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Tag: income

Quantifying the Impact of the Fight for $15: $150 Billion in Raises for 26 Million Workers, with $76 Billion Going to Workers of Color

Posted on by Yannet Lathrop
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Introduction

In late November 2012, a small group of fast-food workers in New York City walked out of their jobs in response to low wages[1] and the challenges of organizing a union in a high-turnover and high-exploitation industry.[2] These workers—many of them Black and brown—would launch one of the most successful worker movements of the 21st century, as their demands echoed across the country, spreading the call for a $15 minimum wage and a union.

The Fight for $15, as the movement inspired by these walkouts would be called, sparked waves of action to raise the minimum wage in the ensuing years, leading dozens of states, cities, and counties to raise their wages; putting pressure on some of the world’s largest corporations to raise their pay scales; and informing the national conversation on living wages, workplace democracy, and equity.

This report quantifies the wage impact of the Fight for $15. Using U.S. Census data, we estimate that 26 million workers have been boosted by higher minimum wage policies passed by all levels of government since 2012—winning over $150 billion in additional annual income.[i] We also find that the Fight for $15 has helped raise the earnings of nearly 12 million workers of color and 18 million women—likely helping narrow the racial and gender wage gaps (though a wage gap analysis is beyond the scope of this report).

Crucially, this worker-led movement delivered these additional earnings despite the racist, sexist, and anti-worker system of laws and political climate in the United States—with laws in place around the country that permit forced arbitration,[3] wage preemption,[4] misclassification,[5] wage theft,[6] and ongoing attacks on the few parts of our system that actually aid working people.[7]

THE ECONOMIC CONTEXT

Since the end of the Great Depression, U.S. productivity has grown rapidly—an indication that workers are producing more goods and services and creating more wealth. Yet, worker pay has barely budged, while CEO pay has soared. In the four decades between 1978 and 2018, inflation-adjusted CEO compensation (base salary and realized stock options) grew by 940 percent, while median worker pay grew just 12 percent.[8] According to an analysis commissioned by the New York Times, in 2020 alone CEO pay grew by 14 percent, while median worker pay grew by less than 2 percent.[9]

Between 1948 and 1973, real hourly wages increased in proportion to the overall growth in productivity. As the U.S. economy grew, the gains were shared with workers on a roughly proportional basis.  However, since 1973, wages for the most underpaid workers have not kept pace with growth of our economy and total labor productivity.[10] In essence, corporations have not equitably shared the returns of our formidable growth in national productivity with the underpaid workers who made those gains possible.

By 2017, productivity was growing more than twice as fast as the growth in real median wages.[11] Many economists have interpreted this trend as an example of the diminishing power of workers relative to employers.[12] Increased globalization and the declining power of unions have contributed to the loss of bargaining power. But another factor is the declining value of the federal minimum wage, which places a floor on wages in the labor market.

The federal minimum wage was last raised to $7.25 per hour in 2009. In 2021, it remains at that level.

The federal minimum wage was last raised to $7.25 per hour in 2009. In 2021, it remains at that level, making this twelve-year period the longest in which the federal minimum wage has remained unchanged since the U.S. first enacted a federal minimum wage in 1938. The real value of the federal minimum wage is now only 59 percent of its peak value in 1968.[13]

Thirty states and Washington, D.C. have minimum wage levels that currently exceed $7.25 per hour—however, twenty other states follow the federal rate or do not have a state minimum wage at all. Of the states with minimum wages higher than the federal minimum, eleven states[ii] and Washington D.C. have legislated additional increases to $15 over the next few years.

The Fight for $15 has highlighted the disconnect between state and U.S. legislators who refuse to raise wages—most of whom represent states with $7.25 minimum wages—and their constituents, many of whom support a $15 minimum wage. As worker-activists in states stuck at $7.25 have made clear, zip codes should not determine whether workers are able to earn a baseline living wage.

Main Findings

In this report, we find:

  • General Impact: From 2012 to January 2021, an estimated 26 million workers have won over $150 billion[iii] in additional income through a combination of state and local minimum wage increases[iv] and an executive order for federal contractors. The affected workers comprise nearly 16 percent of the U.S. labor force. To put the $150 billion in perspective, this figure is more than 94 times the impact ($1.6 billion) of the last federal minimum wage increase to $7.25, which took effect in 2009.[14]
  • Impact on Workers of Color: Of the 26 million workers, nearly 12 million (46 percent) are Black, Latinx, or Asian American. Their additional annual income totals $76 billion—approximately 50 percent of the total for all workers.
  • Impact on Women: Women comprise approximately 13 million (50 percent) of all impacted workers. Their share of the additional annual earnings is nearly $70 billion—46 percent of the total.
  • Impact of $15 Minimum Wage Laws: Of the $150 billion in additional income for affected workers, the overwhelming share (73 percent, or nearly $111 billion) is the result of minimum wage increases in states and localities that are either on a path to $15 or have already reached a $15 or higher minimum wage. Workers affected by these laws make up 69 percent of the total.

WORKERS OF COLOR HAVE SEEN STRONG GAINS FROM FIGHT FOR $15 MINIMUM WAGE WINS

Workers of color and their economic and political demands played a significant role in shaping the movement for higher wages. [xvi] These workers have been among the most impacted by the Fight for $15, as our analysis shows.

Higher wages benefit all workers, but they can have a greater impact in communities that have been historically underpaid due to structural racism, sexism, and the enduring occupational segregation that pushes workers of color into the most underpaid jobs in the economy. This means that changes to minimum wage policies can have a profound effect in reducing racial inequity, as the workers of color leading the Fight for $15 and a union have emphasized.

A recent study by University of California economists estimates that minimum wage increases from 1990 to 2019 reduced the Black-white wage gap by 12 percent.[xvii] A separate study estimates that the 1966 amendment to the Fair Labor Standards Act—which expanded minimum wage protections to previously excluded occupations in which workers of color were overrepresented—explains more than 20 percent of the reduction in the racial earnings and income gaps between 1967 and 1980.[xviii]

In addition to narrowing the racial wage, earnings and income gaps, higher minimum wages can also substantially increase the earnings of workers of color. Table 2, above, shows that workers of color represent 46 percent of all workers impacted by minimum wage increases between 2012 and 2021. Of the more than $150 billion in annual additional income resulting from Fight for $15-influenced minimum wage increases, the share going to workers of color was nearly $76 billion (50 percent).

