March 28, 2024

Incomes Flat in Recovery, but Not for the 1%

WASHINGTON — Incomes rose more than 11 percent for the top 1 percent of earners during the economic recovery, but not at all for everybody else, according to new data.

The numbers, produced by Emmanuel Saez, an economist at the University of California, Berkeley, show overall income growing by just 1.7 percent over the period. But there was a wide gap between the top 1 percent, whose earnings rose by 11.2 percent, and the other 99 percent, whose earnings declined by 0.4 percent.

Mr. Saez, a winner of the John Bates Clark Medal, an economic laurel considered second only to the Nobel, concluded that “the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s.”

The disparity between top earners and everybody else can be attributed, in part, to differences in how the two groups make their money. The wealthy have benefited from a four-year boom in the stock market, while high rates of unemployment have continued to hold down the income of wage earners.

“We have in the middle basically three decades of problems compounded by high unemployment,” said Lawrence Mishel of the Economic Policy Institute, a left-of-center research group in Washington. “That high unemployment we know depresses wage growth throughout the wage scale, but more so for the bottom than the middle and the middle than the top.”

In his analysis, Mr. Saez said he saw no reason that the trend would reverse for 2012, which has not yet been analyzed. For that year, the “top 1 percent income will likely surge, due to booming stock prices, as well as retiming of income to avoid the higher 2013 top tax rates,” Mr. Saez wrote, referring to income tax increases for the wealthy that were passed by Congress in January. The incomes of the other “99 percent will likely grow much more modestly,” he said.

Excluding earnings from investment gains, the top 10 percent of earners took 46.5 percent of all income in 2011, the highest proportion since 1917, Mr. Saez said, citing a large body of work on earnings distribution over the last century that he has produced with the economist Thomas Piketty of the Paris School of Economics.

Concern for the declining wages of working Americans and persistent high levels of inequality featured heavily in President Obama’s State of the Union address this week. He proposed raising the federal minimum wage to $9 from $7.25 as one way to ameliorate the trend, a proposal that might lift the earnings of 15 million low-income workers by the end of 2015.

“Let’s declare that in the wealthiest nation on Earth, no one who works full time should have to live in poverty,” Mr. Obama said in his address to Congress.

Mr. Obama’s economic advisers say that he has been animated by the country’s yawning levels of inequality, and the administration has put forward several proposals to address the gap. Those include higher taxes on a small group of the wealthiest families and an expansion of aid to lower- and middle-income families through programs like the Affordable Care Act.

The data analyzed by Mr. Piketty and Mr. Saez shows that income inequality — as measured by the proportion of income taken by the top 1 percent of earners — reached a modern high just before the recession hit in 2009. The financial crisis and its aftermath hit wealthy families hard. But since then, their earnings have snapped back, if not to their 2007 peak.

That is not true for average working families. After accounting for inflation, median family income has declined over the last two years. In 2011, it stagnated for the poorest and dropped for those in the middle of the income distribution, census data show. Median household income, which was $50,054 in 2011, is about 9 percent lower than it was in 1999, after accounting for inflation.

Measures of inequality differ depending on whether they are measured after or before taxes, and whether or not they include government transfers like Social Security payments, food stamps and other credits.

Research led by the Cornell economist Richard V. Burkhauser, for instance, sought to measure the economic health of middle-class households including income, taxes, transfer programs and benefits like health insurance. It found that from 1979 to 2007, median income grew by about 18.2 percent over all rather than by 3.2 percent counting income alone.

In an interview, Mr. Burkhauser said his numbers measured “how are the resources that person has to live on changing over time,” whereas Mr. Piketty and Mr. Saez’s numbers measure “how are different people being rewarded in the marketplace.”

“That’s a fair question to ask, but it’s a very different question to ask than, ‘What resources do Americans have?’ ” Mr. Burkhauser said. Notably, many of the Obama administration’s progressive policies have been aimed at blunting the effects of income inequality, rather than tackling income inequality itself.

Mr. Saez has advocated much more aggressive policies aimed at income inequality. “Falls in income concentration due to economic downturns are temporary unless drastic regulation and tax policy changes are implemented,” Mr. Saez said in his analysis.

The recent policy changes, including tax increases and financial regulatory reform, he wrote, “are not negligible but they are modest relative to the policy changes that took place coming out of the Great Depression. Therefore, it seems unlikely that U.S. income concentration will fall much in the coming years.”

Article source: http://www.nytimes.com/2013/02/16/business/economy/income-gains-after-recession-went-mostly-to-top-1.html?partner=rss&emc=rss

Economix Blog: About That 99 Percent …

I received an e-mail over the weekend from a reader asking for some statistical context for the Occupy Wall Street protesters’ “99 Percent” rallying cry. Who exactly are the people in the top 1 percent of the economy? How much do they make, and how much are they worth?

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

Here are some numbers:

American households right at the 99th percentile (that is, the cut-off for the top 1 percent) will earn about $506,553 in cash income this year, according to a Tax Policy Center analysis. The income curve is very steep at the high end, meaning that people just a few tenths of a percentile point above that make much, much more. A family at the 99.5th percentile, for example, makes $815,868; its neighbor at the 99.9th percentile makes more than double that, at $2,075,574 a year.

