Income inequality and American business Christopher Jencks Harvard Kennedy School HBS Discussion on 2/13/2014
Adjusting for inflation, mean personal income per capita more than doubled between 1967 and 2007, while median family income rose 20% Growth of median household income and per capita personal income: 1969 to 2012 (1969 = 100) 240 223 223 220 200 189 2007 2012 180 159 160 140 128 120 121 120 111 100 110 104 80 1969 1979 1989 1999 2009 2 Sources: Economic Report of the President, 2013; Census Bureau, Current Population Reports, P-60,-245, Table A-2.
Median income was lower in 2012 than in 1989 Median income at business cycle peaks:1969 to 2007 (in 2012 CPI-U=RS dollars) $100,000 $80,000 $56,080 $55,627 $51,681 $60,000 $48,520 $46,449 $51,071 $40,000 (2012) Annual increase: 1969-2007 = 0.48% $20,000 1969-2012 = 0.22% $0 1969 1979 1989 1999 2009 3
Is our problem inequality or poverty? Lately, both. Two measures of bottom quintile's mean income: Purchasing power and ratio to population mean (both shown as percent of 1967 level) 150 142 Purchasing power 140 (1967 = 100) 130 120 119 1967 = 100 108 110 100 90 Ratio to overall mean 80 80 (1967 = 100) 70 1974-76 1999 60 50 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 1967 mean = $9,419. Share of total personal income = 4.0%. Source: CPS, Series P-60-167, Table B-2 . 4
Household income is more unequal than hourly wages 90/50 ratio 50/10 ratio 1973 All households 2.08 2.85 M&F Wages 1.91 1.91 2007 All households 2.49 3.43 M&F Wages 2.33 1.94 5 Wage data from Economic Policy Institute
Household inequality from 40,000 feet CPS Gini coefficients for US households' pretax money income: 1967 to 2012 0.50 Adjusted to match post-1993 series* Published for 1993-2012 0.416 0.477 0.40 Gini = (0.0015)x(Year) - 2.6241 Published for 1967-92 Gini coefficient r = 0.979 0.30 0.20 Measurement 0.10 changes 0.00 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 * Neither CBO nor IRS data suggest that inequality rose between 1992 and 1993, so the 4.8% increase in the CPS Gini between 1992 and 1993 is probably all spurious. The adjusted estimates inflated all pe-1993 Ginis by 4.8%.
Trend in 90/50 ratio: Rising skill premiums? 3.0 90/50 income ratios for households, by age: 1967 to 2012 2.8 2.68 2.6 2.54 90/50 ratio: 2.4 Age 18 and over 2.2 2.06 Ratio 2.0 Measurement changes 1.89 1.8 90/50 ratio: Children under 18 1.6 1.4 1.2 1.0 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 Ratios are based on percentiles of total household income, adjusted for household size by dividing total household income by tgher square root of household size. Household income is converted into 2012 dollars using the Implicit Price Deflator for Personal Consumption Expenditure from the National Income and Product Accounts. Source: Tabulations by Anny Fenton using the March Current Population Survey. File=Fenton CPS ratios with Jan 2014 AF edits (65+ head of HH incl) 011014 FINAL.
50/10 ratio: Less marriage? Lower male wages? 50/10 household income ratios for individuals, by age: 1967 to 2012 4.38 4.5 Children under 18 4.11 4.0 3.5 3.44 3.26 2.93 3.0 Adults 18 and over Ratio 2.66 2.5 Measurement 2.0 changes 1.5 1.0 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 Ratios are based on percentiles of total household income. Incomes are adjusted for household size by dividing total household income by tgher square root of household size. Household income is converted into 2012 dollars using the Implicit Price Deflator for Personal Consumption Expenditure from the National Income and Product Accounts. Source: Tabulations by Anny Fenton using the March Current Population Survey.