Tables 5 and 6 provide further details of the impact of the Fight for $15 for workers of color. They show that state minimum wage increases boosted the earnings of Black workers by $5,100 annually on average; and that local minimum wage increases raised their earnings by $7,300. The incomes of Latinx and Asian American workers rose faster: State-level minimum wage policies boosted their annual earnings by $6,300; and local increases raised their annual earnings by $8,300 and $8,200, respectively. By comparison, state and local minimum wage increases raised the earnings of white workers by $4,900 and $7,200, respectively—below the averages for workers of color and for all workers.

Black and brown worker-leaders in the Fight for $15 have not only advocated for higher wages, but have also pointed to worker power and workplace democracy as essential to increasing racial equity. These workers are now fighting to strengthen other workplace protections, such as just-cause job protections, union recognition, stronger health and safety standards, and wage theft protections.

THE FIGHT FOR $15 HAS BOOSTED WOMEN’S EARNINGS BY $70 BILLION

Since the 1970s, women’s educational attainment has increased substantially[xix], which typically correlates to higher earnings. Yet, women continue to earn less than men,[xx] and continue to be overrepresented among the underpaid workforce.

According to a 2018 analysis by the National Women’s Law Center (NWLC), women comprise nearly two-thirds of workers earning at or under $11.50 per hour.[xxi] In a separate analysis, NWLC finds that women make up 60 percent or more of the workforce in four of the five fastest-growing occupations. Of these, three occupations—personal care aides, home health aides, and combined food preparation and serving workers (including fast food)—pay low wages.[xxii] Women’s overrepresentation in underpaid occupations is one of the factors that drive the gender wage gap. Yet, research shows that higher minimum wages can help narrow this gap.[xxiii]

Of the more than $150 billion in annual additional income resulting from Fight for $15-influenced minimum wage increases, the share going to women was nearly $70 billion (46 percent).

The tables below provide further details of the impact of the Fight for $15 on women. Table 7 shows that state minimum wage increases boosted the annual earnings of affected female workers by $5,100 per worker on average, and by over $58 billion in the aggregate. Table 8—which reflects the impact of minimum wage increases in nine cities and counties for which we have data—shows that local minimum wage increases raised women’s earnings by $7,400 per worker, and by more than $11 billion in the aggregate. (More detailed figures can be found in Appendix Tables E-1 to F-2).Table 3, above, shows that women represent 50 percent of all workers impacted by minimum wage increases between 2012 and 2021. Of the more than $150 billion in annual additional income resulting from Fight for $15-influenced minimum wage increases, the share going to women was nearly $70 billion (46 percent). (The slightly lower income gains for women, compared with men, are likely the result of women’s overrepresentation among part-time workers[xxiv]—a reflection of gender roles that are slow to change, which have been shown to impact women’s career decisions).[xxv]

The benefit of higher wages for women and their dependents cannot be understated. With existing conditions and a government and corporate response rooted in systemic racism and sexism, the COVID-19 pandemic harmed women—particularly women of color—more than men. In the first ten months of the pandemic, women lost 1 million more jobs than men, and in the month of December 2020, alone, all of the job losses were borne by women of color.[xxvi] According to research by the National Women’s Law Center and the Center on Poverty and Social Policy at Columbia University, women are more likely than men to experience poverty during their working years, particularly, if they are raising children as single mothers.[xxvii] Children raised by single mothers are also more likely (33 percent) to experience poverty than children raised by single fathers (21 percent).[xxviii] Higher incomes resulting from minimum wage increases are likely to have some mitigating impact on poverty for women and families.[xxix]

MOST OF THE GAINS STEM FROM STATE AND LOCAL MINIMUM WAGE INCREASES TO $15 OR MORE

Since 2012, eleven states[6] and 45 localities have adopted laws that put them on a path to $15. As Table 4, above, shows, these laws account for the bulk of the impacts on workers: 18 million workers (69 percent of the total) and nearly $111 billion in additional income (73 percent of total). Appendix Tables G and H list state and local jurisdictions on a path to $15.

Although state-level $15 minimum wage laws have had the most impact—accounting for 56 percent of all worker impacts, and 55 percent of all income increases—local jurisdictions have led the way in raising wages to $15 or more. The Fight for $15 was initially a local effort—a fast-food worker strike in New York City. However, it quickly spread, winning the first of many victories in SeaTac, Washington in 2013, followed by Seattle and San Francisco in 2014.

From there, the movement was able to scale up to states, with California and New York adopting gradual increases to $15 in 2015, around the same time as additional local jurisdictions were considering their own $15 minimum wage laws. The leadership of cities and counties in raising wages—pushed by local workers and communities—has been one of the main forces behind state action for higher wages to $15;[xxx] and now they are leading the way for even higher wages beyond $15.

Conclusion

Since 2012, the Fight for $15—a worker- and people of color-led movement—has achieved what our elected representatives in Washington, D.C. could not: Raise wages in dozens of states, cities, and counties, winning $150 billion in raises for 26 million workers. The impact of these raises is 94 times that of the last federal minimum wage increase, which took effect in 2009. These are real, material gains for millions of people—affecting workers’ ability to buy groceries, pay rent, attend school, and care for their families.

Despite this incredible achievement, the need for higher wages remains. Twenty states follow the federal minimum wage of $7.25 or do not have a minimum wage law of their own.[xxxi] Many of these states are located in the South, where a majority of African Americans live and work.[xxxii] These 20 states have not only failed to raise wages, but most also prohibit cities and counties within their borders from adopting their own minimum wage laws.[xxxiii]

It is crucial that the U.S. Congress finally pass a federal baseline wage of $15 an hour or higher, with One Fair Wage for tipped workers, young workers, and workers with disabilities.

That is why it is so crucial for the U.S. Congress to finally pass a federal baseline wage of $15 an hour or higher, with One Fair Wage for tipped workers, young workers, and workers with disabilities. With the Raise the Wage Act, Congress has an opportunity to raise the federal minimum wage to $15.00 over five years,[xxxiv] a proposal that enjoys wide support from voters.[xxxv] Without congressional action, underpaid workers in states that follow the federal minimum wage will continue to be guaranteed only a poverty wage of $7.25. These workers, who are disproportionately workers of color, will fall further and further behind other workers around the country.

The success of the movement for higher wages—demonstrated so clearly by the impact numbers highlighted in this report—only reaffirms how far out of step lawmakers in Congress are from their constituents, as they continue to refuse to raise the federal minimum wage. But just as the Fight for $15 and a union movement has won raises in cities, counties, and states nationwide, it is only a matter of time before workers win a $15 minimum wage on the federal level, and other labor protections at all levels of government—including just cause, union rights, and even wages above $15, which are increasingly necessary around the country.

