Why Is Inequality Increasing? (view full screen)

content courtesy of www.frondebaliste.org
data census.gov

Inequality is Increasing: Do We Know Why?
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A Need for New Measures of Economy?
The watermark is an illustration of Gini (fed inequality measure) trend by presidential term

Copyright © .r. jenkins 2009 - 2010 , fronde baliste, all rights reserved, please site source when reproducing any portion of this slide

data from national exit polls

Definitions and Questions:

• Is income properly defined?

• How do wages and income differ?

• Does growth always produce inequality?
Comparison of Wage vs. Top & Mid Income pre-post 1980
Comparison of Income Growth: before and after 1980

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Growth Ratio
Top vs. Lowest 0.38
400%
0.36
Top & W age
Growth Ex ceed
Mid Income 0.34

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Middle 20% Top 20%

Copyright © rhesa jenkins 2009 - 2010 , fronde baliste, all rights reserved, please site source when reproducing any portion of this slide

Why is inequality increasing?
• The presentation paints a picture of continuing increase in inequality
• As a starting point, inequality is defined in terms of disparity in income growth
• Trend charts are presented comparing Income vs. Wage growth. This is first in a series of
comparisons examining origins of increase in inequality.
• The purpose of the presentation is to highlight metrics that reveal root cause relationships,
the understanding of which can guide development of solutions.

Inequalities - C Comparison of Income Growth: before and after 1980
Increasing Inequality?
$200,000 Split screen of:
$180,000 • Pre circa 1980 income
$160,000 stratification
$140,000 • Post circa 1980 income
$120,000 stratification.
$100,000
Growth Ratio
• Income stratification
Growth Ratio
$80,000 Top vs. Lowest Top vs. Lowest
400%
itself has many causes.
EVEN
$60,000 The focus of the
$40,000
presentation is on
$20,000
increasing inequality,
not simply stratification
$0
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Lowest 20% Middle 20% Top 20%


Charts based on Census Data – Income Surveys

Inequalities - Income Growth: before 1980 • Income growth reported in
$200,000
census data is based on
$180,000 annual reports by household
$160,000
• Data is reported by quintile (5
$140,000
earnings groups from highest
$120,000
to lowest 20%)
$100,000

$80,000 • Before 1980 growth in
$60,000
income for low and middle
Growth Ratio
Top vs. Lowest 20% households was above or
$40,000 EVEN
equal to growth for high
$20,000
income households
$0
1967

• Mid 20% growth rate per
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annum: 1.9%
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1974

• Top 20% growth rate per
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annum: 1.4%
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1981

Income Growth Trends
• Chart illustrates income growth from 1967 to 1981 for low – middle (16%), and top
income (14%) groups. Growth rates are virtually even.
• If this trend continued, inequality would have decreased over time.



$200,000
Inequalities - Income Growth: after 1980 • After 1980, income growth for
low income and middle income
$180,000
groups stalls and flattens at a
$160,000
rate less than pre-1980
$140,000 growth rates.
$120,000

$100,000
• After 1980 growth for the top
Growth Ratio income group is steep and
$80,000 Top vs. Lowest
400% sustained (Reagan Tax
$60,000
Reforms?)
$40,000

$20,000 • Mid 20% annual growth rate:
$0 .03%
• Top 20% annual growth rate:
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1.3%
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Origins of Wealth Gap?
• Chart illustrates income growth from 1982 to 2008 for low – middle (13 %) and top (46 %)
income groups
• Disparity in growth in income for low- mid vs. top income groups grew to nearly 400%
• Summary: 1967 to 2008 income growth for the top group was sustained. Income growth
for the mid group decreased from1.9% per year pre 1980, to essentially non-existent
post 1980


$30,000
Inequalities - Equalizing Income Growth • The chart shows impact if
$25,000 income growth rates are
equalized after 1980. Top
$20,000 tier: low tier multiplier measure
of inequality is cut in half.
$15,000

• Impact of equalizing growth
$10,000
Equalizing Growth rates on multiplier as a measure
Rates: Low Tier
$5,000 Income Doubles of inequality:
• Current Multiplier 15x
$0
• Adjusted Multiplier 8x
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Actual Low Tier Trend Adjusted Low Tier Trend 2004

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2008
Equalizing Income Growth Trends
• Chart illustrates the impact if low tier income growth rates, from 1981 to 2008, are
adjusted to equal growth rates of the top tier income over the same period.
• If mid – low income growth matched top group growth after 1980, current day mid-
low income would be 82% higher than reported 2008 levels
• Reported low income $11K/yr : Adjusted to top tier growth: $21K/yr


Increasing Inequality – Root Cause: Part One - Wage growth stalling?
• The following slides illustrate a shift when comparing overall wage rate trends to top tier
and mid tier income growth. This shift in relationship begins circa 1980.
• This initial focus on wage begins an examination of root causes of increasing inequality.

