Why is inequality bad?

[unbongwah]

And for those folks who lost their stupid tedious job? Well, those folks should get unemployment and a training program.

"First they came for the cashiers and I didn't speak out because I wasn't a cashier..."

The problem, as ShivaX points out, is society only needs so many doctors, programmers, engineers, etc. - i.e., highly educated, specialized workers - so ideally there ought to be enough jobs in the middle between "bum" and "PhD" which pay a living wage to absorb those people. Plus, even if society could absorb that many new highly-paid workers, most of those people have to learn & train for years if not decades for those careers; it's not practical to, say, ship all those cashiers off to med school boot camp and hope they come out in a few weeks able to perform brain surgery. So what do they do in the meantime?

[wahoo]

Late to the party(more like a funeral reception)! I just finished reading The Great Divergence.

Wow, he's completely wrong on gender not being a cause. The empirical evidence is that assorted mating and women's wage have contributed to inequality (and by a great deal according to some studies I've seen).

Basically at first working women helped equalize incomes but then as more women worked, gained experience and became educated they contributed to the growth inequality. He looks merely at women's wages as % of male wages. But as women's wages become closer to 100%, the greater the increase inequality is created. He gets the relationship exactly backwards in his conclusion, which makes me not want to read anything else at all in this article.

Basically the role of women and income inequality is as follows: People pair up in their socio-economic sphere (college grads marry college grads and not HS dropouts as a general rule). Women have more education and are working. As their wages approaches males, women are also experiencing the education premium. So in 1950, you had a college grad and a stay at home wife making more than a HS dropout and his wife. In 2010, the college grad and his college grad wife are both working and earning the same wage premium compared to high school grad and his wife. I remember reading some of Tim Smeeding's work that high-income folks in the US work many more hours than high-income in other (european countries). This was true for women as well as men.

Anyway, the find that households and gender doesn't matter flies in the face of the empirical works of Sheldon Danzinger, Bob Lehrman, Gary burtless and others on the left who have studied this issue for years. They have all published empirical research on the impact of working women and the rise of single-parent families on child poverty and increase of income equality. Not to say that the rise of the super-rich isnt' a factor, but these are bigger issues that this guy mentions.

[Sander 001]

No, the issues of the college/wage premiums and the closing gender gap are taken on separately in different chapters.

[wahoo]

No, the issues of the college/wage premiums and the closing gender gap are taken on separately in different chapters.

I read it. The problem is that he says gender can't be an issue income inequality b/c he cites the closing gender gap. But empirical studies have found that it's precisely the closing of the gender gap that has contributed to inequality. He has causation completely reversed in his gender example, which makes me not take him seriously.

[Sander 001]

I'm having a tough time reading your posts. Are you able to provide some quotes from your sources?

[charmtrap]

Not sure where this goes, so I'll put it here:

According to a new report from the CRS, between 2007 and 2010 the bottom 50-percent's share of the nation's total wealth dropped from 2.5% to 1.1% while the top 10% grew from 67.2% to 74.5%.

http://www.fas.org/sgp/crs/misc/RL33433.pdf

When does this start becoming cause for alarm?

[ydejin]

Not sure where this goes, so I'll put it here:

According to a new report from the CRS, between 2007 and 2010 the bottom 50-percent's share of the nation's total wealth dropped from 2.5% to 1.1% while the top 10% grew from 67.2% to 74.5%.

http://www.fas.org/sgp/crs/misc/RL33433.pdf

When does this start becoming cause for alarm?

I'm pretty sure a lot of us already are alarmed about this. On the other hand, a large part of the people in power are wealthy and don't give a damn, or in some cases are actually quite pleased about this and doing their best to accelerate the process (see for example the Republican Party).

[Andy Bates]

When does this start becoming cause for alarm?

When do people stop comparing what they have to what other people have? When will people stop looking at their "share" of the national wealth, as though income were a pie that should be evenly divided up among all people? And when will people understand that the "bottom 50%" or "top 10%" are not a solid block of people that grow richer or poorer over time, but a statistical grouping that consists of different people over different years?

[magnet]

When do people stop comparing what they have to what other people have?

When people stop caring about equality.

When will people stop looking at their "share" of the national wealth, as though income were a pie that should be evenly divided up among all people?

When people stop wanting more wealth.