Crucially, all of these policies are also essential to increasing racial equity. Structural anti-Black racism is at the core of why workers are so underpaid nationwide.[xxxvi] Illustrative of anti-Black racism are the segregation of the labor market that pushes many workers of color into underpaid jobs;[xxxvii] the original exclusion of whole categories of workers from minimum wage protections in the Fair Labor Standards Act;[xxxviii] and voting discrimination[xxxix] and wage preemption laws[xl] that prevent Black workers in these states from having a fair say in the policies that determine their lives.

Congressional lawmakers can either put their weight behind the worker activism and the racial and gender justice imperative of raising wages now, or they can bury their heads further into the sand, as workers win in spite of them.

Methodology

Our methodological approach follows one originally created by researchers at the University of California-Berkeley,[xli] who first forecasted the impact of the proposed $15-per-hour Los Angeles citywide minimum wage.[xlii]

This approach relies upon estimating what would have happened to wages if no minimum wage increases were ever passed. Specifically, we estimate the wage distribution in each state and selected localities for each year from 2012—when the Fight for $15 began—up to 2021 to establish a baseline scenario. This is referred to as a “counterfactual” wage distribution. To do this, we reconstructed what the minimum wage was in each state in 2011 and assume that minimum wages were kept at this level (i.e., without the Fight for $15-influenced minimum wage increases). The starting point for the counterfactual wage projection was the observed total wage income from the 2011 American Community Survey (ACS) public use microdata.  Reported wages were then inflated by the average rate of inflation as measured by the CPI-U in the period from 2012 to 2020.

To capture the impacts of Fight for $15-influenced minimum wage increases, we constructed the actual minimum wage stepped increases by states and localities. We define an affected worker as an individual respondent with a projected baseline wage below the mandated minimum wage in 2021. Since the ACS does not report wage income on an hourly basis, we estimate the hourly wage for each worker by dividing total annual wage income by the product of usual hours worked per week and number of weeks worked per year.

To determine the number of affected workers, we first calculated the hourly wage for each employed respondent in the baseline scenario (as described above). Then we estimate the total number of employed workers with baseline wages below the mandated minimum wage in 2021 by state and locality. To calculate the income increases for workers, we first calculate the earnings difference per hour between the baseline wage and the mandated minimum wage for affected workers. Then, we convert the hourly earnings difference to a 2021 annual figure by multiplying the difference by the usual hours worked per week and the usual weeks worked per year (from the ACS).  The 2021 figures for workers affected and income increases for workers were adjusted based on the total population change in states and localities to reflect change in the population bases that have been impacted by Fight for $15-influenced minimum wage increases.

Cities and counties included as local areas in this analysis were determined by data availability in the 2011 ACS public use microdata sample (PUMS). The 1-Year ACS sample does identify smaller cities and/or larger cities in cases where disclosure rules would be violated. (The U.S. Census maintains disclosure controls to protect the privacy of survey respondents).[xliii] Therefore, in order to comply with disclosure rules, our analysis using the methods described above were only applicable to nine local areas. To estimate the number of workers affected in the other 43 local jurisdictions we used a quasi-elasticity for the share of total population affected relative to the average minimum wage increase between 2012 and 2021 for the nine (larger) cities available in the ACS. For example, across the nine cities available in the ACS, the average share of the 2011 population affected was 17 percent, while the average change in minimum wage was 80.5 percent. We then applied this ratio for the remaining cities using their actual percent change in minimum wage and 2011 population based on either the 3-year (2010-2012) or 5-year (2009-2013) ACS summary data. To calculate the estimate annual increase, we applied the average increase per-worker in the observed sample of nine cities ($7,816) to the estimate number of workers calculated for each city. We refer to the estimate from the set of cities that lack identification in the 1-year ACS PUMS sample as “imputed” figures and are intended to be approximations. The figures presented in this report are rounded.

Race and ethnicity categories are constructed using the ACS’s classifications for race and ethnicity. For this analysis, white represents individuals that identified as white alone (non-Hispanic or Latino), Black represents Black or African-American alone (non-Hispanic or Latino), Asian represents Asian alone (non-Hispanic or Latino), and Latinx represents Hispanic or Latino of any race. Because of the possibility of inflating possible errors, we do not report breakouts by race/ethnicity and gender for the set of cities where imputations were used for estimating the total number of workers affected.

A Note on Disemployment Effects                                 

Scholarly debates on the empirical and theoretical impact of raising the minimum wage on job losses have been raging for decades. For the purposes of the analysis presented here, we do not separately account for the so-called disemployment effect of raising the minimum wage. Historically, older studies found a consensus that raising the minimum wage had a negative impact on employment levels (a negative elasticity between 10 and 20 percent). However, more recent empirical research , using a more geographically detailed methodology, has shown convincingly that minimum wage increases do not lead to significant disemployment effects.[xliv]  This finding has held up to numerous replications and methodological changes and newer studies have confirmed the overall finding of no significant job losses.[xlv]

While these large-scale national studies of minimum wage impacts, which pool together many modest (ranging from 10 percent to 50 percent) state-level increases in minimum wage over a long time period, have consistently found employment effects close to zero, it is still possible that very large and rapid increases in the minimum wage would cause negative effects. However, the experience of Seattle, which was the first major city to raise its minimum wage to $15 per hour, shows evidence that largely confirms the finding of no significant employment losses.

This report originally appeared at NELP on July 27, 2021. Reprinted with permission.

About the author: Yannet Lathrop is a passionate advocate for economic and social policies that advance the common good. She joined NELP in 2014, after completing a public policy fellowship under the sponsorship of the Center on Budget and Policy Priorities.


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An Old Idea for a Guaranteed Income Is Back in Style

Posted on by Max Sawicky
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A new proposal for a negative income tax could eliminate poverty in the United States.

In these heady days of progressive proposals for massive increases in the federal budget, such as the Democrats’ recently announced $3.5 trillion human infrastructure package, a timely paper has reopened an old debate with a new proposal for a guaranteed national income, in the form of a negative income tax (NIT). The NIT, first proposed in the 1970s, is one type of income guarantee. It provides a cash benefit to individuals?—?an income floor?—?that declines as their income from other sources increases. The authors claim that their plan would completely eliminate poverty in the United States, which would be a very big deal.

The United States currently establishes income floors for various groups of people, especially under Social Security, but the biggest gap has always been those of working age said to be able-bodied who for one reason or another are unable to earn much or any income. An important but limited response to this gap is the new expanded Child Tax Credit (CTC), which began distributing direct cash payments to parents earlier this month.

