Posts Tagged ‘United States’

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Federal government jobs are a pretty good deal, especially for workers without a professional degree or doctorate.

According to a recent study by the Congressional Budget Office (pdf), wages for federal workers with a high-school diploma or less are 34-percent higher than comparable workers in the private sector. And, when you include benefits (especially defined-benefit retirement plans), their total compensation is 53-percent higher. For federal workers with a bachelor’s degree, the numbers are 5 percent (for wages) and 21 percent (for total compensation). Only federal workers with a professional degree or doctorate are paid less than their private-sector counterparts (by 24 percent), resulting in a total compensation that is also less (by 18 percent).

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The problem is, it’s not easy to get those jobs. In contrast to what many people think (my students included), federal employment (excluding the U.S. Postal Service) makes up only 1.4 percent of civilian employment in the United States—just a bit higher than before the Second Great Depression (when it stood at 1.3 percent) but far below what it was in the late 1960s (when it was 2.8 percent).

So, to all those who complain about the growth of the “government bureaucracy,” they should be reminded of the small percentage of total employment represented by federal workers—and the fact that most federal employees (60 percent) work in just three departments in the executive branch: Defense, Veterans Affairs, and Homeland Security.

And for those who argue that federal employees are compensated better than their private-sector counterparts, there’s an easy solution: raise the pay of private-sector workers and improve their benefits!

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On the eve of their presidential election, the French people and politicians continue to debate how they should respond to the end of “Les Trente Glorieuses,” a period that appears to receding into ancient history.

Except, as it turns out, for those at the very top, for whom the last thirty years have been quite glorious.

According to new research by Bertrand Garbinti, Jonathan Goupille-Lebret, and Thomas Piketty, between 1983 and 2014, average per adult national income rose by 35 percent in real terms in France. However, actual cumulated growth was not the same for all income groups:

the growth incidence curve is characterized by an impressive upward-sloping part at the top. Cumulated growth between 1983 and 2014 was 31% on average for the bottom 50% of the distribution, 27% for next 40%, and 50% for the top 10%. Most importantly, cumulated growth remains below average until the 95th percentile, and then rises steeply, up to as much as 100% for the top 1% and 150% for the top 0,01%.

The contrast with the earlier, 1950-1983 period is particularly striking. In effect, during the “Thirty Glorious Years,” Garbinti, Goupille-Lebret, and Piketty observe the exact opposite pattern: growth rates were very high for the bottom 95 percent of the population (about 3.5 percent per year) and fell abruptly above the 95th percentile (1.5 percent at the very top). However, as is clear from the chart above, between 1983 and 2014, growth rates were very modest for the bottom 95 percent of the population (about 1 percent per year) and rose sharply above the 95th percentile (3 percent at the very top).

As we know, similar patterns hold for the United Kingdom (which voted for Brexit) and the United States (which elected Donald Trump).

The key question in France, in the first and second rounds of the presidential election, is how French voters will respond to a political economy that has generated thirty glorious years only for those at the very top.

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Who’s running away with the surplus, those at the top or those at the very top?

In a new study on “income inequality in the 21st century,” Fatih Guvenen and Greg Kaplan note that recent increases in inequality in the United States need to be understood in terms of trends of and, especially, within the top 1 percent. That’s particularly true when, instead of using Social Security data (which capture labor income), they turn to Internal Revenue data (which capture all forms of income).

While I agree with Guvenen and Kaplan that historically there have been significant differences between the incomes of the top 1 percent and the top 0.1 percent—those at the top and those at the very top—in my view, they tend to exaggerate the differences and lose sight of the fact that the two groups have become one.

Clearly, as can be seen in the chart above (based on data from Thomas Piketty, Emmanuel Saez, and Gabriel Zucman), the average income of those in the top tenth of one percent has risen much more than that of the top one percent. From 1979 to 2014, the average income of those at the very top has risen 277 percent compared to an increase of 183 percent for those at the top. But, of course, the average incomes of both groups have soared compared to that of the bottom 90 percent, which has increased only 27 percent over the same period.

And while they’re right, the rise in capital income much more than labor income helps explain the rising share of income of those at the very top, especially in recent decades, the fact is both groups—whether in the form of labor or capital income—have managed to capture a rising share of the surplus.

Where do those incomes come from?

The following two charts illustrate the composition of incomes of the top 1 percent and top 0.1 percent, respectively.

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One way of making sense of the way those at the top and those at the very top manage to capture a portion of the surplus is by distinguishing between a labor component (in various shades of blue in both charts) and a capital component (in shades of green). When added together, the two components represent the total share of national income that goes to the top 1 percent (which rose from 11.1 to 20.2 percent) and the top 0.1 percent (which rose from 3.9 to 9.3 percent) between 1979 and 2014.

