Category Archives: Income Inequality/Gap

Accounting for Inequality: Questioning Piketty on National Income Accounts and the Capital-Labor Split

Source: Charles Reitz, Review of Radical Political Economics, Vol. 48 no. 2, May 2016
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From the abstract:
Piketty’s study of capital and inequality, especially the distribution of the national income through a “capital-labor split,” is examined and compared with a model developed from data sets from the U.S. Department of Commerce. Piketty’s inclusion of executive supersalaries as labor income is questioned as over-estimating labor’s share of national income distribution and labor’s role as a causal factor in the intensification of inequality.

What factors influence income inequality?

Source: Dale O. Cloninger, The Conversation, July 21, 2016

…Nevertheless, most would agree that reducing the inequality gap is a worthy goal. Understanding what is causing the growing gap between rich and poor is key to figuring out how to reduce it.

Is it driven by natural causes such as age that can’t be easily effected by policy? Or is inequality rooted in more malleable factors like education or tax policy?

A statistical analysis of 53 countries that emerged from a graduate student’s research project provides some clues. And the analysis begins with what social scientists call the Gini coefficient.

“Women’s work” and the gender pay gap: How discrimination, societal norms, and other forces affect women’s occupational choices—and their pay

Source: Jessica Schieder and Elise Gould, Economic Policy Institute, July 20, 2016

From the summary:
What this report finds: Women are paid 79 cents for every dollar paid to men—despite the fact that over the last several decades millions more women have joined the workforce and made huge gains in their educational attainment. Too often it is assumed that this pay gap is not evidence of discrimination, but is instead a statistical artifact of failing to adjust for factors that could drive earnings differences between men and women. However, these factors—particularly occupational differences between women and men—are themselves often affected by gender bias. For example, by the time a woman earns her first dollar, her occupational choice is the culmination of years of education, guidance by mentors, expectations set by those who raised her, hiring practices of firms, and widespread norms and expectations about work–family balance held by employers, co-workers, and society. In other words, even though women disproportionately enter lower-paid, female-dominated occupations, this decision is shaped by discrimination, societal norms, and other forces beyond women’s control.

Why it matters, and how to fix it: The gender wage gap is real—and hurts women across the board by suppressing their earnings and making it harder to balance work and family. Serious attempts to understand the gender wage gap should not include shifting the blame to women for not earning more. Rather, these attempts should examine where our economy provides unequal opportunities for women at every point of their education, training, and career choices.
Related:
Press release

Poorer than their parents? Flat or falling incomes in advanced economies

Source: Richard Dobbs, Anu Madgavkar, James Manyika, Jonathan Woetzel, Jacques Bughin, Eric Labaye, and Pranav Kashyap, McKinsey Global Institute, July 2016

From the summary:
The real incomes of about two-thirds of households in 25 advanced economies were flat or fell between 2005 and 2014. Without action, this phenomenon could have corrosive economic and social consequences….

…..These findings provide a new perspective on the growing debate in advanced economies about income inequality, which until now has largely focused on income and wealth gains going disproportionately to top earners. Our analysis details the sharp increase in the proportion of households in income groups that are simply not advancing—a phenomenon affecting people across the income distribution. And the hardest hit are young, less-educated workers, raising the spectre of a generation growing up poorer than their parents…..
Related:
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Data set

County Pay Practices: Although the Counties We Visited Have Rules in Place to Ensure Fairness, Data Show That a Gender Wage Gap Still Exists