The paper, from The Ohio State University’s Kirwan Institute For The Study Of Race And Ethnicity, was authored by a group of economists and researchers, including Naomi Zewde, Kyle Strickland, Kelly Capotosto, Ari Glogower and Darrick Hamilton of the New School’s Institute on Race and Political Economy. Hamilton was an adviser to Bernie Sanders during his 2020 campaign and bids fair to remain a leading economic voice on the Left for a long time to come, so this proposal is as much a news event as a policy paper. On a parallel track in Congress, Rep. Rashida Tlaib (D?Mich) has proposed an NIT in her ?“LIFT+ Act,” which would provide a $3,000-per-adult basic income.

How a negative income tax works

The negative income tax has been called an ?“upside-down” income tax. Eligible individuals receive a fixed cash benefit that is reduced according to income from other sources, also known as ?“means-testing.” For instance, if the benefit provided is $10,000 with a ?“phase-out rate” of 50 percent, and a person’s other income is $12,000, the benefit would be reduced by 50 percent of this other income, or $6,000, leaving a net benefit of $4,000. In this example, any income above $20,000 would ?“zero out” the benefit.

Like the universal basic income (UBI) idea, an NIT benefits those with the lowest incomes, or no income at all.

Means-testing has provoked criticism on the Left, but it is the only way to keep the cost of a cash benefit manageable enough to fit into the federal budget. The UBI is thought to avoid means-testing, but this is incorrect. Insofar as the UBI is taxable and returned to the government in income taxes, for all practical purposes it too is means-tested. 

The NIT proposed in the paper, which we’ll call ?â€ZSCGH,’ from an acronym of the authors names, is a logical extension of Biden’s CTC in several respects. One is that it’s ambitious in terms of cost?—?estimated at $876 billion a year?—?but not wildly out of sync with the scale of current budget thinking. Like the new CTC, it does not require recipients to be employed. The program would also be tax-based, pitched as a reform of the Earned Income Tax Credit (EITC), and administered by the Internal Revenue Service. And finally, it’s targeted and not universal, which is why its cost is plausible.

Problems with UBI

In all these respects, it surmounts the difficulties of popular UBI advocacy, the greatest of which is the unrealistic cost: A UBI that genuinely meets basic needs would be entirely out of bounds of existing or plausible federal budgets.

A UBI provides an unconditional cash grant to everyone. (Exactly who constitutes ?“everyone” is actually a ticklish issue, but one left for another time.) One UBI proposal for $6,000 a year?—?well short of ?“basic” if basic means something a person could live on?—?is estimated to cost $1.9 trillion annually. (When you hear about budget packages of $4 or $6 trillion, that generally means over a ten-year period. The annual amount would be a tenth of that.) Andrew Yang’s proposal for $12,000 per person would cost $2.8 trillion a year. 

Sometimes UBI advocates will defend against sticker shock by cautioning that the bulk of that cost would be reclaimed with higher taxes. The biggest flaw in that argument is political: Imagine Democratic politicians’ reactions to the idea of an annual tax increase of a trillion dollars, per year.

The main economic flaw of this approach is that the so-called ?“claw-back”?—?which amounts to a humongous tax increase?—?contradicts claims that a UBI would have no incentive effects. In other words, a great part of the UBI benefit is reclaimed by the federal government though the individual income tax, and the net taxes (tax increase minus the UBI benefit) of many would rise to finance a UBI. A tax on income is said to discourage work, saving or investment, though such claims are routinely exaggerated by the Right. But the claim that the UBI escapes incentive effects altogether is another myth fostered by its advocates.

Another problem is that the round-trip of that enormous amount of money?—?from government to person as UBI benefits, back to the government as tax increases?—?would lose a lot of passengers along the way: Roughly one dollar in six owed in federal taxes is not paid on time, or ever.

A more just safety net

The ZSCGH paper wisely highlights the impact of the NIT in the realm of racial justice. As with other social-democratic proposals, a benefit that reduces class inequality also reduces (but does not eliminate) racial inequality. The authors document the household poverty rate by race as follows: whites, eight percent; Blacks, 18 percent; Latinx, 17 percent. An NIT that eliminates poverty, or that just cuts it in half, benefits larger proportions of Black and Latinx households, simply because their poverty rates are higher to begin with. The paper’s authors also write that their proposal narrows median income gaps by race, since the benefits would extend well above the official poverty line. The reduction in gender inequality, especially for female-headed households, follows for the same reasons.

Eliminating poverty by raising individual incomes with cash benefits is not the limit of progressive objectives. We would not want people to rely on cash to buy health insurance or clean water, for instance. People also need public services and facilities, with social insurance programs alongside a social safety net strengthened by an NIT. 

We also want to empower workers to win higher wages from employers. The cushion afforded by a guaranteed income would help workers bargain for better deals, since they become more able to withhold their labor, or to take a spell out of the labor market. But still, you can’t knock cash. 

Even with guaranteed public employment (another Darrick Hamilton project), there will always be those unable to work who will need income. An NIT is the right field upon which to fight this battle. The ZSCGH paper and the Tlaib plan provide a running start.

This blog originally appeared at In These Times on July 26, 2021. Reprinted with permission.

About the author: Max Sawicky is a senior research fellow at the Center for Economic and Policy Research. He has worked at the Economic Policy Institute and the Government Accountability Office, and has written for numerous progressive outlets.


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How the Potency of Social Wages Can Beat Back Neoliberalism

Posted on by Jack Metzgar
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Jack Metzgar – LAWCHA

At the core of President Biden’s American Families Plan is an understanding that workers are paid too little in market wages and that government has a responsibility to change that.

If President Biden’s American Families Plan becomes law as he proposed it, my grand-niece Harri will finally have a ?“modest yet adequate” standard of living based on a new commitment from the federal government to provide social wages.

Harri is a 30-year-old single mother of two, one 3?year-old and one in school. As an assistant manager at Walmart, she makes about $47,000 a year, but about $8,000 of that goes for day care for her preschooler. She recently started getting $550 a month in a Child Tax Credit (CTC), but that’s just a temporary boost for the next year that was part of the Democrats’ March stimulus package. If the Families Plan?—?part of what Biden describes as ?“human infrastructure”?—?becomes law, she’ll get that CTC money for another five years and her preschooler will get free pre?K public education, freeing Harri from paying for day care.

