Posts Tagged ‘inequality’

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After a Lot of Hype, Russian Interference Turns Out Not to Amoun  600_214109

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Most Americans are not loading sixteens tons of coal. But they are, even in the midst of the recovery from the Second Great Depression, sinking deeper and deeper into debt.

According to a recent analysis by Reuters [ht: ja], the bottom 60 percent of income-earners have accounted for most of the rise in consumption spending over the past two years even as their finances have worsened.* The data show the rise in expenditures has outpaced before-tax income for the lower 40 percent of earners in the five years through mid-2017, while the middle 20 percent has just about stayed even. However, the upper 40 percent—especially the top fifth—has increased its financial cushion, deepening income inequality and leaving those at the bottom in an increasingly precarious financial position.**

It is this recovery’s paradox.

A booming job market and other signs of economic expansion encourage rich and poor alike to spend more—to pay for transportation and housing, put their kids through college, to cover medical bills—but the combination of rising prices and stagnant wages for most middle-class and lower-income Americans means they need to dip into their savings and borrow more to do that.***

In other words, the U.S. economy relies on individual consumption to sustain the economic recovery but doesn’t pay most Americans enough to cover their expenditures without going into debt.

What that means, of course, is that in 2017 many Americans—71 million (or 31.6 percent of adults with credit records), according to the Urban Institute—had debt in collections, thus putting their financial futures at risk.

It also means that many Americans are reaching retirement age in worse financial shape than the prior generation, for the first time since Harry Truman was president. According to the Wall Street Journal,

They have high average debt, are often paying off children’s educations and are dipping into savings to care for aging parents. Their paltry 401(k) retirement funds will bring in a median income of under $8,000 a year for a household of two.

In total, more than 40% of households headed by people aged 55 through 70 lack sufficient resources to maintain their living standard in retirement. . .That is around 15 million American households.

Finally, it means that the United States is heading for a level of income inequality that hasn’t been seen since 1928. Already, the richest residents in fives states and 30 cities have surpassed that threshold.

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According to the Economic Policy Institute,

Income inequality has risen in every state since the 1970s and, in most states, it has grown in the post–Great Recession era. From 2009 to 2015, the incomes of the top 1 percent grew faster than the incomes of the bottom 99 percent in 43 states and the District of Columbia. The top 1 percent captured half or more of all income growth in nine states. In 2015, a family in the top 1 percent nationally received, on average, 26.3 times as much income as a family in the bottom 99 percent.

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In the most unequal states—New York, Florida, and Connecticut—the top 1 percent had average incomes more than 35 times those of the bottom 99 percent!

Merle Travis had it right. But these days, the iconic American worker isn’t loading sixteen tons of number nine coal—although they may be packing and shipping the equivalent in Amazon goods. Nor do they owe their soul to the company store—just to the employers who pay them so little and the sellers (of housing, cars and trucks, their children’s education, and healthcare) whose prices keep rising.

As a result, most Americans are either just getting by or finding themselves deeper in debt, falling further and further behind the tiny group at the top. All the while they, like their coal-mining predecessors, are imploring St. Peter not to call them ’cause they just can’t go.

 

*The top 40 percent of earners usually drive U.S. consumption growth. But 2016-17 was the first two-year span in at least two decades that the bottom 60 percent accounted for about half of the growth in consumption, and that appears to have continued in the first quarter of 2018.

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**The Reuters study divides Americans into five groups based on their median before-tax income, as illustrated in the chart at the top of the post.

***Even as the official unemployment rate (the blue line in the chart below) has plummeted, workers’ wages (the green line, for production and nonsupervisory workers) have barely stayed ahead of inflation (the red line, for the Consumer Price Index) in recent years.

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The result is a precipitous decline in the labor share of national income, which remains perilously close to its lowest level in 50 years:

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Trump-2020  Tom Toles Editorial Cartoon - tt_c_c180719.tif

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Back in June, Neil Irwin wrote that he couldn’t find enough synonyms for “good”  to adequately describe the jobs numbers.

I have the opposite problem. I’ve tried every word I could come up with—including “lopsided,” “highly skewed,” and “grotesquely unequal“—to describe how “bad” this recovery has been, especially for workers.

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Maybe readers can come up with better adjectives to illustrate the sorry plight of Americans workers since the Second Great Depression began—something that captures, for example, the precipitous decline in the labor share during the past decade (from 103.3 in the first quarter of 2008 to 97.1 in the first quarter of 2018, with 2009 equal to 100).*

But perhaps there’s a different approach. Just run the numbers and report the results. That’s what the Directorate for Employment, Labour, and Social Affairs seem to have done in compiling the latest OECD Employment Outlook 2018. Here’s their summary:

For the first time since the onset of the global financial crisis in 2008, there are more people with a job in the OECD area than before the crisis. Unemployment rates are below, or close to, pre-crisis levels in almost all countries. . .

Yet, wage growth is still missing in action. . .

Even more worrisome, this unprecedented wage stagnation is not evenly distributed across workers. Real labour incomes of the top 1% of income earners have increased much faster than those of median full-time workers in recent years, reinforcing a long-standing trend. This, in turn, is contributing to a growing dissatisfaction by many about the nature, if not the strength, of the recovery: while jobs are finally back, only some fortunate few at the top are also enjoying improvements in earnings and job quality.

Exactly! The number of jobs has gone up and unemployment rates have fallen—and workers are still being left behind. That’s because wage growth “is still missing in action.”

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Workers’ wages have been stagnant for the past decade across the 36 countries that make up the Organisation for Economic Cooperation and Development. But the problem has been particularly acute in the United States, where the “low-income rate” is high (only surpassed by two countries, Greece and Spain) and “income inequality” even worse (following only Israel).

The causes are clear: workers suffer when many of the new jobs they’re forced to have the freedom to take are on the low end of the wage scale, unemployed and at-risk workers are getting very little support from the government, and employed workers are impeded by a weak collective-bargaining system.

That’s exactly what we’ve seen in the United State ever since the crisis broke out—which has continued during the entire recovery.

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But we also have to look at the opposite pole: the growth of corporate profits is both a condition and consequence of the stagnation of workers’ wages. Employers have been able to use those profits not to increase worker pay (except for CEOs and other corporate executives whose pay is actually a distribution of those profits), but to purchase new technologies and take advantage of national and global patterns of production and trade to keep both unemployed and employed workers in a precarious position.

That precarity, even as employment has expanded, serves to keep wages low—and profits growing.

What we’re seeing then, especially in the United States, is a self-reinforcing cycle of high profits, low wages, and even higher profits.

That’s why the labor share of business income has been falling throughout the so-called recovery. And why, in the end, Eric Levitz was forced to find the right words:

American Workers Are Getting Ripped Off

 

*And, of course, even longer: from 114 in 1960 or 112 in 1970 or even 110.2 in 2001.