In a previous post I noted a fascinating new study from the CBO, focusing on the increase in household income inequality over the past few decades.
This figure is particularly elucidating. As noted earlier, the increase in inequality has largely stemmed from the increase in the dispersion of market outcomes, or what I called above the primary distribution of income (before taxes and transfers kick in).
The figure shows "Lorenz Curves"--pictures of how income is distributed across the distribution of households for different sources of income. Since the curve plots cumulative income against cumulative households (hh), ranked from poorest to richest, if every hh had the same income, the curve would hug the 45-degree line (20% of hh's would have 20% of income, 30% would have 30%, etc.). The more space between the 45-degree line and the income lines, the greater the dispersion (the area therein is the Gini coefficient, if you're still with me).
The figures show that income dispersion has increased for each income type -- the 2007 line is further from the 45-degree line in each figure. But there's something else going on here too.
The CBO also finds that there's been a shift in the composition of hh income from labor, to capital and business income. Since, as you can see, these latter sources are more unequal income than labor income, that shift in the composition of income is another reason for the increase in inequality.
The first factor -- increased concentration within each income source over time -- accounts for about 80% of the growth in the Gini index (the inequality measure in this study), 1979-2007. The rest is due to the composition shift toward more unequal income sources.
I'll try to write about what I think this all means throughout the week.
This post originally appeared at Jared Bernstein's On The Economy blog.
If this was presented as a hypothetical or an opinion, by now, there would a few thousand comments and a cacophony of bickering.
It is kind of sad, when you really think about it.
I'll look forward to next week's analysis.
1. A table or pie chart showing the percentage breakdown of overall income among the four types given is needed to complete the picture.
2. For me, the difference in capital incomes is expected in this plutocratic society.
3. What was somewhat surprising is the distribution of business income. Looks to me like the middle-class slice of business income, which seems to me to likely be small business income, has been disappearing since 1979 despite primarily republican domination.
(and you still aint in it.)
The area where the greatest change has occurred is in the "capital income" area. Most of the "wealth creating" in capital income is the result of more people making their money with computer assisted "mining" of capital markets. How is this any different than earning a living any other way? Why shouldn't this curve's data be incorporated into the labor curve?
More importantly, why shouldn't it be taxed the same?
And we're not talking about what happens in your neural network, Einstein.
The speed of the transactions is a function of technology. My observation is that this form of wealth creating is no different than the labor form, yet our society treats is differently by not taxing it as income.
A better question would be, why doesn’t labor agree only to be paid based on whether a company is profitable at the end of the year, and then and only then, take its pay have it subjected to corporate tax and then subjected to an income tax at 15%. Then it is fair.
Kai
Ask any 15+year United employee.
Another commenter, Austin G, alludes to the fact that household income historically grows over time for individual households as their earners increase income over their working lives. It would be useful to see graphs which separate household out into age brackets, to filter any such distortion.
However, as the period of the last thirty years has been characterized by an aging population, as the demographic bulge of the boomers has progressed, income dispersion by age bracket might even be worse than depicted by not breaking out the data by age brackets.
It certainly would be instructive to see how demographics are or are not distorting the income dispersion curve. It is surely useful to know if households are doing worse by age bracket now than they were 30 years ago.
You make some excellent points.
a) To really get to the whether there is an injustice on the distribution of income/benefit, you would need to understand the breakdown of Total Factor Productivity, and the contributions of each factor to the productive cycle. As labor has become more expensive in the United States, owners of capital have been substituting greater quantities of it for labor, say buying more capital equipment, ie. Robots. This increases the productivity of capital at the same time that reduces the contribution of labor.
b) That being said, the national Income going to labor has stayed near constant since the 1950s, about 70.5%, the problem is that the premium going to skilled and educated labor is becoming greater at the expense of unskilled and uneducated labor, much of which is disintermediated by the robots I referenced above.
c) You are also right that demographics has played into much of the problems with measurements of income and income inequality. We have more, older people, more single-parent households, more immigrants, more high school drop outs, more felons, more women, etc. in the workforce. This skews the income per worker down, though if you break it out by PSID data, the results show that there has been a general increase in income across all strata in ample proportions.
Kai
jill
http://inbedwithmarriedwomen.blogspot.com
...Tax all capital income as ordinary income.
...Eliminate corporate welfare.
...Hire sufficient number of regulatory enforcement personnel for banking/Wall Street.
Our Country.
...Pass law requiring all federal government candidate campaigns are financed by the U. S. Govt.
The government needs to reconsider how its actions are adversely impacting small business. Based on the latest Gallup polling of small business owners, government regulations are by far their biggest concern. http://www.gallup.com/poll/150287/Gov-Regulations-Top-Small-Business-Owners-Problem-List.aspx
Thankfully this is not my situation, but it is for many.
Let me know if you hear back from robidomoore :))
It sure is a great time to be a saver, yesiree.
But what exactly are "Business Income" and "Capital Income" as related to a typical U.S. household.
Presumably dividends fall into one of those categories (which one?).
Does interest income comprise the other?.