justify their complaint: Most of the productivity gains in the U.S. economy have been captured by the top 1 percent, and most working Americans have seen their standard of living plateau rather than rise.

Economic stratification has spurred politically explosive resentments. And these resentments have encouraged economists to seek a better understanding of economic mobility – or the lack thereof. Is America still a land of opportunity despite rising inequality? And is education – often hailed as the key to getting ahead – still an important part of the solution?….
Related:
The Decline in Lifetime Earnings Mobility in the U.S.: Evidence from Survey-Linked Administrative Data
Source: Michael D. Carr, Emily E. Wiemers, Washington Center for Equitable Growth, May 2016