Add it all up, and Harri’s income will be topped up by $6,600 and she’ll be saving $8,000 a year on day-care costs. She’ll go from having $47,000 a year in reported income to having $53,600, but with the absence of day-care costs, her real spending income will be enhanced by $14,600, a 37% increase. Where she lives, in central Pennsylvania, the Economic Policy Institute figures that with no child care costs, she would need about $49,000 to have a modest yet adequate standard of living. Harri will have a little more than that. Bringing in $53,600 will not provide her with a life of luxury, but the magnitude of that change should be transformative for Harri and her children. Harri will get more than parents with fewer kids or fewer pre-schoolers, but she’ll get less than parents with more kids or more than one preschooler. 

The point is that the combination of the CTC and public pre?K (plus an additional program where parents of one- and two-year-olds will pay no more than 7% of their income for day care) will make a dramatic difference in most parents’ and children’s lives. It is often said that the CTC by itself will cut child poverty in half. But the whole combination will do much more than that for many more families, including those who are not poor but struggle to get by.

Beyond its variety of impacts on different American families, Biden’s Families Plan is a breakthrough commitment to the concept of social wages, a concept that has even wider application. Along with other Biden initiatives, there appears to be a firm Democratic recognition that most workers are paid too little in market wages to get by and that the government has a responsibility to change that.

Social wages are different from the commonly (and loosely) used phrase ?“social safety net.” Safety-net programs, like unemployment compensation and Temporary Assistance for Needy Families, are for people who have fallen on hard times for one reason or another. Like a net, they keep people from falling farther by providing temporary income until they can get back on their feet. 

Social wages, on the other hand, are more permanent, less means-tested, and available for much larger groups of people. They either subsidize essential workers by increasing their pay or reduce costs of common goods and services. Among Biden’s various plans, for example, are wage subsidies for home care and day care workers who now average $23,000 and $22,000 a year respectively. Obamacare subsidies and the Earned Income Tax Credit do this for a broader group of low-wage workers. Many cities with strong labor movements, like New York, have long had reduced transit fares and rent control to keep costs affordable for low- and moderate-wage workers, though better-paid workers benefit as well. In the postwar years, the Amalgamated Clothing Workers Union established cooperative housing and even a non-profit bank to reduce their members’ and other workers’ cost of living.

Increased income or reduced costs increase human freedom by providing a higher standard of living that gives people the chance to choose how to spend money, not just struggle to pay the bills. Harri should have nearly $4,000 in discretionary income if the Families Plan becomes law, something she has never had before. Disposable income is your income after taxes, and almost everybody has some. Discretionary income is the income you have left after all your ordinary expenses are met, the money you can actually choose how to spend. It’s anything over that modest yet adequate amount that the Economic Policy Institute has estimated for your family in the place you live.

Biden’s Families plan will affect my niece’s family and its prospects much more than it will for many other families. A family with one school-age child, for example, will get only $250 a month with the CTC and no savings for child care. Or, a single mother with two children, like Harri, will get the same amount in CTC and in child-care savings, but because she earns only $20,000, she’ll end up with a mere $26,600 and free day care?—?no longer in official poverty but still a long way from a modest but adequate income.

But the concept of social wages is just as important as the specific result of any particular program. It means that the federal government accepts its responsibility to make sure that ?“nobody who works full time should live in poverty.” It also represents the transfer of money from our super-wealthy to workers who make less than a modest but adequate living. Biden proposes to pay for his plans with increased taxes on corporations and on individuals who earn more than $400,000 a year?—?though it would be even fairer if the Walton family had to pay Elizabeth Warren’s proposed wealth tax on their $247 billion in wealth since Harri and her co-workers helped produce some of that.

I’m as surprised as anyone at how sweepingly progressive Biden’s initiatives are, but none of them came full-blown from the head of Biden. They are all programs that have been developed and advocated for by progressive activists and academics in opposition to a seemingly impregnable public commitment to neoliberalism?—?all that movement and electoral politics of the past several decades, all those Fight for $15 actions and the doors Berniecrats knocked on.

As an academic, I am especially inspired by the intellectual work that contributed to this process. Efforts to establish ?“modest but adequate” levels of family income, for example, had begun in the postwar period by the U.S. Bureau of Labor Statistics?—?at a time when unions represented one of every three workers and that Henry Wallace aspirationally dubbed ?“the century of the common man.” That statistical series was ended in the early years of the Reagan administration, signifying that the federal government no longer gave a shit about what was adequate for common people. A decade or so later, a more sophisticated effort to establish adequate income levels was undertaken first by Wider Opportunities for Women and then by the Economic Policy Institute. The Reagan administration didn’t want us to be able to measure how inadequate most family incomes would become. But now we know, and we have one of our political parties at least rhetorically aspiring to adequacy.

The fate of Harri and her kids and millions like them will be determined in the next few weeks as the Democrats cajole, negotiate with, and debate each other about what will be in the final budget reconciliation bill. Let’s hope they do enough to decisively turn the page on four decades of neoliberal indifference to the people who do essential work we all depend upon.

This blog originally appeared at In These Times on July 14, 2021. Reprinted with permission.

About the author: Jack Metzgar is a professor emeritus of Humanities at Roosevelt University in Chicago. A former president of the Working-Class Studies Association, he is the author of a forthcoming book from Cornell University Press, Bridging the Divide: Working-Class Culture in a Middle-Class Society.


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America’s Rich Just Scored A Triple Jackpot

Posted on by Sam Pizzigati
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At racetracks all across America, lucky bettors every so often rake in small fortunes when the horses they pick to finish one, two, three — a trifecta — just happen to finish in that order. Last spring at the Kentucky Derby, for instance, a $1 trifecta bet returned a tidy little $11,475.30.

But America’s awesomely affluent don’t have to place any bets to rake in windfalls. They’re essentially hitting jackpots on a daily basis, as a “trifecta” of timely just-released research reminds us.

The first of these three newly released blasts came in late September from the Census Bureau. The gap between America’s haves and have-nots, the new Census data show, has grown “to its highest level in more than 50 years of tracking income inequality.”

The first week in October then brought the second blast, an Institute for Policy Studies analysis on the latest trends in corporate executive pay. In 2018, the IPS report details, 50 major U.S. corporations paid their CEOs over 1,000 times the compensation that went to their most typical workers.

The third blast comes from two of the world’s top inequality scholars. In 2018, economists Emmanuel Saez and Gabriel Zucman inform us, America’s 400 richest households paid taxes at a lower rate than any other income cohort in the nation, the first time that’s happened since the modern federal income tax went into effect in 1913.