The return of the super-rich: Globalization? Computers? Tax cuts? Deregulation? Insider trading? A culture of risk-taking? And greed?? Ratio of pretax personal income means within the top one percent to the mean for all households, excluding capital gains: 1923-2012 88 90 82 Ratio to mean for all households 80 70 Top 0.1 percent 60 55 50 40 2012 1928 30 19 20 Next 0.9 12.7 11.7 percent 1973 6.5 10 0 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 9 Source: Paris Top Incomes Database . Paris detailed percentiles for US (HBS Fig 3)
How do ordinary citizens feel about all this? Ratio of those who agree or agree strongly to those who disagree or disagree strongly that "income differences in this country are too large." 3 Netherlands Canada 5 Norway 5 5 United States 6 Australia 7 Sweden Germany 8 Great Britain 14 17 France 21 Italy 27 Spain 10
How have legislators responded? Reduction in market income inequality among working-age households due to taxes and transfers in ten rich democracies Market Disposable Percent Gini Gini reduction Sweden 2000 36.5 0.375 0.238 Finland 2000 0.352 0.233 33.8 Denmark 1997 31.3 0.345 0.237 Norway 2000 0.337 0.236 30.0 Germany 2000 0.360 0.254 29.4 Australia 1994 26.0 0.396 0.293 Great Britain 1999 0.450 0.341 24.2 Canada 2000 21.1 0.380 0.300 United States 2000 0.436 0.363 16.7 Switzerland 1992 0.332 0.297 10.5 MEAN 0.376 0.290 23.0 11 Source: Kenworthy and Pontusson (2006)
Effects of rising inequality in rich democracies Economic growth Short-term: small but positive. Long-term: unclear Employment Haven’t found (or done) any research Life expectancy Small but negative cross-nationally in LIS Effects limited to infants and males 35-59? 12
Effects of rising inequality in rich democracies Disparities in children’s economic prospects. Strong theoretical reasons to expect less mobility when parents resources are more unequal. But no good evidence of such effects so far. Maybe too soon to say. 13
Effects of rising inequality in rich democracies Disparities in children’s test scores Wider in more unequal countries, but effect of within-country changes is unclear. Widened a lot in US for post-1980 cohorts. Mostly due to rising absolute effect of parental income, not to change in parental income dispersion. Macro versus micro effects of inequality 14
Effects of rising inequality in rich democracies Disparities in political influence Meltzer-Richard theorem predicts that demand for redistributive government spending will rise as the fraction of voters with incomes below the mean rises, but 1. Rising inequality allows the very rich to exert more influence on the political views of the less affluent (Fox News) and politicians (K Street). 2. Rising inequality may lower turnout more among the less affluent. Passivity, vote suppression, disenfranchisement of felons, no path to citizenship. 15
Political effects of high inequality in the past If there are men in this country big enough to own the government of the United States, they are going to own it. Woodrow Wilson (1913:286) We must make our choice. We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we cannot have both. Louis Brandeis, quoted in Dillard (1941) 16
An agenda for the private sector It is unreasonable to expect most businesses not to 1. pursue profits or to give away a larger share of profits than the law or the market requires to either workers or good causes. However, a democratic government’s job is not to 2. maximize business profits but to protect the public interest. That inevitably means making rules that limit what business can do by regulating wages, hours, safety, labor unions, and other business practices. 17
An agenda for the private sector If business does not like being seen as a predatory 3. enterprise, it needs to accept such rules as a legitimate feature of democracy. It also needs to refrain from trying to undermine 4. or change such rules covertly. Business should not be expected to do good, but it 5. should be expected to abide by both the law and community norms, and to do no harm. A good rule of thumb is that business should not 6. be doing anything that it wants or needs to hide from public view or from public officials. 18
19 The End
The 100 year overview Pretax income shares of top 1% and 0.1%, excluding capital gains: 1913-2012 20 19.3% 19.6% 18 16 Percent of personal income 14 Top 1% 12 10 8.8% 9.1% 8.2% 8 8.0% 6 Top 0.1% 4 2.9% 2.0% 2 1928 1964 1986 0 1913 1923 1933 1943 1953 1963 1973 1983 1993 2003 2013
The return of the super-rich: Globalization? Computers? Tax Cuts? Deregulation? Cultural Change? Percent of pretax income going to families in the top decile, excluding capital gains: United States, 1923-2012 91 81 Ratio to mean household income 71 61 51 41 Top 0.1 percent 31 99 th to 99.9 th 21 90 th to 95 th 95 th to 99 th 11 1 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 21 Source: Paris Top Incomes Database . Paris detailed percentiles for US (HBS Fig 3)
The 50 year overview: The top 1% is different Income shares of top 1%, next 4%, and next 5% of US families:, before taxes and excluding capital gains: 1960 to 2012 50 2012 1962 1986 share share share 45 1986 40 Top 1% Percent of total personal income 19.3% 35 9.1% 30 8.3% 25 Next 4% 20 16.4% 13.5% 12.7% 15 10 Next 5% 12.4% 12.0% 5 11.1% 0 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
Recommend
More recommend
