Sunday, March 08, 2015

Unequal America

60 percent of Americans (compared with 26 percent of Europeans) say that the poor are lazy, and only 29 percent say those living in poverty are trapped in poverty by factors beyond their control (compared with 60 percent of Europeans).

To examine the myth of mobility we see that these chances are abysmal. Only .2 percent of those who began in the bottom quintile made it into the top 1 percent. In contrast, 82.7 percent of those who began in the top 1 percent remained in the top 10 percent a decade later.

Sociologists Mark Robert Rank, Thomas Hirschl and Kirk Foster using Panel Survey of Income Dynamics (PSID) data — which has tracked 5,000 households (18,000 individuals) from 1968 and 2010 — they show that many Americans have temporary bouts of affluence (defined as eight times the poverty line), but also temporary bouts of poverty, unemployment and welfare use. (The study includes food stamps, Medicaid, Temporary Assistance to Needy Families/Aid to Families with Dependent Children, Supplemental Security Income and any other cash/in-kind program that relies on income level to qualify.) The researchers conclude that a large number of Americans eventually fall into one of these categories, but that very few Americans stay for long. Instead, the social safety net catches them, and they get back on their feet. In a study published earlier this year, Rank and Hirschl examine the 1 percent, and find that entry into it is more fluid than previously thought. They find that 11 percent of Americans will enter the 1 percent at some point in their lives. However, here again, access is deeply segregated. Whites are nearly seven times more likely to enter the 1 percent than non-whites.

Another study finds that wages are more heritable than height. Economists estimate that the intergenerational elasticity of income, or how much income parents pass onto their children, is approximately 0.5 in the U.S. This means that parents in the U.S. pass on 50 percent of their incomes to their children. In Canada, parents pass on only 19 percent of their incomes, and in the Nordic countries, where mobility is high, the rate ranges from 15 percent (in Denmark) to 27 percent (in Sweden).

In his recent book, “The Son Also Rises,” Gregory Clark finds that the residual effects of wealth remain for 10 to 15 generations. As one reviewer writes, “in the long run, intergenerational mobility is far slower than conventional estimates suggest. If your ancestors made it to the top of society… the probability is that you have high social status too.” While parents pass on about half of their income (at least in the United States), Clark estimates that they pass on about 75 percent of their wealth. Thus, what Rank and Hirschl identify, an often-changing 1 percent, is primarily a shuffling between the almost affluent and the rich, rather than what we would consider true social mobility.

The Gini Coefficient measures how equally distributed resources are, on a scale from 0 to 1. In the case of 0, everyone shares all resources equally, and in a society with a coefficient of 1, a single person would own everything. While income in the U.S. is distributed unequally, with a .574 gini, wealth is distributed far more unequally, with a gini of .834 — and financial assets are distributed with a gini of .908, with the richest 10 percent own a whopping 83 percent.

According to Census Bureau data, more than one-third of children today are raised in families with lower incomes than comparable children thirty-five years ago. This sustained erosion of income among such a broad group of children is without precedent in recent American history. Over the same period, children living in the highest 5 percent of the family-income distribution have seen their families’ incomes double.

Wealth and financial assets are the ticket to long-term financial stability; those who inherit wealth need never fear relying on the safety net. And it is these few individuals, shielded from the need to sell their labor on the market, who have created the divisive “makers” and “takers” narrative. Using race as a wedge, they have tried to gut programs that nearly all Americans will rely on. They have created the mythos of the self-made individual, when in fact, most Americans will eventually need to rely on the safety net. They treat the safety net as a benefit exclusively for non-whites, when in reality, whites depend upon it too (even if people of color are disproportionately affected).

The conclusion is that the idea of "unlimited upwards mobility" and "equal opportunity" are myths created by the very wealthy to keep themselves in the dominant position and to keep everyone else from revolting. The scary thing is that the majority of the American people believe in these myths. The exploitative wealthy combined with the apathy and willfully ignorant public may be the greatest threat the US faces.

The stock market is near record highs. But this is all a great deception. The historic recovery of the stock market from the 2008 crash did not benefit the vast majority of Americans because they don't own stock. The expansion is benefiting a tiny minority of the population only - the very rich. No one else has any money, and no one except the wealthy is likely to have any in the future. At the beginning of 2015, more than six years since the crisis of 2008, most Americans were either in a worse financial condition than they were before 2008, or had experienced very little improvement in their economic condition. Most Americans have no financial reserves and live paycheck to paycheck.

The average leisure and hospitality worker makes just $18,900 a year (gross, before taxes). This is not even enough to keep a family of three above the poverty level ($19,790 in 2014). Similarly, retail, the largest blue-skill sector, is second-worst in terms of pay, with average annual earnings of $27,700. An April 2014 report by the National Employment Law Project provided details supporting the Federal Reserve study. During the recession, low-wage jobs, those paying less than $27,700 per year, had both the lowest percentage of losses and the highest percentage of gains. Twenty-two percent of the total job losses were in the low-wage category, but 44 percent of new jobs were in that category. Mid-wage jobs, those paying between $27,700 and $41,600, had the lowest percentage of new jobs created, 26 percent, but the second highest rate of job losses, 37 percent. High-wage jobs, those paying more than $41,600, had the highest rate of losses, 41 percent, but a higher rate of new jobs created, 30 percent, than the mid-wage category. The most jobs created in any category were in retail, 45,900, the second-lowest paying of all job categories with an average wage of $27,000.

In January 2015, the Pew Charitable Trusts published "The Precarious State of Family Balance Sheets," in which the incredible conclusion is reached that virtually no one in the United States has ready cash reserves to cover two months of lost income. Clearly, most of the top 20 percent have other assets, stocks and bonds, real estate etc. on which they can draw, and they seldom lose their jobs without good severance packages. But 80 percent do not have enough reserves to last more than a month, and half of them do not have enough to last two weeks.

The only group that has increased its share of national income since 1980 is the top 20 percent. Every other group has experienced a gradual decline. And it can be seen from the following chart that in recent years there has been an acceleration of the increases in the earnings of the top 20 percent. Since 1980, the bottom 20 percent have received the lowest percentage increase in income. The rich are getting richer. For every $10,000 in additional average weekly earnings an industry had in 2007, its average earnings grew by an extra 2 percentage points during the six-year period. For example, the average employee working in retail, a low-paying industry, earned $28,300 for a full year of work in 2007; after adjusting for inflation, the same employee actually made less, just $27,700, last year. By contrast, the average information worker earned $59,900 in 2007, among the highest of any industry. During the next six years, the advantage of information workers over poorly paid workers only grew, with average earnings increasing 9.4 percent, or $5,600 in real terms. The same is true of other white-collar sectors, like finance (a gain of $4,500) and professional services (a gain of $3,600). Like so many other labor market indicators, this link between earnings and earnings growth reflects rising inequality. Even the wages of factory workers are declining. And the result of declining wages is increasing poverty.

The minimum wage has not kept up with inflation, and it has not kept up with productivity. It would be almost $11 an hour now if it had just kept up with inflation. Various calculations have placed between it between $18 and $22 an hour if it had kept up with productivity. While there are only a few million people working at the minimum wage, there are many millions more working at wages not much higher than the minimum.

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