And when will people understand that the "bottom 50%" or "top 10%" are not a solid block of people that grow richer or poorer over time, but a statistical grouping that consists of different people over different years?

When the statistics stop changing over time - for the worse.

[Starlight]

When do people stop comparing what they have to what other people have?

When it stops being at their expense, as it has been since the 1970's.

[Timex]

When it stops being at their expense, as it has been since the 1970's.

Do you want to go back and live in the 1970's?

[Scuzz]

Do you want to go back and live in the 1970's?

I liked the 70's. Didn't seem to bad.

[Starlight]

Do you want to go back and live in the 1970's?

I'd happily see the income structure of the 1970's.

[Andy Bates]

When people stop caring about equality.

I just got a raise at work. Should I be happy about it, or should I first find out how much of a raise every other person got? After all, if things became more unequal because the CEO got a bigger raise, I should be upset, right?

When people stop wanting more wealth.

It's possible to have more wealth, yet still have a smaller "slice of the pie."

When the statistics stop changing over time - for the worse.

Every morning I go into my local grocery store, and there is always a line of people. Based on my polling, the person at the front of the line is always happy, and the people in the back of the line are always annoyed. Every time I come in, there's always someone at the back of the line! Why doesn't the store ever take care of that group, the back-of-the-line people? Why do they always show favoritism towards the privileged group at the front of the line? Every day, the people are always at the back of the line. When will things ever improve for them??

[magnet]

After all, if things became more unequal because the CEO got a bigger raise, I should be upset, right?

If your CEO got a raise despite driving the company into the ground, then you should be upset.

It's possible to have more wealth, yet still have a smaller "slice of the pie."

As Montgomery Burns said, "I would give all my wealth away, in exchange for just a little more."

Like I said, when people are satisfied with the amount of wealth they have, they will stop worrying about everyone else.

Every day, the people are always at the back of the line. When will things ever improve for them??

Not today, and not tomorrow. Because the only thing the store sells is tickets to tomorrow's line.

[ElGuapo]

Every morning I go into my local grocery store, and there is always a line of people. Based on my polling, the person at the front of the line is always happy, and the people in the back of the line are always annoyed. Every time I come in, there's always someone at the back of the line! Why doesn't the store ever take care of that group, the back-of-the-line people? Why do they always show favoritism towards the privileged group at the front of the line? Every day, the people are always at the back of the line. When will things ever improve for them??

Really? You think that analogy holds? Society is not like a line in a grocery store. A line is equal. Everyone moves up at a measured pace and gets served equally. Society is not like that. In society, things are not equal or fair at all. The bottom scrounges and fights and sacrifices in ways that the top doesn't even comprehend. Merit, intelligence, hard work, ethics, integrity, none of that matters. Watch an episode of "The Real Housewives of ..." or a Kardashian show (there are at least three on now) and tell me why and how their vast wealth is based on any of those things.

[ydejin]

When do people stop comparing what they have to what other people have? When will people stop looking at their "share" of the national wealth, as though income were a pie that should be evenly divided up among all people?

Middle class income has actually decreased. So naturally when they see that one group of people is making even more money than before and is at the same time pushing to reduce their tax rates and eliminate the estate tax, thus permanently enshrining advantages for generations to come, they think that there is no longer a sense of fair play in this country. Therefore they are upset.

For the first time since the Great Depression, middle-class families have been losing ground for more than a decade. They, and the poor, have struggled particularly badly since the financial crisis led to a global recession in 2008. The idea that living standards inevitably improve from one generation to the next is under threat. Many of the bedrock assumptions of American culture — about work, progress, fairness and optimism — are being shaken.

...

Since median inflation-adjusted family income peaked in 2000 at $64,232, it has fallen roughly 6 percent. You won’t find another 12-year period with an income decline since the aftermath of the Depression.

...

In addition to the slow growth in overall size of the pie, the share that has been going to anyone but the richest Americans has been declining. The top-earning 1 percent of households now bring home about 20 percent of total income, up from less than 10 percent 40 years ago. The top-earning 1/10,000th of households — each earning at least $7.8 million a year, many of them working in finance — bring home almost 5 percent of income, up from 1 percent 40 years ago.