The combined federal, state, and local tax rate on the nation’s richest 400 households, Saez and Zucman have calculated, last year fell 2.5 percentage points to 23 percent. In other words, the nation’s richest 400 households paid less than a quarter of their income in taxes.

Households in the nation’s poorest 50 percent, by contrast, paid 24.2 percent of their incomes in combined 2018 federal, state, and local taxes.

These disturbing new numbers appear Saez and Zucman’s new book, The Triumph of Injustice. The book traces how tax rates on the richest of America’s rich have nosedived since the middle of the 20th century. In 1950, the two economists point out, our top 400 households had a combined tax bill that averaged 70 percent of their incomes. A generation later, in 1980, that combined rate took 47 percent — about half — of top-400-household incomes. That rate has since fallen to last year’s 23 percent.

The bottom line: America’s richest used to pay over three times more of their income in total taxes than they do now. The predictable result? America’s richest have become phenomenally richer than they used to be.

The business magazine Forbes began publishing its annual list of the nation’s 400 richest in 1982. The shipping magnate Daniel Ludwig topped that first annual Forbes list. His total fortune: just $2 billion.

Forbes earlier this month released the 2019 ranking of the top 400. The fortune now needed to enter the ranks of America’s 400 richest: $2.1 billion.

Admittedly, we’re not taking inflation into account with this comparison. So let’s do that. Adjusting for inflation, Ludwig — the richest single individual in the inaugural Forbes list — had a 1982 fortune worth $5.3 billion. A stash that size today would rank him just 125th.

In that initial 1982 Forbes 400, America’s richest averaged $230.8 million in net worth each. In today’s dollars, that would come to nearly $633 million. The 2019 top 400 average: $7.4 billion, 32 times the top-400 average net worth in 1982.

Wages for the typical American worker, meanwhile, have been “increasing” on average by less than a half percent a year over the last four decades.

“It’s the economy, stupid,” Bill Clinton’s top campaign guru quipped during the 1992 presidential campaign.

No, it’s the inequality, stupid, the vast gap between the rich and everyone else that’s poisoning nearly every aspect of modern American life, from our crumbling infrastructure to our endangered environment. Hitting an occasional trifecta at the racetrack won’t close that gap. Taxing the rich — and confronting their corporate power — will.

This blog was originally published at OurFuture.org on October 22, 2019. Reprinted with permission.

About the Author: A veteran labor journalist, Sam Pizzigati has written widely on economic inequality, in articles, books, and online, for both popular and scholarly readers. Sam Pizzigati co-edits Inequality.org. Follow him at @Too_Much_Online.


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Income inequality went up again in 2018, and the Republican tax law may have made it worse

Posted on by Laura Clawson
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U.S. income inequality continued to grow in 2018, according to new Census Bureau figures. That’s a continuation of a decades-long trend—and a problem several of the Democratic presidential candidates have plans to combat.

The biggest rises in inequality came in Alabama, Arkansas, California, Kansas, Nebraska, New Hampshire, New Mexico, Texas, and Virginia, making increasing inequality a nationwide phenomenon hitting red states, blue states, and swing states across regions of the country. But it’s not something that’s just happening in a vacuum. It’s a product of policy and of choices that giant corporations, unfettered by government, are making to transfer wealth upward. Candidates like Sens. Elizabeth Warren and Bernie Sanders have offered plans from a wealth tax to a $15 minimum wage to strengthening unions to combat the continuing trend. Republicans, meanwhile, are looking for ways to make it worse.

“In 2018 the unemployment rate was already low, and the labor market was getting tight, resulting in higher wages. This can explain the increase in the median household income,” University of Florida economist Hector Sandoval told the Associated Press. “However, the increase in the Gini index shows that the distribution became more unequal. That is, top income earners got even larger increases in their income, and one of the reasons for that might well be the tax cut.”

We’d need more data to know for sure, but we can be sure that it’s an outcome Republicans wouldn’t object to—except selectively during campaign season.

This article was originally published at Daily Kos on September 26, 2019. Reprinted with permission.

About the Author: Laura Clawson is a Daily Kos contributor editor since December 2006. Full-time staff since 2011, currently assistant managing editor.. Laura at Daily Kos

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More Evidence on Why Inequality Matters

Posted on by William Spriggs
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William SpriggsThe evidence has mounted, and is clearly accepted, that extreme income inequality has grown in the United States over the past 40 years—and by extreme income inequality, I mean a huge imbalance in income growth favoring the top 1% of the population. This is extreme because it is large enough and sufficiently imbalanced growth that it must force a rethinking of economic policies.

Too much of the debate has been taken up on wage disparities between high-tech workers and low-wage service workers, between those who program the robots and those displaced by them. All those debates are limited to understanding the stagnant income growth within those in the bottom 90% of the income distribution. In net terms, those workers have gained nothing.

Unfortunately, however, that framework continues to dominate the global consensus debating solutions to the rising inequality, whether it is from the International Monetary Fund or the Organization for Economic Cooperation and Development, pillars of the so-called troika of policy centers that define neoliberal consensus on best practices for national policy. And, the concerns about inequality echo through the World Bank and the World Economic Forum.

Recent research is pointing to a new direction of understanding why inequality hurts growth. It is based on micro-economic evidence of firm-level success and points to why policies aimed at reversing income inequality are in the interests of businesses at the firm level. By exploiting new big data, economists are modelling a different challenge that inequality creates.

Last year, Simon Gilchrist and Egon Zakrajšek looked at differences in pricing behavior of firms during the recovery from the 2008 recession and uncovered that firms live and die based on their customer base. Growth of the firm is reliant on growth of their customer base. Firms that face stagnant customer base growth and loss of customer base then live or die on the availability of credit and their liquidity. Those firms are fragile. A downturn like 2008 means they face the strongest headwinds, their customer base freezes or shrinks as their incomes fall and their lack of credit from the financial collapse can easily mean they fail, or struggle to hold on by raising prices to their remaining customers.

The macro-economic implications are clear. If the bottom 90% of the income distribution rises by only 0.7%, then there will be a lot of firms facing no growth in their customer base. Another new study this week confirms that. Xavier Jaravel shows that those with low incomes consistently buy the same products year to year. This follows basic economic rationality. Consumers with the same income, assuming fixed tastes and preferences, should be observed buying the same things over time. Having revealed their preferences for goods, if their incomes don’t change, their preferences should also be stable over time. In business terms, they do not present themselves as new customers. So, firms do not chase them. These same consumers, therefore, do not realize any gains from “competitive” markets, fighting through prices to win dominance over new products. Instead, the firms that serve the poor are the firms Gilchrest and Zakrejšek point out must survive on raising prices to hold onto their total revenue during tough times.

