Category Archives: Income Inequality/Gap

Wealth, Income, and Power

Source: G. William Domhoff, UC Santa Cruz, updated December 2010

This document presents details on the wealth and income distributions in the United States, and explains how we use these two distributions as power indicators.

Some of the information may come as a surprise to many people. In fact, I know it will be a surprise and then some, because of a recent study (Norton & Ariely, 2010) showing that most Americans (high income or low income, female or male, young or old, Republican or Democrat) have no idea just how concentrated the wealth distribution actually is. More on that a bit later.

As far as the income distribution, the most amazing numbers on income inequality will come last, showing the dramatic change in the ratio of the average CEO’s paycheck to that of the average factory worker over the past 40 years.

Scary New Wage Data

Source: David Cay Johnston, tax.com, October 25, 2010

Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined, but at the very top, salaries grew more than fivefold.
See also:
Scary Wage Data II — Social Security Changes Its Numbers

Measuring the Public Benefits From Taxes

Source: David Cay Johnston, Tax.com, October 20, 2010

Who benefits from the taxes we pay seldom gets examined, but two reports on the redistributive effects of taxes and transfers shed some revealing light on this issue. One report deals with the United States and the other with Canada.

In America, taxes and transfers have a significant impact on income inequality, which has been rising since 1980, according to a report by Thomas L. Hungerford of the Congressional Research Service. You can see the report here.
See also:
Canada’s Quiet Bargain: The Benefits of Public Spending
Source: Hugh Mackenzie, Richard Shillington, Canadian Centre for Policy Alternatives, April 2009

When Executives Rake in Millions: Meanness in Organizations

Source: Sreedhari Desai, Arthur Brief, Jennifer George, IACM 23rd Annual Conference Paper, 2010

From the abstract:
The topic of executive compensation has received tremendous attention over the years from both the research community and popular media. In this paper, we examine a heretofore ignored consequence of rising executive compensation. Specifically, we claim that higher income inequality between executives and ordinary workers results in executives perceiving themselves as being all-powerful and this perception of power leads them to maltreat rank and file workers. We present findings from two studies – an archival study and a laboratory experiment – that show that increasing executive compensation results in executives behaving meanly toward those lower down the hierarchy. We discuss the implications of our findings for organizations and offer some solutions to the problem.

Assessing the Consequences of Declining Unionization and Public-Sector Employment: A Density-Function Decomposition of Rising Inequality From 1983 to 2005

Source: ChangHwan Kim, Arthur Sakamoto, Work and Occupations, Vol. 37 no. 2, May 2010
(subscription required)

From the abstract:
This study defines four sectors of labor markets based on union membership and public-sector employment. Using the current population surveys from 1983 to 2005, the authors decompose the growth of wage inequality into compositional changes, group-specific mean changes, and group-specific variance changes. This approach allows one to more precisely identify and assess the immediate intervening processes associated with rising wage inequality. The findings suggest that, although the increase of the demand for the skilled workers does play a significant role, the recent increase in wage dispersion cannot be fully explained by skill-biased technological change. This study’s analysis instead indicates that the two main sources of increasing inequality include the “nonunion private sectorization” of all sectors and the reduction in the sizes of the institutionally protected market sectors. Rising inequality seems to be because of the dismantling of the institutions that formerly insulated a large proportion of workers from direct engagement with market forces as the immediate wage-setting mechanism.

Recent Trends in the Distribution of Income: Labor, Wealth and More Complete Measures of Well Being

Source: Timothy M. Smeeding & Jeffrey P. Thompson, Political Economy Research Institute (PERI), University of Massachusetts-Amherst, Working Paper Series, Number 225, June 2010

From the abstract:
The impact of the great recession on inequality is unclear. Because the crises in the housing and stock markets and mass job loss affect incomes from across the entire distribution, the overall impact on inequality is difficult to determine. Early speculation using a variety of narrow measures of earnings, income and consumption yield contradictory results. In this paper, we develop new estimates of income inequality based on ‘more complete income’ (MCI), which augments standard income measures with those that are accrued from the ownership of wealth. We use the 1989-2007 Surveys of Consumer Finances, and also construct MCI measures for 2009 based on projections of assets, income, and earnings.

