Chart of the day

Posted: 4 May 2016 in Uncategorized
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John Komlos has completed a new study, in which he attempts to improve upon the Congressional Budget Office’s (post-tax, post-transfer) estimates of the growth of U.S. income for the 1979-2011 period. The results are for quintiles and, within the top fifth, for percentiles. (The high estimates are based on using the personal consumption expenditures price index to deflate the modified CBO data, while the low estimates use the consumer price index).

The high estimates of the growth of median income are not changed markedly from the original CBO estimates. But the results are dramatic:

Growth rates varied considerably across the income distribution. The lowest quintile grew well enough at 1.0% per annum, although the dollar value of its average income was still a meager $17,900, which was barely the poverty threshold for a family of three. Moreover, their income grew at a much slower rate than that of the 5th quintile during this 32-year period. Hence, the income of the 1st quintile declined from 15% of the income of the upper quintile to just 10%. In addition, the growth in income of the lower-middle class (2nd quintile) and that of the middle class (3rd quintile) was the slowest, growing at a modest rate of 0.6% to 0.7% per annum, thereby reinforcing the general impression of a floundering middle class even with these high estimates. However, the upper-middle class (quintile 4) did better, growing at 1.1% per annum, but it also fell behind the 5th quintile which grew almost twice as rapidly, at a rate of 2.1%. Moreover, there were noteworthy differences even within the 5th quintile, insofar as the income of the top 1% grew at an “astronomical” pace of 3.9% per annum, so that in the course of this period it grew from 7 times to 14 times the value of the median income. Only the income of the 5th quintile grew faster than the median income. In addition to the growth in median income which was between 0.9% and 1.4% per annum one can also use the average of the five growth rates across the five quintiles as a measure of central tendency for the whole population. Such an average would lower the estimated growth rates of income for the whole population to between 0.6% and 1.1% per annum. (references omitted)

The differences are even more stark in the case of the low estimates:

The low growth rate estimates were 0.5% less than the high ones and, therefore, were quite subdued across the board with the exception of the 5th quintile which grew at a reasonable rate of 1.6% per annum. The estimated growth rates of the 2nd and 3rd quintiles were hardly distinguishable from (0.1%-0.2%). They differed the most from the high estimates in percentage terms. In fact, only quintile 5 registered an exceptional performance of 1.6% and within it the income of the top 1% grew at the stellar rate of 3.4%. In the main, all three middle class quintiles were left very far behind with only quintile 4 advancing slightly at a rate of 0.6% per annum. (references omitted)

We have, then, two major results from Komlos’s analysis: First, the “hollowing out” of the middle-class (as we can see from the fact that the incomes of the second and third quintiles consistently lagged behind those of the other quintiles). And, second, the only real growth occurred at the very top (since the incomes of the top 1 percent increased between 188 and 240 percent). The result was that the ratio between the top 1 percent and the bottom quintile rose dramatically, from 20.9 in 1979 to 51.2 in 2011 (an increase of 144 percent).

Is there any more stark indicator of the spectacular growth of inequality in the United States?

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