The rich, Jaravel found, on the other hand, face great competition for them among firms chasing expanding customer bases. In short, the rich are not poor people with more money. They do have different tastes; as economic theory suggests, rising incomes change people’s tastes and preferences. Economists, in fact, label some goods as inferior goods because as incomes rise, demand for them falls; the rich buy foie gras, not baloney, craft beers, not Bud Light. When firms chase those customers, they compete, and the benefit is falling prices for those goods.

So, there are two distortions that hurt growth when income grows so unequally. First, if income grows equally, then the 127 million American consumer units (households and families that buy things) all become potential new customers. Firms would then chase them, and the competitive dynamics of the market would create new opportunities to grow or create businesses. But, when only 1% have rising incomes, that is a growth of 1.2 million potential new customers. That is a vastly smaller set of opportunities for firms to grow.

Second, it is a limited set of tastes and preferences to go after; it is a market that lacks the scale for creating large numbers of jobs and production efficiencies that come from a mass market of 127 million new customers. This hurts productivity growth, as more jobs are created and aimed at smaller scale production.

So, rather than ask individual firms, “What would a $15-an-hour wage mean in paying their workers?” firms should be asked, “What would a 100-fold increase in their customer base mean?” Most firms are more concerned about the latter, without an understanding of ways to make that happen. But, if the economy is to grow, be dynamic and benefit workers and companies both, companies need to think about what policies make growth more equal.

This blog originally appeared in aflcio.org on May 20, 2016.  Reprinted with permission.

William E. Spriggs is the Chief Economist for AFL-CIO. His is also a Professor at Howard University. Follow Spriggs on Twitter: @WSpriggs.

 


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NEWS FLASH: Labor Membership Boosts Incomes, Families And Economy

Posted on by Dave Johnson
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Dave JohnsonStudy after study, report after report, and of course common sense and our own eyes are telling us that unions help people and the economy do better. It’s obvious. But the billionaires and big corporations want to keep pay and benefits low, and pay politicians to keep it that way.

Which Democratic presidential candidates will come out in favor of strong labor rights and the laws and regulations that protect and encourage this?

A new report presented by the Center for American Progress co-authored with economists Richard Freeman and Eunice Han is only the latest look at how labor unions enable working people to do better. The report, “Bargaining for the American Dream: What Unions do for Mobility,” looks at “economic mobility” and “intergenerational mobility” and finds that mobility is better where unions are strong.

Big words, but what does this mean for real people? The study found that areas with higher union membership demonstrate more mobility for low-income children:

? Low-income children rise higher in the income rankings when they grow up in areas with high union membership.
? An increase in union density is associated with an increase in the income of an area’s children – as much as or more than high school dropout rates.
? Children of non-college-educated fathers earn more if their father was in a labor union.

Previous studies had looked at how other factors affected mobility: single motherhood rates, income inequality, high school dropout rates, social capital and segregation. But they had not looked at union membership. This study did look at this and found that the effect of union membership is close to the effect of inequality; only single motherhood has more of an effect.

At an event about the report, former Treasury Secretary Larry Summers (starting about 12:35 in the video) was rather pro-labor. He congratulated the authors for the study, but warned not to necessarily interpret the results as causal. He said the data used could also show that it’s the policies of the old Confederate states that cause lower mobility. Those states “are set up to produce a lot of immobility.” Are unions a cause or a symptom of that? The data show that holding all other factors constant, being in a union does appear to mean your children and grandchildren will do better.

Summers said private sector unionism by its nature goes hand-in-hand with private sector monopoly power and monopoly profits. Unions make sure that workers share in it. But government policies have assisted in making union organizing difficult, thereby decreasing membership.

The report suggested ways that unions might promote increased mobility. Union jobs pay more, which can lead to better outcomes for the kids in union families. Union jobs are often more stable, leading to a stable living environment for children to grow up in. Union jobs tend to come with family health insurance.

These gains show up in children who are not from union families but come from more densely unionized regions. This could be because unions push up wages generally, not just union members, and fight for programs that benefit everyone, especially low-income people.

What Can We Do?

While studies, reports, common sense and our eyes show us that people and our economy do better when workers are able to organize to fight the power of organized wealth, organized wealth is winning. Public policy increasingly supports wealth over working people. Unions are in decline, public investment is in decline, income inequality is rising. Even in times of political domination by Democrats, such as the early years of the Obama administration, little is done to reverse these policies and help working people.

In this presidential campaign Republicans are overwhelmingly speaking out for the interests of the billionaire class that funds them. For example, “Jeb!” Bush has introduced a plan to dramatically cut taxes for the rich. The Republican frontrunner is an actual billionaire.

On the Democratic side, frontrunner Hillary Clinton largely avoids championing specific policy proposals, and in spite of populist language is suspected of supporting the wealth/corporate-owning class. Opponent Bernie Sanders initiated his campaign in an attempt to “move Clinton to the left,” to get her to endorse specific policies that could address the problems of increasing inequality and the decline in pro-worker, pro-labor policies that worsen inequality. Interestingly, he is rising in the polls and even overtaking Clinton in some states as a result of his message.

Will the Democratic Party at large see this and rally for stronger labor laws as part of their plan to fight inequality and raise wages? If Bernie Sanders gets the votes to win the nomination and become the candidate, will the party apparatus fall in line? Or will they continue to provide only lip service – and lose elections?

This blog originally appeared in Ourfuture.org on September 11, 2015. Reprinted with permission.

About the Author: Dave Johnson has more than 20 years of technology industry experience. His earlier career included technical positions, including video game design at Atari and Imagic. He was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.


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Inequality, Power, and Ideology: An Update

Posted on by Arthur MacEwan
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bannerlogo[1]The article “Inequality, Power, and Ideology” was written in early 2009, as the U.S. economy was in the midst of the Great Recession. I argued that the severity of the recession was brought about by a nexus involving three factors:

  • A growing concentration of political and social power in the hands of the wealthy;
  • The ascendance of a perverse leave-it-to-the-market ideology which was an instrument of that power; and
  • Rising economic inequality, which both resulted from and enhanced that power.