Source: California State Auditor, Report 2015-132, May 2016

From the summary:
– Our audit concerning county pay practices and policies at four California counties—Fresno, Los Angeles, Orange, and Santa Clara—revealed the following:
– From fiscal years 2010–11 through 2014–15, the aggregate gender wage gap has widened slightly at each of the four counties.
– In the aggregate, female employees earned between 73 percent and 88 percent of what male employees earned.
– Men outnumbered women in classifications with average total compensation greater than $160,000 in fiscal year 2014–15, even though women accounted for between 54 percent and 60 percent of all full-time employees.
– When we looked more closely at groups of job classifications with similar compensation amounts, we found that pay disparities between men and women varied between less than 1 percent and nearly 9 percent.
– Three of the four counties did not document why a particular candidate was selected for employment over other qualified candidates.
– County officials could only provide documentation explaining their rationales for 39 of 154 competitive employment decisions we reviewed.
– The counties followed their own salary-setting pay policies, but a variety of factors unrelated to an employee’s skills or abilities can influence salary rates.
– Current law does not require counties to consistently monitor gender-based pay equity issues in the hiring and salary-setting process.
– Requiring public employers to report gender information when submitting employee-specific data to the State Controller’s Office would enhance transparency on gender pay equity issues.

Related:
Fact Sheet
Recommendations
Data Reliability Assessments

Compared to Whom? Inequality, Social Comparison, and Happiness in the United States

Source: Arthur S. Alderson and Tally Katz-Gerro, Social Forces, Advance Access, First published online: June 6, 2016
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From the abstract:
We contribute to the literature on positional goods and subjective well-being by providing new evidence on the following questions: Is the effect of income on subjective well-being mainly relative or absolute? Does the intensity of social comparison condition the effect of income on well-being? Does the reference group for comparison condition this effect? We present results from the Social Status, Consumption, and Happiness Survey, a national survey of Americans conducted in 2012. The findings suggest that the more highly individuals rate their income relative to others, the happier they are; that individuals who find it important to compare their income to that of others are less happy; and that the reference group that is salient for comparison conditions the association between income and well-being. We situate these findings in the literatures on the dynamics of inequality, social comparison, and well-being.

Income Inequality and the Safety Net in California

Source: Sarah Bohn and Caroline Danielson, Public Policy Institute of California, May 2016

From the abstract:
Income inequality has been growing for decades, in California and the nation as a whole. In recent years, inequality—and the role of policy in addressing it—has become a major focus of public debate. This report documents the polarization of incomes across the state and shows how social safety net programs mitigate inequality.
Related:
Press Release
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Technical Appendix

Stock market headwinds meant less generous year for some CEOs; CEO pay remains up 46.5% since 2009

Source: Lawrence Mishel and Jessica Schieder, Economic Policy Institute, July 12, 2016

From the summary:
What this report finds: In 2015, CEOs in America’s largest firms made an average of $15.5 million in compensation, which is 276 times the annual average pay of the typical worker. While the CEO-to-worker compensation ratio is down from 302-to-1 in 2014, it is still light years beyond the 20-to-1 ratio in 1965. The drop in 2015 primarily reflects a dip in the stock market and not any change in how CEO pay is being set. Therefore, CEO pay can be expected to resume its sharp upward trajectory when the stock market resumes rising.

Why it matters: Exorbitant CEO pay means that the fruits of economic growth are not going to ordinary workers since the higher pay does not reflect correspondingly higher output. From 1978 to 2015, inflation-adjusted CEO compensation increased 940.9 percent, 73 percent faster than stock market growth and substantially greater than the painfully slow 10.3 percent growth in a typical worker’s annual compensation over the same period.

How we can solve the problem: CEO pay is growing a lot faster than profits, the pay of the top 0.1 percent of wage earners, and the wages of college graduates. This means that CEOs are getting more because of their power, not because they are more productive, or have special talent, or more education. If CEOs earned less or were taxed more, there would be no adverse impact on output or employment. Policy solutions that would limit and reduce incentives for CEOs to extract economic concessions without hurting the economy include:
• Reinstate higher marginal income tax rates at the very top
• Remove the tax break for executive performance pay
• Set corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation
• Allow greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.

