This article describes the deficiencies present in typical measure of income inequality, describes some trends, and list some possible causes.
As we continue to examine the #OWS raised issue of income inequality, ask yourself if the data being presented in the media is accurate. Furthermore, are the causes of income inequality as simple as #OWS would have you believe?
Distribution of Income
The Causes of Inequality
In one sense, the growth of inequality in the last part of the twentieth century comes as a surprise. In the 1950s, the bottom part of the income distribution contained large concentrations of two kinds of families: farm families whose in-kind income was not counted in Census data, and elderly families, many of whom were ineligible for the new Social Security program. Over subsequent decades, farm families declined as a proportion of the population while increased Social Security benefits and an expanding private pension system lifted elderly incomes. Both trends favored greater income equality but were outweighed by four main factors.
•
Family structure. Over time, the two-parent, one-earner family was increasingly replaced by low-income single-parent families and higher-income two-parent, two-earner families. A part of the top quintile’s increased share of income reflects the fact that the average family or household in the top quintile contains almost three times as many workers as the average family or household in the bottom quintile.
•
Trade and technology. Trade and technology increasingly shifted demand away from less-educated and less-skilled workers toward workers with higher education or particular skills. The result was a growing earnings gap between more- and less-educated/skilled workers.
•
Expanded markets. With improved communications and transportation, people increasingly functioned in national, rather than local, markets. In these broader markets, persons with unique talents could command particularly high salaries.
•
Immigration. In 2002, immigrants who had entered the country since 1980 constituted nearly 11 percent of the labor force (see immigration). A relatively high proportion of these immigrants had low levels of education and increased the number of workers competing for low-paid work.7
These factors, however, can explain only part of the increase in inequality. One other factor that explains the particularly high incomes of the highest-paid people is that between 1982 and 2004, the ratio of pay of chief executive officers to pay of the average worker rose from 42:1 to 301:1, and pay of other high-level managers, lawyers, and people in other fields rose substantially also.
Read the rest of the research here.
If you enjoy the content at iBankCoin, please follow us on Twitter
There’s always gonna be people with -0-. People with high incomes who piss it all away, and others who save and invest. As overall wealth grows there are more rich people and richer rich people. And there are still people with -0-.
Way too simple. This issue is much more complex than that.
what inequality?
lmao…Where’s Mr. Limm these days?
all these articles do not explain the 600 increase in upper executive pay while the average worker stood still (adjusted for inflation,) since the 1960’s.
A huge increase in two family workers, and the middle class not being able to make ends meat.
Cronk, executive pay disparity is only one factor. It is nowhere near the ONLY factor determining income inequality. What about the other causes? When do we tell low-skilled workers that they might have to get re-trained to compete for high-tech jobs? When do we accept that a one-parent household will not have as much income as a 2 parent household? What about the illegal immigrants?
These are all important issues to consider. The CEO pay issue is at best, only one factor, and at worst, a ruse played upon you by the left to distract from bigger issues.
I understand the other factors, but it remains consistent that white or blue collar have an extremely hard time getting on with making the bills.
Let’s take for instance technology. Americans born and raised were getting paid very well for tech jobs. Then came the offshore visa and tech degrees willing to work for half the price.
Our American counterparts were either promoted to management for the same pay or let go.
Now companies realize that he visa types are not of the higher quality work needed…plus there was communication and comprehension problems.
Now those Americans have managed and left the day to day “hands on” experience. There management jobs are now being eliminated and they are being paid only half of what there former hands on pay was 10 years ago.
All the while upper executives have continually increased their pay via higher profit margins.
This example happened in all industries.
So how is that a Wall Street problem? Sounds to me like a structural shift caused by the technology revolution. You have faith that gov’t can fix it?
overall costs are exploding (some would say due to privatization,) and the income has not kep pace for the average person.
Instead of CEO and executives taking a 600 fold increase, eliminating pensions and 401ks, perhaps they could have taken a 300 fold increase and given back to their workers…
after all the whole is only as strong as the sum of its parts
woods, these are great and thought provoking posts. Carrying on with my mantle of “to some extent, and possibly no small extent, the “have nots” need to take some responsibility for their actions” I will offer 3 stories:
The first is of an old employee, discussed in your last thread, who we will still call Joe. Joe, the guy who cried and thanked me tearfully for hte job and all it had done for him on his wedding night, but we later found out was stealing a fair bit of stuff from us routinely.
Joe quit his job after we sold the business because it was too stressful working for his new boss. Last I heard he had financial troubles. Can’t blame anybody but joe.
Another employee of the same biz I used to own, jack, who was a high school dropout with no job experience but being a cook at a restaurant was making $52k+ bonuses for us ($78k his last year) and got offered $60k and full benefits from the guys who bought us out. Despite his low credentials, jack was a fantastic employee.
He quit, citing the fact that he liked snowmobiling and didn’t want to move to the warm climate our biz got moved to from up here in winterville… and went on unemployment. Where he has stayed through each of the extensions that the gov’t has offered in the last few years.
So now he is under the poverty line. Nobodies fault but his.
And, going with the j-theme for james, there is good old Johnnie. Johnnie used to work with me at a bar back when I was in college, not a cash cow bar, but a restaurant bar with a laid back pace. Johnnie boy has a pHD in computer science, is now 36 and…
Still works at that same bar. Why? He told me once he is just comfortable there and didn’t know if he could handle the stress of a real job.
So I’m sure he’s one of the “have nots”, but its only by his choice.
And, then we have the probably millions of people working in the food/drink service industry. They are paid largely in cash tips, and from my days of working there a great many of them do not report much (or even most) of their income.
We probably – wild guess here – honestly have a million people making plenty of money who on paper appear to be “have nots”.
I recently bought a pub from a guy who hadn’t reported more than $35k in income in the last 3 years. The hting will cash flow at least 175k this year. I wonder if the IRS will audit him when I operate the place as a NOT tax cheat? lol
One component of this is choice.
One component of this is tax fraud.
More in a moment.