Inequalities - Comparison of Wage vs. Top & Mid Income pre-post 1980 Wages vs. Income
110% Split screen: compares:
108% • Pre circa 1980 income
vs. wage growth
106%
• Post circa 1980 income
104%
vs. wage growth.
102%
• The chart reveals a
100%
change in relationship
98% between wages and
income for the top
96%
Wage Growth Top & Wage income group.
Top vs. Mid Growth Exceed
94%
EVEN Mid Income
• Mid income basically
92%
tracks wage growth,
90% while top income shifts
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staying consistently
Mid Income Wages Top Income
higher.


I ne qu a lit ies - W ag e G ro wt h vs.To p T ier In co m e G ro w t h p re 1 98 0

• The chart focuses on Top 20%
income group to highlight the
40 % shift in relationship between
top tier income and wage.
35 %

3 0%
• This shift is illustrated in the
next slide.
2 5%

• Pre 1980, income growth for
20 %
the Mid 20% group
1 5% averaged 5% more than Top
20%, tracking wage trends.
(Nixon Affirmative Action
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10%
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Reforms?)
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5%
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0%
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W a g es T o p I n co m e
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Shift in Wage vs. Income Growth?
• Chart compares overall Wage trends to Top 20% Income growth from 1967 - 1980.
• Wage rate growth during this period: 34% : Top Tier income growth for this period: 15%
• Pre 1980, wage rates increased faster than top tier Income, an indication of success of
policies aimed at protecting & diversifying the workforce?


Inequalities - Wage Growth v s. Top Tie r Income Growth post 1980
• The period sees a dramatic shift
in in which growth in top tier
income outstrips wage growth.
5 0%

45 % • The gap persists, and widens.
40%
• The trend for mid income is
3 5% opposite. The highest cumulative
30 % growth for mid tier occurs 1999
to 2001 at 34% (Clinton Jobs
25%
Reforms?)
2 0%

1 5% • This shift is indication of higher
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wage growth rates for high
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10%
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wage earners, as well as
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5%
increase in passive income as a
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0% component of top tier income.
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Wages Top Income
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2008 Relevant Article: “We Have To Tolerate
Inequality”
Shift in Wage vs. Income Growth?
• Post 1980 (1981 -2008) Top 20% Income growth caught up with, then exceeded growth in
Wages, i.e., reversing trend the blue bars began peaking above the purple bars..
• Wage rate growth remains: 34% - Top Tier income growth increases to 45%
• At the same time, Mid 20% income growth falls behind - lags wage rate growth. (not pictured)


Inequalities - C Comparison of Income Growth: before and after 1980

Why is Inequality Increasing: $200,000

$180,000

$160,000

$140,000

$120,000

$100,000

Symptom
Growth Ratio Growth Ratio
$80,000 Top vs. Lowest Top vs. Lowest
EVEN 400%
$60,000

$40,000

• Increasing difference in growth trends of $20,000

$0

income groups

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income
Cause 110%
I n e q u a l it ie s - Comparison of Wage vs. Top & Mid Income pre-post 1980

1 0 8%

• Top 20% Income disconnects from – grows 10 6 %

faster than – overall wage rate
104%

1 0 2%

1 00 %

98%

Effect 9 6%
W ag e G ro w th
T o p v s . M id
Top & W age
94% Growth Ex ceed
EV EN
Mid Income
92%

• Continually increasing inequality 90 %

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wage
M id I n c o m e W age s T op I ncom e

Solution .48

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• ‘Work In Progress….Targeted Stimulus” 0.44

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0.4

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Relevant Research: http://tinyurl.com/GiniEffect 0.36

0.34

http://tinyurl.com/LarryMishel-Inequality 2008
2006
2004
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2000
1998
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rising

1994

Nixon
1992
1990

Carter
1988

1986

R eagan
1984

1982

1980
inequality

B ush
1978

1976

Clinton
1974

1972

Bush W
1970

data from national exit polls

0.48

0.46

0.44

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0.38

0.36

0.34

2008
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End Notes:

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1998
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Nixon
1992
1990

Carter
1988

1986

R eagan
1984

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Bush
1978

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Cl inton
1974

1972

Bush W
1970
Bush W Clinton Bush Reagan Carter Nixon

Dimensions in the data; questions on measures1:

• How are Productivity and Wage related?

1. Subsequent presentations will examine trends in wage and
productivity. Each analysis examines variation in rates of change vs.
comparison of absolute values. This “systems thinking” approach is
employed in hopes of magnifying signals in the data to illustrate
the impact of economic policy decisions on rates of change. The
approach will help highlight what has worked, and what has not.

Related Research: a: http://www.talkleft.com/story/2010/3/23/112549/754 b: http://www.stanford.edu/group/scspi/media_magazines.html


The next presentation in this series….

q

50.00%

40.00%

30.00%
Growth Ratio
Top vs. Lowest
400%
20.00%

10.00%

0.00%
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Middle 20% Top 20% Lowest 20%


Inequality is Increasing: Do We Know Why?
A Need for New Measures of Economy?

Part Two
q

50.00%

40.00%

30.00%
Growth Ratio
Top vs. Lowest
400%
20.00%

10.00%

0.00%
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Middle 20% Top 20% Lowest 20%

Wage and Productivity

Related Research: :http://tinyurl.com/New-York-Times-Wages


Why Is Inequality Increasing? (view full screen)

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