We also assess the level and trend in the functional distribution of income between capital and labor, and find a rising share of income accruing to real capital or wealth from 1989 to 2007. The recent economic crisis has diminished the capital share back to levels from 2004. Contrary to the findings of other researchers, we find that the labor share of income among high-income groups declined between 1992 and 2007.

Good Times, Bad Times: Postwar Labor’s Share of National Income in Capitalist Democracies

Source: Tali Kristal, American Sociological Review, Volume 75, Number 5, October 2010
(subscription required)

From the abstract:
This article returns to a classic question of political economy: the zero-sum conflict between capital and labor over the division of the national income pie. A detailed description of labor’s share of national income in 16 industrialized democracies from 1960 to 2005 uncovers two long-term trends: an increase in labor’s share in the aftermath of World War II, followed by a decrease since the early 1980s. I argue that the working class’s relative bargaining power explains the dynamics of labor’s share, and I model inter- and intra-class bargaining power in the economic, political, and global spheres. Time-series cross-section equations predicting the short- and long-term determinants of labor’s share support most of my theoretical arguments and the main findings are robust to alternative specifications. Results suggest that the common trend in the dynamics of labor’s share of national income is largely explained by indicators for working-class organizational power in the economic (i.e., unionization and strike activity) and political (i.e., government civilian spending) spheres, working-class structural power in the global sphere (i.e., southern imports and foreign direct investments), and indirectly by an indicator for working-class integration in the intra-class sphere (i.e., bargaining centralization).

The Gender Wage Gap: 2009

Source: Institute for Women’s Policy Research, Fact Sheet, IWPR #C350 Updated September 2010

The ratio of women’s and men’s median annual earnings, was 77.0 for full-time, year-round workers in 2009, essentially unchanged from 77.1 in 2008. (This means the gender wage gap for full-time year-round workers is now 22.9 percent.) This is below the peak of 77.8 percent in 2007.

An alternative measure of the wage gap, the ratio of women’s to men’s median weekly earnings for full-time workers – was 80.2 in 2009, which is essentially flat since the historical high of 81.0 in 2005.

How Income Inequality Helps Explain Contemporary Urban America

Source: Willy Staley, Next American City, September 15, 2010

Timothy Noah, at Slate, has been writing an excellent, in-depth series of articles on the ever-rising income inequality here in the United States. Among his more disturbing finds are that income inequality is higher now than it was preceding the 1929 crash. Income inequality is not good for an economy, we know that, but it is also potentially damaging to democracy. This three decades-long trend of economic stratification, which has been dubbed The Great Divergence by Paul Krugman, has economists, political scientists, and Timothy Noah understandably concerned. Timothy Noah looks at the problem through many different lenses, trying to isolate the most important factors (I was upset to find out that I can’t just blame Ronald Reagan; conservatives might be upset to learn that ), and makes the picture quite complicated. What is interesting about the series of articles, at least to us here at Urban Nation, is the correlation between income inequality and trends in urbanization, which seems well-worth examining.

Top Group Takes Large Slice of Income Growth

Source: Lawrence Mishel, Economic Policy Institute, Economic Snapshots, September 8, 2010

Income growth over the last few decades has been enormously unbalanced, and this must be taken into account as the nation considers shifts in tax policy and develops a fiscal plan that strengthens the recovery and targets a sustainable deficit. According to the Congressional Budget Office, between 1979 and the start of the current recession in 2007, the pre-tax incomes of the upper 1% grew 214%, while the incomes of the middle-fifth and lowest-fifth grew, respectively, 25% and 4%. As the Chart shows, this extremely unbalanced growth implies that 38.7% of all of the income growth accrued to the upper 1% over the 1979-2007 period: a greater share than the 36.3% share received by the entire bottom 90% of the population.