The top 1 percent of American earners receive about a fifth of the country’s income, according to Thomas Picketty and Emmanuel Saez, two economists who study inequality.

But as we’ve noted before, economic inequality isn’t just about what you make each year. It’s about how much wealth you have already accumulated, too. And inequality is far, far greater when you include wealth.

According to an analysis of Federal Reserve data by the Economic Policy Institute, a liberal research organization, the top 1 percent of Americans by net worth hold about a third of American wealth.

The cutoff for the 99th percentile in net worth was $19,167,600 as of 2007, based on this research.

That means, of course, that the bottom 99 percent of Americans includes an awful lot of millionaires.

Article source: http://feeds.nytimes.com/click.phdo?i=5c813fb8dc273ea55fc4d2b4294ddcec

Economix Blog: Uwe E. Reinhardt: What Does ‘Economic Growth’ Mean for Americans?

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Uwe E. Reinhardt is an economics professor at Princeton.

Suppose we placed a carefully selected sample of men on a hot stove and another sample of men on dry ice. Could we reasonably conclude that, on average, they were comfortable?

Today’s Economist

Perspectives from expert contributors.

As a nation we worship a deity called economic growth. The more sophisticated users of that term presumably mean by it “annual growth in average gross domestic product per capita, expressed in dollars with a constant value relative to real goods and services, and averaged over the entire population of the United States” — in short, real G.D.P. per capita.

But what does an average of this sort mean for most people the United States? I am fascinated by a recent paper by Anthony Atkinson, Thomas Piketty and Emmanuel Saez in the Journal of Economic Literature. The authors, recognized experts on the study of income distributions, have constructed a long-run time series of top income shares for more than 20 countries, starting about 1915 and ending in 2007.

Much of their paper is devoted to describing the numerous methodological problems that must be overcome to construct comparable time series of this sort. But they reach some illuminating conclusions, among them this:

Over the last 30 years, top income shares have increased substantially in English-speaking countries and in India and China, but not in continental European countries or Japan. This increase is due in part to an unprecedented surge in top wage incomes. As a result, wage income comprises a larger fraction of top incomes than in the past.

Top wage incomes include the compensation of corporate executives, including those in the financial sector.

Of particular interest is their Table 1 (Page 9) which I have summarized in the two charts below.

Consider now the longest period featured in their Table 1, from 1976 to 2007. The authors estimate that over that period the average annual income of all families in the United States grew at an average annual compound growth rate of 1.2 percent. But the data reveal that for the top 1 percent of income recipients, average real income grew by 4.4 percent a year. They captured 58 percent of the growth in total income over the period.

By contrast, for the bottom 99 percent of Americans, average family income over the same period grew by only by only 0.6 percent a year. Within that broad 99 percent, however, some lower-income groups probably saw their real income fall.

As the data in second chart shows, this inequality was even greater in the period 2002-7, in which the top 1 percent of highest-income recipients garnered 65 percent of the growth in total income over the period.

Similar conclusions, by the way, were reached in a 2005 paper by Ian-Dew Becker and Robert Gordon, “Where Did the Productivity Growth Go?”

So if an American macroeconomist — a specialist who tends to think of nations as people — or high-level government officials or politicians mimicking a macroeconomist boasted on a television talk show that “average family income grew by 3 percent during 2002-7, more than in most European economies,” about 99 percent of American viewers, reflecting on their own experience, would probably scratch their heads and wonder, “What is this guy talking about?”

The third chart, below, exhibits the growth path of real G.D.P. per capita in the United States over the period 1975-2009 and the corresponding path of real median household income. The data show that over the 34-year period, real G.D.P. per capita rose by an annual compound rate of 1.9 percent. Those data come from the Economic Report of the President to the Congress (Tables B-2 and B-34).

Sources: Economic Report of the President to Congress (G.D.P.); Census Bureau (income)

According to the Census Bureau data (see Table H-6), however, median household income in the United States rose by less than 0.5 percent a year. Other than national pride in league tables, that 1.9 percent average economic growth does not mean much for the experience of the median household in the United States.

In this regard, I found even more interesting this comment by the authors, pertaining to the international league tables of which we are all so fond, especially if they make us look good:

Average real income per family in the United States grew by 32.2 percent from 1975 to 2006, while they grew only by 27.1 percent in France during the same period, showing that the macroeconomic performance in the United States was better than the French one during this period. Excluding the top percentile, average United States real incomes grew by only 17.9 percent during the period while average French real incomes — excluding the top percentile — still grew at much the same rate (26.4 percent) as for the whole French population. Therefore, the better macroeconomic performance of the United States and France is reversed when excluding the top 1 percent.

In other words, if one took away the top 1 percent highest-income recipients and their share of income and focused on what was left for the bottom 99 percent, the median representative of that cohort should not be all that impressed by economic performance in the United States relative to their peers in other countries.

It can help explain why the so-called median American voter, a concept used in political science literature, seems so angry at this time, looking around for culprits behind the economic predicament of the American middle class. It also can help explain why the high-income groups in the United States have accounted for a growing share of total federal taxes paid in the United States.

Article source: http://feeds.nytimes.com/click.phdo?i=3fb7134612bccdd0d0f892ad3843712c