The labor component comprises two categories: employee compensation (e.g., payments to CEOs and executives in finance) and the labor part of noncorporate business profits (e.g, partnerships and sole proprietorships). Capital income can be similarly decomposed into various categories: interest paid to pension and insurance funds, net interest, corporate profits, noncorporate profits, and housing rents (net of mortgages).

As can be seen in the top chart above, by 2014 the top 1 percent derived over half of their incomes from capital-related sources. In earlier decades, from the late-1970s to the late-1990s, a much larger share of their income came from labor sources. They were the so-called “working rich.” This process culminated in 2000 when the capital share in top 1 percent incomes reached a low point of 49.4 percent. Since then, however, it has bounced back—to 58.6 percent in 2014. Thus, the “working rich” of the late-twentieth century are increasingly living off their capital income, or are in the process of being replaced by their offspring who are living off their inheritances.

Much the same trend, in an even exaggerated fashion, is true of those at the very top, the top 0.1% (in the lower chart). More than half of their income has always come from capital-related sources. They were never the “working rich”; they were always for the most part “coupon clippers.” The share of their income from capital-related sources was already 60 percent in 1979 and continued to grow (to 63 percent) by 2014.

What this means, in general terms, is the growth of inequality over decades is due to the ability of those at the top and those at the very top to capture a large portion of the growing surplus. But there has also been a change in the nature of that inequality in recent years, at least for those at the top—which is not due to escalating wage inequality, but to a boom in income from the ownership of stocks and bonds. They’ve now joined the ranks of the “coupon clippers,” who are able to use their accumulated wealth to get their share of the surplus.

It looks then as if those at the top have either turned into or been replaced by rentiers, thus joining the existing owners of capital at the very top—thereby mirroring, after a short interruption, the structure of inequality last seen during the first Gilded Age.

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Liberal stories about who’s been left behind during the Second Great Depression are just about as convincing as the “breathtakingly clunky” 2014 movie starring Nicolas Cage.

For Thomas B. Edsall, the story is all about the people in the “rural, less populated regions of the country” who have been left behind in the “accelerated shift toward urban prosperity and exurban-to-rural stagnation” and who supported Republicans in the most recent election.

Louis Hyman, for his part, argues that the people who have been left behind—rural Americans and the people “who live and work in small towns”—hold a misplaced nostalgia for Main Street, which has been exploited by Donald Trump. What they really need, according to Hyman, is to find new jobs online so that they can “find their way from Main Street to the mainstream.”

In both cases, and many more like them, the great divide is supposedly one of geography: everyone is prospering in the big cities—with high-tech jobs, soaring incomes, and a proliferation of non-chain boutiques and restaurants—and everyone else, outside those cities, is being left behind.

Except, of course, nothing could be further from the truth. Yes, lots of people outside of the country’s metropolitan areas have been excluded from the recovery from the crash of 2007-08 (just as they were during the bubble that preceded it). But that’s true also of cities themselves, from Boston to San Francisco.

The problem is not geography, but class.

According to a 2016 report from the Economic Policy Institute, in almost half of U.S. states, the top 1 percent captured at least half of all income growth between 2009 and 2013, and in 15 of those states, the top 1 percent captured all income growth. In another 10 states, top 1 percent incomes grew in the double digits, while bottom 99 percent incomes fell.

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Much the same is true in the nation’s metropolitan areas. In the 12 most unequal metropolitan areas, the average income of the top 1 percent was at least 40 times greater than the average income of the bottom 99 percent. In the New York City area, the average income of the top 1 percent was 39.3 times the average income of the bottom 99 percent, in Boston 30.6, and in San Francisco, 30.5 times.

By the same token, some of the nation’s non-urban counties have very high levels of income inequality. Lasalle County, Texas, for example, has an average income of the bottom 90 percent of only $47,941 but a top-to-bottom ratio of 125.6. Similarly, Walton County Florida, with a bottom-90-percent income of $40,090, has a top-to-bottom ratio of 45.6.

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The fact is, across the entire United States—in large cities as well in small towns and rural areas—the incomes of the top 1 percent have outpaced the gains of everyone else. That’s been the case during the recovery from the Great Recession, just as it was in the three decades leading up to the most recent crash.

While it’s true, the voters in most metropolitan areas went for Hillary Clinton and those elsewhere supported Trump. The irony is that the majority of those voters, inside and outside the nation’s cities, have been left behind by an economic system that benefits only those at the very top.