Posts Tagged ‘chart’


Provoked, first, by liberal celebrations of the recent decline in the poverty rate in the United States—and, then, by conservative attempts to dismiss the issue of inequality, I decided to run some numbers. Just to see.

As it turns out, the corporate profit share (on the right in the chart above) and the poverty rate (on the left) appear to have moved in tandem since the mid-1990s: when the profit share declines, so does the poverty rate, and vice versa.

This is one of those times when I don’t have a theory or an explanation. But I was reminded of that long-forgotten ruthless critic of political economy:

Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, agony of toil slavery, ignorance, brutality, mental degradation, at the opposite pole, i.e., on the side of the class that produces its own product in the form of capital.


Two findings stand out in a new study from the Economic Policy Institute (pdf) on black-white wage gaps in the United States:

First, since 1979, the gap between all workers’ wages—black and white, women and men—and productivity has increased dramatically. Thus, while productivity increased by over 60 percent, wages for white workers rose by only 22.2 percent and black wages by even less, 13.1 percent.

Second, wages for African American have grown more slowly (or, in the case of men, fallen by a greater amount) than those of their white counterparts. As a result, pay disparities by race and ethnicity have expanded since 1979. For example, white women’s wages increased by 30.2 percent and black women’s wages by only 12.8 percent. And while men’s wages actually declined, they fell by 3.1 percent for white men and even more, by 7.2 percent, for black men. Thus, the overall black-white wage gap increased from 18.1 percent in 1979 to 26.7 percent in 2015.

It is pretty clear from the report that overall wage stagnation (especially for the majority of workers, i.e., those below the 90th percentile), in conjunction with lax enforcement of anti-discrimination laws, led to higher wage disparities by race and ethnicity.

But, and this goes beyond the report, we also need to consider the other side of that relationship—that increased racial and ethnic disparities reinforce the growing gap between productivity and the wages of all workers. Black workers are paid less than their white counterparts (of both genders), and all workers’ wages are as a result less than they otherwise would be.

In the end, then, wealthy individuals and large corporations, who capture the resulting surplus, are the only ones who benefit from racial and ethnic wage disparities.



“Why does it always have to represent something?”

Special mention

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All eyes right now are on the U.S. presidential campaign (especially the narrowing gap between Hillary Clinton and Donald Trump).

What that means is Americans’ attention is diverted away from other politics and policies, such as the House GOP’s tax plan—the so-called “Better Way”—which would overwhelmingly benefit the richest 1 percent. It would allow the tiny group at the top to keep, via tax cuts, more of the surplus they manage to capture.

The plan would reduce the top individual income tax rate to 33 percent, reduce the corporate rate to 20 percent, and cap at 25 percent the rate on profits of pass-through businesses (such as sole proprietorships and partnerships) that are taxed under the individual income tax. Individuals could deduct half of their capital gains, dividends, and interest, reducing the top rate on such income to 16.5 percent.

According to the Tax Policy Center,

Overall, the plan would cut the average tax bill in 2017 by $1,810, increasing after-tax income by 2.5 percent. Three-quarters of the tax cuts would benefit the top 1 percent of taxpayers and the highest-income taxpayers (0.1 percent of the population, or those with incomes over $3.7 million in 2015 dollars) would experience an average tax cut of about $1.3 million, 16.9 percent of after-tax income. Households in the middle fifth of the income distribution would receive an average tax cut of almost $260, or 0.5 percent of after-tax income, while the poorest fifth of households would see their taxes go down an average of about $50, or 0.4 percent of their after-tax income. In 2025, the top 1 percent of households would receive nearly 100 percent of the total tax reduction. Households in some upper-middle income groups would have tax increases on average, and households at other income levels would have smaller average cuts, relative to after-tax income, than in 2017.

And, since the plan would reduce total federal revenues (by $3.1 trillion over the first decade of implementation and by an additional $2.2 trillion in the second decade), it implies massive cuts to federal programs, many of which benefit working-class households, thus making the plan even more regressive.

The better way, it turns out, is just another version of conservative trickledown economics.

Hold the champagne

Posted: 20 September 2016 in Uncategorized
Tags: , , ,


Last week, to judge by the commentary on the latest Census Bureau report, Income and Poverty in the United States: 2015 (pdf), you’d think the fountain of broadly shared economic prosperity had just been discovered.

Binyamin Appelbaum is a good example:

Americans last year reaped the largest economic gains in nearly a generation as poverty fell, health insurance coverage spread and incomes rose sharply for households on every rung of the economic ladder, ending years of stagnation.

The median household’s income in 2015 was $56,500, up 5.2 percent from the previous year — the largest single-year increase since record-keeping began in 1967, the Census Bureau said on Tuesday. The share of Americans living in poverty also posted the sharpest decline in decades.

The gains were an important milestone for the economic expansion that began in 2009. For the first time in recent years, the benefits of renewed prosperity are spreading broadly.

And while the 5.2-percent increase is nothing to sneeze at (certainly not for the average American whose income, even now, remains below that of 2007 and even 1999), we need to keep things in perspective.

