Who has gained from the inequality boom? — Crooked Timber

A question that comes up at CT quite a bit is: who has benefited from the massive increase in US income inequality over recent decades. I finally got around to chasing down Congressional Budget Office data (derived from tax records for the period 1979 to 2005), and the answer, in short is:

  • The top 1 per cent roughly doubled their share of both pre-tax income (9 per cent to 18 percent) and after-tax income (7.5 per cent to 15 per cent)
  • The rest of the top 10 per cent slightly increased their share (from about 20 to about 22 per cent)
  • The next 10 per cent held their share (about 15 percent)
  • The remaining 80 per cent of households saw their share drop (from 58 per cent to 48 per cent of post-tax income, with the biggest drops coming at the bottom. The bottom 40 per cent of households now get a smaller share of post tax income (14 per cent, down from 19) than the top 1 per cent.

    A couple of observations on this.

First, to answer the question “who gained from the inequality boom” we need a counterfactual. If, as is commonly claimed, pro-rich policies raised the average rate of growth of income, people in the top 20 per cent of the income distribution were better off, since they had a constant share of a bigger cake. The effects are ambiguous for everyone else, and, on any plausible numbers, everyone below the median is worse off than they would have been with moderately slower, but equitably distributed growth. On the other hand, if pro-rich policies contributed to the slowdown in economic growth for the period since the 1970s, compared to the postwar boom, then the only net beneficiaries are those in the top 1 per cent of the income distribution.

Second, the picture would probably change a bit if benefits (particularly employment-related health benefits) were taken into account. My guess is that this would probably improve the outcome for the top quintile (since this group mostly held on to benefits which increased faster than wages) and worsen it for those below the median (who have lost access to benefits over time).

Finally, it’s striking that, on the CBO figures, the tax system is almost exactly proportional: that is, it has no net redistributive effect at all. The top 1 per cent have a somewhat smaller share of post-tax income than of (measured) pre-tax income, but that almost certainly reflects their capacity to hide income from the tax system.

50 thoughts on “Who has gained from the inequality boom? — Crooked Timber

  1. thanks for all the info – I guess the info in The Spirit Level is somewhat misleading or I have misread it

  2. @Peter Whiteford
    It is complicated to talk about inequality in Japan – or is it.

    Incomes double and doubled again to take Japan from a dump to an industrial powerhouse.

    This happened in the life-time of my professors in Japan. They were from MITI, the Ministry of Finance and other agencies. They starting work in the late 1960s. I was living there in the mid-1990s.

    These Japanese were born in the early 1950s and late 1940s, and grew up in the 1960s

    They were head and shoulders taller than their parents.

    Their children were head and shoulders taller than them.

    This is common around developing Asia. One measure of their development is just looking around and checking the differences in the height of different generations.

    Everbody made made a lot of money, and some made a lot more than others. These incomes differences were the footnotes of economic growth.

  3. @Jim Rose

    Who was in government over this period?

    Whilst the OECD, CIA, etc are useful sources for comparisons between countries, when looking just at Australia it’s better to rely on the ABS:

    The 0.319 measure for 2007-08 is up 5.6% on the 1994-95 measure of 0.302. While other methodological changes introduced with the 2003-04 and 2005-06 survey results have contributed to this difference, the residual movement (after methodological changes) in this summary indicator is very likely to be statistically significant. Some other indicators of income distribution show a similar pattern. As the table below shows, the income share going to first four income quintiles fell, while the share for the fifth quintile rose.

    See? We do remember who was in government over this period.

  4. @gregh
    see http://www.oecd.org/document/53/0,3343,en_2649_33933_41460917_1_1_1_1,00.html for the front page of the report Growing Unequal and data and methods at http://www.oecd.org/document/2/0,3343,en_2649_33933_45043394_1_1_1_1,00.html

    on-subscribers can browse the full-text online and purchase the PDF e-book and/or paper copy via the OECD Online Bookshop at http://www.oecdbookshop.org/oecd/display.asp?sf1=identifiers&st1=9264044183

    The OECD still ask people to pay for many of its reports!!!!!!!!!!!

    your link notes that “gaining access to income and retaining that access is now significantly more difficult than it was in the 1960s when we had true full employment.”