Related:
Press release

Out of Reach? How a Shared Definition of College Affordability Exposes a Crisis for Low-Income Students

Source: Mark Huelsman, Dēmos, 2016

From the summary:
Because of this, many are proposing bold solutions to address the affordability crisis—from debt-free public higher education to tuition-free community college and expanded student loan forgiveness. These efforts will continue to be debated in the 2016 election and beyond, but they would benefit from a shared definition of what “affordable college” actually means. To this point, the term “affordability” has rested more on values and feelings than a shared formula. In some ways this makes sense, as the benefits of college vary by luck, academic preparedness, the strength of the macroeconomy, and the type of institution students are able to attend. But without a definition that colleges, states, and the federal government can use, we run the risk of improperly targeting resources, ineffectively aligning efforts to fund the system, and leaving students feeling like college is financially out of reach.

This analysis attempts to use one definition of affordability—the Rule of 10, created by a consortium of experts convened at Lumina Foundation2—to figure out which states have affordable college for which students. Simply, the Rule of 10 states that college is affordable if students can meet the total net price through 10 hours of work per week and 10 percent of a family’s discretionary income over 10 years. Using this benchmark, we examined the average net price for low-income students in every state at both public four-year colleges and community colleges.

We also created two additional scenarios—a worker returning to college after 10 years in the labor force making median earnings by race, and a student paying the average net price nationally and taking on student debt—to see how this benchmark holds up for the average student, by race.

Our findings include:
– The average net price for low-income students—those from families making $30,000 or less—is unaffordable in all 50 states at both public four-year colleges and community colleges.
– The “affordability gap” varies from slightly over $10,000 for a four-year degree in Hawaii, to nearly $40,000 for students in New Hampshire.
– At community colleges, the affordability gap ranges from just over $1,000 in Mississippi to $23,000 in New Hampshire.
– Black and Latino students making the median income by race cannot accrue enough savings to make a dent in the projected net cost of college. Black adult learners face an affordability gap of over $18,000 ($7,000 more than white adult learners), and Latino adult learners face an affordability gap nearly twice as large as white learners ($21,000 to $11,000).
– Among students who take on loans and earn the expected median income for college graduates, all workers still see an affordability gap. However, black and Latino students in our scenario face larger affordability gaps (over $12,000 and $14,000 respectively), than white and Asian students.
– Doubling the maximum Pell Grant could make college affordable in up to 26 states, while increasing the minimum wage to $15 an hour could make college affordable in 7-8 states.
Related:
Why you can’t work your way through college anymore
Source: Jillian Berman, Marketwatch, July 12, 2016

Low-income students can’t afford public college by earning minimum wage and getting grants.

Why debt-free college will not solve the real problems in America’s higher education system
Source: David H. Feldman, Robert B. Archibald, The Conversation, July 11, 2016

….We have been studying America’s higher education system and college costs. Our research tells us that the deep problems in American higher education today aren’t due to the fact that students borrow or pay tuition. It is because the schools serving the bulk of America’s underprivileged students are increasingly resource-starved.

So, what should our candidates be worrying about when it comes to higher education? And what policies might make a dent in our real problems?…

The power of economic interests and the congressional economic policy agenda

Source: Peter K. Enns, Nathan J. Kelly, Jana Morgan, Christopher Witko, Washington Center for Equitable Growth, Working Paper 2016-07, July 2016

From the abstract:
While there is an oft-noted “bias” toward upper income groups in the U.S. organized interest system, it is debatable whether this bias matters very much since many studies find that lobbying and campaign contributions have a limited effect on policy outcomes. How bias may shape which economic problems are addressed or neglected in the first place has seldom been studied, however. We argue that in order to receive resources from organized interests members of Congress must “signal” their support for these interests by discussing the economic problems that they prioritize. Because there is upper class bias in the interest system this process produces disproportionate congressional attention to the economic problems of greatest concern to upper income interests and a relative neglect of economic problems that concern other groups. To examine this argument we develop measures of attention to various economic problems using congressional speech in the Congressional Record from 1995-2012. We find that during this period of relatively high upper class bias in the interest system there was a great deal of attention to the concerns of the wealthy, and far less attention to some of the concerns of lower income groups. At the microlevel, using a difference-in-differences analysis we observe that when individual MCs become more reliant on the resources of upper income interests they subsequently discuss the problems prioritized by these interests more.