If the tax rates hadn't been considerably reduced and there was a sense that government money was being used to raise all boats, then there would probably be less anger. But support to ensure every American has a reasonable chance at becoming a success is way down, at the same time the wealthier are not only becoming wealthier on their own merits, but are also using the political system to further increase their share of the gains. Tax rates have been cut to their lowest level on the rich, while at the same time support for things like public universities are at an all time low.

As far as your other comment goes:

And when will people understand that the "bottom 50%" or "top 10%" are not a solid block of people that grow richer or poorer over time, but a statistical grouping that consists of different people over different years?

Inter-generational income mobility is not doing particularly well in this country either, and the Republicans are doing everything in their power to keep mobility down. Increasing access to college, for example, would have a huge impact on income mobility, but instead access is getting cut off so that the wealthy can pay even less in taxes than they did before. That's particularly problematic given that we already have amongst the lowest taxes in the industrial world.

America has actually slipped behind Europe in terms of inter-generational income mobility.

[M]any researchers have reached a conclusion that turns conventional wisdom on its head: Americans enjoy less economic mobility than their peers in Canada and much of Western Europe.

...

At least five large studies in recent years have found the United States to be less mobile than comparable nations. A project led by Markus Jantti, an economist at a Swedish university, found that 42 percent of American men raised in the bottom fifth of incomes stay there as adults. That shows a level of persistent disadvantage much higher than in Denmark (25 percent) and Britain (30 percent) — a country famous for its class constraints.

Meanwhile, just 8 percent of American men at the bottom rose to the top fifth. That compares with 12 percent of the British and 14 percent of the Danes.

Despite frequent references to the United States as a classless society, about 62 percent of Americans (male and female) raised in the top fifth of incomes stay in the top two-fifths, according to research by the Economic Mobility Project of the Pew Charitable Trusts. Similarly, 65 percent born in the bottom fifth stay in the bottom two-fifths.

[Andy Bates]

Really? You think that analogy holds? Society is not like a line in a grocery store. A line is equal. Everyone moves up at a measured pace and gets served equally. Society is not like that. In society, things are not equal or fair at all. The bottom scrounges and fights and sacrifices in ways that the top doesn't even comprehend.

I was making a humorous comparison, but yes, many of the people at "the top" were at "the bottom" at some point in their lives. In fact, a lot of the inequality that people complain about is due to differences in age. Because believe it or not, a person who has worked for twenty or thirty or forty years generally has a higher net worth than someone in their 20s. It's not that those people get preferential treatment; it's just that they've been in line longer.

Merit, intelligence, hard work, ethics, integrity, none of that matters. Watch an episode of "The Real Housewives of ..." or a Kardashian show (there are at least three on now) and tell me why and how their vast wealth is based on any of those things.

I wouldn't look at the lifestyles of a few ridiculously wealthy with no visible job skills, and assume that that applies to the majority of wealthy people.

[Timsfker]

Here's some graphs from some recent research I have been doing (all derived myself from tax return data processed by Piketty & Saez):

[Timsfker]

Here's another that further aggregates the second graph. Notice the value for the bottom 90% over 1980-2010, and how the reality for most americans are not reflected in the macro mean data.

[Andy Bates]

Why is it that when people want to make arguments about inequality, they all use the exact same Piketty-Saez study? A quick Google search will find numerous criticisms of that study, but a good one is here.

[mouselock]

Here's some graphs from some recent research I have been doing (all derived myself from tax return data processed by Piketty & Saez):

What happened structurally to financial law in the late 70s to do that? Or is it entirely a corporate culture type of thing? I wouldn't have been surprised to find something like that originating in the late 80s or so, but I'm surprised to see it seemingly originate in the mid to late 70s instead.

[Malathor]

What happened structurally to financial law in the late 70s to do that? Or is it entirely a corporate culture type of thing? I wouldn't have been surprised to find something like that originating in the late 80s or so, but I'm surprised to see it seemingly originate in the mid to late 70s instead.

Asian manufacturing is what happened. The divergence begins at the 73-74 oil shock/recession, which marked the first big influx of Japanese made autos.

[Timsfker]

Why is it that when people want to make arguments about inequality, they all use the exact same Piketty-Saez study? A quick Google search will find numerous criticisms of that study, but a good one is here.

It's reputable, and a number of academics have used the same methodology for a number of other countries (see World Top Incomes Database). I'm sure there are criticisms, and after handling the data myself for a couple of papers it does indeed have shortcomings (not from the authors but from the data source), but we live in an imperfect world.