    That is a boy’s view of world.

    Women remember the 1960s very differently in terms of labour force participation, wage levels, equal wages, job quality, marriage bars to promotion, and career paths. did women still have to quit their public service jobs when they married in the 1960s??!

    The 1960s were not the good old days if you were a woman.

    Today are the good old days for women. they can even raise children on their own and still, in many cases, pursue careers.

    Too many on the Left are grumpy old men who have no excuse for forgetting the rapid economic emancipation of women in the mid and late 20th century. They lived those decades!

  5. @gregh
    1966!!!!!!!!!!!!!!!!!!!!

    see http://www.apsc.gov.au/media/briggs201106.htm for Celebration of the 40th anniversary of the lifting of the Marriage Bar

    women had to quit as permament officers of the public service! The good old boys got their jobs and promotions.

    Some hid their marriages for years, hiding their rings before they got to work.

    One woman remained unmarried and bore four children. She managed this by timing her annual leave to cover the births.

    While her personnel area was cooperative, they forced her to resign as soon as she decided to make an honest man of her husband by marrying him

    Bill Hayden put up a private members bill to end this aspect of your good old days.

  6. @gregh
    There is a probem with my earlier posting not posting properly with links to OECD papers and a discussion of the link you provided. I cannot fix it.

  7. @gregh
    I will repost the part without links:

    your link at #29 notes that “gaining access to income and retaining that access is now significantly more difficult than it was in the 1960s when we had true full employment.”

    That is a boy’s view of world.

    Women remember the 1960s very differently in terms of labour force participation, wage levels, equal wages, job quality, marriage bars to promotion, and career paths. did women still have to quit their public service jobs when they married in the 1960s??!

    The 1960s were not the good old days if you were a woman.

    Today are the good old days for women. they can even raise children on their own and still, in many cases, pursue careers.

    Too many on the Left are grumpy old men who have no excuse for forgetting the rapid economic emancipation of women in the mid and late 20th century. They lived those decades!

    {Now read #31}

  8. Too many on the Left are grumpy old men who have no excuse for forgetting the rapid economic emancipation of women in the mid and late 20th century. They lived those decades!

    Projection:

    Psychological projection or projection bias (including Freudian Projection) is the unconscious act of denial of a person’s own attributes, thoughts, and emotions, which are then ascribed to the outside world, such as to the weather, a tool, or to other people. Thus, it involves imagining or projecting that others have those feelings.

  9. @SJ
    any analysis of income and inequality must include a gender analysis.

    the Left has forgotten this most basic requirement of social analysis! Why?

    It is like writing a history of the extension of voting rights and forget to discuss when women got the vote, why they got the vote, and what were the consequences.

  10. I think this is one where arguing as if money were the sole or even the main determinant of equality for most people is to pursue a dead end. JQ notes -and it is not contested – that pretty much all the monetary growth in the US economy of the last 20 years has gone to the very rich. Wilkinson et al take off from well-established work that inequality leads to worse health and other outcomes to argue for a more equal distribution of money income. But the purely financial data do not support their argument very well.

    Surely for most people equality is having a secure social standing – one that limits the control others can exert over one’s life. This can be based on having a trade, having tenure, being in a union, having sufficient standing to be able to push back against harassment and so on – a whole complex of social arrangements.

    Being at the mercy of the Centrelink bureaucrat is just as bad as being at the mercy of the boss (or, taking Jim Rose’s point, being at the mercy of one’s husband). Money does not necessarily mitigate the condition – it depends on how it is derived, and what it is spent on, and what rights society claims over its use.