First, as is clear from the chart above, the gap between the average incomes of the top 1 percent and median income continues to grow. The ratio between the two has dramatically increased over time—from 8 in 1984 to 15.7 in 1999 and 19 in 2007—and remained very high (at 18.6) in 2015.

That’s not a story of broadly shared prosperity.


Second, while the 2015 increase in median household income was dramatic, it followed a year when median income actually fell (by 1.5 percent), after a previous increase (of 3.5 percent in 2013) and years of negative growth (from 2008 to 2012).

I hate to spoil the party. But, me, I’d keep the champagne on ice until we actually see sustained, broadly shared prosperity in the United States. And, to judge by recent years and indeed decades, that may be a very long wait.


Good question, Bruce. I actually started by comparing the change in median income and real earnings—finding that there was a correlation during some periods but not in others.


What I found particularly interesting is that in 2008 and 2009 the change in real earnings was positive while median income fell. And then, in 2013, real earnings fell while median income rose. The interpretation? I think a lot has to do with unemployment—or, if you prefer, the Reserve Army. Real earnings rose in 2008 and 2009 for those workers who were employed (because of low inflation/deflation) but, of course, many workers were thrown out of work. The result? Median household income fell. Exactly the opposite in 2013: real earnings barely changed but the increase in employment raised median household income. Make sense?


According to the norms of both neoclassical economic theory and capitalism itself, workers’ wages should increase at roughly the same rate as their productivity.* Clearly, in recent years they have not.

The chart above, which was produced by B. Ravikumar and Lin Shao for the Federal Reserve Bank of St. Louis, shows that labor compensation has grown slowly during the recovery of the U.S. economy from the 2007-09 recession. In fact, real labor compensation per hour in the nonfarm business sector was 0.5 percent lower 20 quarters after the start of the recovery, while labor productivity had increased by 6 percent.

Clearly, the gap between worker compensation and productivity has grown during the current recovery.


But the authors go even further, showing that the gap in the United States between compensation to workers and their productivity has been growing for decades.

labor productivity has been growing at a higher rate than labor compensation for more than 40 years. As Figure 3 shows, labor productivity in 2016:Q1 is 3.8 times as high as that in 1950:Q1; labor compensation, on the other hand, is only 2.7 times as high. In other words, the gap between labor productivity and compensation has been widening for the past four decades. The slower growth in labor compensation relative to labor productivity during the recovery from the two most recent recessions is part of this long-term trend. (reference omitted)

The data in Figure 3 show that the productivity-compensation gap—defined as labor productivity divided by labor compensation—has been increasing on average by approximately 0.9 percent per year since 1970:Q1. Based on this long-term trend, the gap would have been 51 percent higher in 2016:Q1 compared with 1970:Q1; in the data, the gap is actually 47 percent higher.

The fact is, labor compensation has failed to keep up with labor productivity after the Great Recession. But, as it turns out, there’s nothing unique about this period. The gap has been growing for more than four decades in the United States.**

Clearly, the recent and long-term trends of productivity and labor compensation challenge the norms of neoclassical economics and of capitalism itself. But we are also seeing the growth of another gap—between the promises of both neoclassical theory and capitalism and the reality workers have faced for decades now.


*Neoclassical economics—in particular, the marginal productivity theory of distribution—is based on the idea that the factors of production (land, labor, capital, and so on) receive in the form of income what they contribute to production. So, for example, as labor productivity increases, real wages should also rise. Similarly, capitalism is based on the idea of “just deserts.” That idea—that everyone gets what they deserve—is essential to the very idea of fairness or justice in the way the economy is currently organized.

**The authors’ analysis is based on the gap between labor compensation and productivity. If we look at real wages (as in the chart below) instead of compensation (which includes benefits, and therefore the portion of the surplus employers distribute to pension plans, healthcare insurers, and others), the gap is even larger.


According to my calculations from Fed data, since 1979, productivity has grown by 60 percent while real wages have increased by less than 5 percent.


In a recent New York Times article, Quoctring Bui reveals some fascinating details about the geography of inequality in the United States—including the fact that

between 1990 and 2014, the states that we tend to think of as economic engines for the country — like New York, California and New Jersey — are the ones where inequality has grown the most.

nj ny ca

But the author makes the mistake of repeating the common presumption that, prior to the new millennium (specifically, between 1990 and 2000), income growth was widely shared between rich and poor.

When you change the yardsticks to include changes only from the 1990s, the “rising tide lifts all boats” maxim that economists like to talk about seems to hold true. Incomes grew almost across the board, poor to rich; they sag only for the upper middle class.


Nothing could be further from the truth. Whether in terms of income shares (in the chart at the top of the post) or average incomes (as in the chart immediately above), the rising tide left the rich richer and everyone else—the bottom 90 percent—falling further and further behind.

There simply has been no shared prosperity in the United States—not in the last decade of the last millennium nor in the first decade and a half of this one.