To test whether I was getting outlandish results in those graphs I put the top 5% income series generated by this Piketty & Saez data with official US Census Bureau data from household surveys (this is all real income), here is the outcome:

[Andy Bates]

I'm not sure what that's supposed to prove. Of course the graphs are similar, because Piketty-Saez used numbers from the Census Bureau, which is precisely the problem. They used census numbers, instead of using IRS numbers which more accurately show the distribution of income within households. Again, just read any of the many, many criticisms of that study, which show the flaws in the data set.

[Starlight]

Asian manufacturing is what happened.

Very arguable, actually - http://www.oecd.org/dataoecd/40/12/49170449.pdf

"However, evidence as to the role of globalisation in growing inequality is mixed. A number of international cross-country studies find trade integration to have increased inequality in both high-wage and low-wage countries, which is at odds with traditional trade theory"

The turn-around of capital from a decreasing to an increasing share of income against wages is not so easily hand-waved away. Financial regulation is indeed a very likely culprit given the time-scale.


Andy - Never mind that the same thing is seen in data, collected in various ways, across virtually every country in the world.

[Timsfker]

I'm not sure what that's supposed to prove. Of course the graphs are similar, because Piketty-Saez used numbers from the Census Bureau, which is precisely the problem. They used census numbers, instead of using IRS numbers which more accurately show the distribution of income within households. Again, just read any of the many, many criticisms of that study, which show the flaws in the data set.

Err, their estimates are from tax returns, not household surveys. You have it mixed around. Why don't you enlighten me on specific problems that compromise the integrity of the results, im starting to think you aren't even familiar with what they did you just don't like the answer.

[Wolff]

Andy do you believe everyone has a somewhat equal shot of ending up in the top 5% of income earners?

[Hechicera]

I read it. The problem is that he says gender can't be an issue income inequality b/c he cites the closing gender gap. But empirical studies have found that it's precisely the closing of the gender gap that has contributed to inequality. He has causation completely reversed in his gender example, which makes me not take him seriously.

I'm going to have to take issue with this. The only "study" I know of is this article which is not a study just an observation and is far from compelling.

http://www.freakonomics.com/2011/07/...ap-in-the-u-s/

The premise seems to be both that divorces made more single parent households with children, and women compete with men on jobs lowering wages employers will pay.

However, if a one wage earner family earned enough before, but doesn't now that points to wage deflation. There would be earning equivalence between a male widower with children in the 1950s and a single-parent divorced woman with children today. But a single earner then could support the children without the other partner while most single-income families today struggle regardless of if the partner is still present in the household or divorced!

Other economic studies also point that competition is not much of an issue either. First, more workers means more demand meaning more workers needed to make it. The issue is in part where those workers are that are meeting demand, which has nothing to do with gender pay here. Also, once you get out of the highly educated fields, much of the gender pay gap is due to female dominated fields paying less than male ones. So the men and the women are not competing here for the same jobs, making that a red herring when those field based discrepancies close.

[wahoo]

I'm going to have to take issue with this. The only "study" I know of is this article which is not a study just an observation and is far from compelling.

There's a huge amount of literature on this. Charles Murray latest book Coming Apart is focused on this. Basically, income inequality is increasing because high skilled people marry high skilled people. You're doubling the earning premium as compared to lower-skilled or even single parent households. (Basically 2 effects. 1) the rise of single parent families that consist of 1 earner vs the rise of dual earner married couples 2) educated women now receive the same earnings premium that educated men get. And educated women are working more today than they worked 30 years ago, while for less educated women the trends are reverse(and this trend is souped up for men)


http://www.brookings.edu/~/media/res...ss/disparities

fun media reading.

http://www.nytimes.com/2012/06/13/wo...pagewanted=all

So while husbands and wives have become more equal, inequality between families appears to be on the rise. As Christine R. Schwartz, a professor of sociology at the University of Wisconsin, puts it: “Marriages are increasingly likely to consist of two high- or two low-earning partners,” rather than of one of each.
Looking at data on married couples in the United States from 1967 to 2005, Dr. Schwartz found that increases in general earnings inequality over that period would have been between 25 percent and 30 percent lower in the absence of more assortative mating.
Potentially widening the gap between rich and poor families further is the fact that women nearer the top of the income distribution have increased their hours of paid work relatively more than women nearer the bottom.