    For what it’s worth, my feeling is that Australia is significantly less equal than it used to be, but this is not so much about money as about a whole lot of other things.

  11. SJ, I’m surprised you did not raise the issue of gender inequality for Japan lags a long way behind the Nordic countries when it comes to gender equality.

  12. Michael, talk to the troll, if you want to. Don’t take issue with me for the idiotic things that it’s saying.

  13. re the OP – how much better is the lived experience of the fabulously rich, now they get an even bigger slice of the pie? Possibly no better at all.

  14. @SJ
    I am not surprised that the Left of the web is a boy’s own club were gender analysis is not understood, much less used. even basic questions such was are the statistics for men and for women pass you by.

    Peter T at #39,
    I have pointed to other viewpoints on the conflicting trends in equality for men and women at #4 and #17.

  15. SJ – The Gini co-efficient is a strange animal – its only one measure of inequality and it is just plain blind to certain inequalities – like the wool boom in 1950 in Australia rewarded the top decile extraordinarly (wealthy graziers and wool exporters) – the Gini co-efficient rose.

    Inequality rose – yet perhaps this was a case for trickle down that actually was real, not imaginary!

    On the other hand the severe inflation in the early 1970s couldnt have been said to have rewarded the lowest deciles (not when prices were rising and despite rising wages they were moving up tax brackets as well)

    yet the Gini falls (greater equality – I dont think so really)…The Gini is a little unpredictable and a little blunt as a measure.

  16. @SJ
    SJ – “My dog ate my homework” and Gregh on the “outreach program”. LOL. A laugh a day keeps the trolls away.

  17. Having just had an interesting conversation last Saturday with a 26 year old female temp working for Deloittes on contract. She tells me there are a lot of female managers…who all have young children..and bemoan the fact they cant afford to be at home with their children “where they want to be”.,… (oh the mortage pain).

    As a boomer child myself…I grew up in a street where all the Mums were at home and you would have to run from house to house to find out where your Mum was having afternoon tea with her friends when you got home from school…as a child it was great. An extended network of Mums and kids.

    I told her to tell those women…it wasnt as easy as they imagine…imagine having to go cap in hand to the man of the house to ask for a little extra. Imagine arguments over whether the woman should have a car!! (I lived them!) Imagine seeing the man wearing cashmere cardigans to work whilst your Mum sewed your clothes from materials she bought cheaply at Fox’s bargain fabric stores…

    Life, for women, isnt easy no matter whether they work or they dont… but its a shame the burden of paying for a house ends up keeping a woman away from her children if thats where she wants to be.

  18. @Alice
    nice post.

    the problem is explored by daniel Hamermesh in “Stressed Out on Four Continents: Time Crunch or Yuppie Kvetch?”

    the source of problem is the more money people have, the more pressed for time they’ll be as they try to find ways to spend it all.

    There are really only a couple of hours in the average weekday in which a person has some flexible time.

    With more money comes more options, which leads to greater stress in trying to get everything done.

    you can’t pay a person to sleep for you, go to movies, read, exercise, eat or any of the countless other things that occupy the day. Those things take time, and time is an incresingly scarce commodity because it is more valuable.

    Poverty is a problem. Time scarcity is not a problem in the same class.

  19. @Jim Rose
    Its not a choice for many JR (even if women romanticise the past when most Mums were at home – it wasnt all apple pie then – although I didn get a lot more home made cakes as a kid than Ive ever seen since alas) when it only took one wage to pay a mortgage.

    Its about real income (not monetary income). Its not about “yuppie Kvetch”. Its about time crunch and poverty if the alternative is chosen (stay home with the kids). Its also about nostalgia. Modern women may think about the “good old days” when women could stay home and raise kids….but they cant really imagine the underside of being trapped, poor, miserable, making do, having to ask for money etc.

    I honestly dont know what Id prefer…except to be rich enough not to have to ask for money and to have time enough to be able to raise my own kids at home. Thats the perfect world.

    The one most people dont have.

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