Now, in late 2014, there is reason to hope that the perverse ideology, market fundamentalism, has been somewhat weakened. However, income inequality and the concentration power in the hands of the wealthy seem to be firmly in place. Perhaps the most shocking fact about income inequality is the following: Between 2009 and 2012, as the economy grew slowly out of the recession, 116% of the income increase went to the highest income 10% of the population. Yes, that’s right, the income of the top 10% increased more than the income increase for the whole society, which means of course that the income of the rest of society, 90%, declined in this period. This decline shows up in the drop of the inflation-adjusted median household income, down 4.4% between 2009 and 2012, part of a larger picture of a 8.9% decline between just before the recession, 2007, and 2013. (We don’t yet have the figure for 2014 as of this writing.) So, yes, income distribution continues to get more unequal, after the Great Recession as before the Great Recession.

As to the concentration of power, legal developments (the Supreme Court’s decisions in the Citizens United and McCutcheon cases, in particular) have allowed virtually unlimited and often hidden expenditures in elections by wealthy individuals and corporations—as if their expenditures had not already been too large. And recent elections have underscored the importance of these outlays. Then there is the continuing power of financial institutions. While the 2010 Dodd-Frank bill provided some sections that might have curtailed that power, pressure from the financial sector has delayed or weakened the implementation of many of those sections. Indeed, regulators have recently allowed banks to move precisely in the opposite direction from some Dodd-Frank provisions—e.g., allowing mortgages to be issued with low levels of down payment.

The perverse ideology that has justified inequality and buttressed the power of the rich, however, has suffered some setbacks since 2009. This ideology of market fundamentalism has relied on generating the belief that economic inequality is not a problem: that’s just the way markets work, rewarding skills and hard work. And, besides, it isn’t inequality that is important, it’s people’s absolute level of income that matters. At least that’s how the argument went. The Occupy movement that emerged onto the scene in September of 2011, however, was the spark that ignited a growing challenge to this nonsense. The Occupy slogan of “We are the 99%” resonated with a wide spectrum of society. Although the Occupy movement itself has faded, the concern for economic inequality has grown, and, from that, there has developed a widening rejection of the idea that whatever happens through markets is OK.

Nonetheless, government action continues to be severely constrained by the power of the economic elite, which has continued to exploit the zombie-like ideas about the efficacy of markets. No significant steps have been taken that might reverse the trend of rising inequality. Indeed, government policies have both slowed the recovery from the Great Recession and contributed to the rising inequality. By failing to sufficiently use fiscal policy to stimulate the economy, the government was failing to create jobs, and job creation would have at least dampened the rising inequality trend. Without a sufficient fiscal stimulus, the Federal Reserve attempted to stimulate the economy by lowering interest rates. Yet, monetary policy in a severe recession is a weak remedy, and, what’s more, works through providing benefits to financial and other firms. Those benefits are supposed to trickle down to “ordinary people.” Also, from the bailout of the banks in 2008 to the continuing monetary policies of the Fed in late 2014, the government’s approach to aid the financial system has largely ignored any debt relief for the families enmeshed in the housing crisis.

Although the recession came to a formal end by June 2009, when GDP started to grow again, economic conditions have continued to be very poor.

With slow economic growth, unemployment remained high, falling below 8% only in late 2012 and below 6% only in September of 2014; in both 2006 and 2007, the years leading up to the Great Recession, the unemployment rate had been below 5% in every month until December 2007, which was when the Recession was beginning. Moreover, many people simply gave up looking for work, dropped out of the labor force, and were not even counted among the unemployed.

The labor-force participation rate—the percentage of the population 16 years older who are either employed or looking for work—has fallen below 63%, after running above 66% in all years since 1989.

Add to this the high levels of long-term unemployed and people working part-time who would like full-time jobs, and it is clear that the U.S. economy is not generating sufficient jobs and remains weak more than five years after the Great Recession formally ended.

Several factors contribute to an explanation of the weak recovery from the Great Recession. When economic downturns are brought about by financial crises, they tend to be more lasting because the machinery of the credit system and the confidence of lenders have been so severely damaged. Programs to relieve the dreadful damage done to millions of homeowners have been minimal, leaving families in dire straits and leaving the housing market in the doldrums; and people with high debt are reluctant to spend, further restraining economic expansion. Also, while the Great Recession developed in the United States, it spread to much of the rest of the world. Conditions in Europe, especially, have hampered full recovery in the United States.

In late 2014, on the surface, the likelihood of positive change is not auspicious. With the underlying nexus of power-ideology-inequality still in largely in place, economic life is threatened by a new crisis. Moreover, the success of the Republicans in the November 2014 elections would seem to squash possibilities for positive change. Yet, as pointed out above, the ideology of market fundamentalism, which has been both a foundation for that success and a basis for the poor economic conditions that confront the great majority of the populace, is increasingly being rejected. This ideological shift, if it can be maintained, offers a basis for positive developments. The sorts of changes advocated in this article, changes that would improve people’s lives and alter the underlying causes of the economic crisis, continue to be necessary. They also continue to be possible.

This Article originally appeared in dollarsandsense.org in the November 2014 issue. Reprinted with permission.

About the author: Arthur MacEwan is professor emeritus of economics at UMass-Boston and a Dollars & Sense Associate.


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Wealth Inequality And Middle-Class Decline Is Worse That We Think

Posted on by Isaiah J. Poole
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Isaih J. PooleWe know how bad income inequality has gotten in the past few years in America, thanks largely to the work of economist Emmanuel Saez and his colleagues at University of California at Berkeley’s Center for Equitable Growth. But Saez’s latest paper finds that the share of the nation’s wealth going to the bottom 90 percent of Americans has declined to where it was in the 1940s, erasing decades of hard-won gains due to pro-worker, pro-middle-class economic policies.

Meanwhile, the top 0.1 percent of Americans – the 160,000 families with net assets in excess of $20 million in 2012 – now hold 22 percent of the nation’s wealth, up from 7 percent in 1978. That monopolization of a large share of national wealth by an elite few hasn’t been seen since the late 1920s.

The bottom 90 percent, by contrast, saw their wealth share fall from 35 percent in the mid-1980s to about 23 percent in 2012, the paper said. It was about 20 percent in the 1920s, it said.

The paper, “Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data,” focuses not just on wages and income but on the accumulation of overall wealth, including the value of real estate, stocks and certain other assets. It explicitly refutes the view that while nearly all of the gains in national income since the 2008 recession have gone to the top 1 percent, that hasn’t translated into a substantial increase in the concentration of overall wealth at the top. To the contrary, the paper said, “we find that wealth inequality has considerably increased at the top over the last three decades.”

“Wealth concentration has increased particularly strongly during the Great Recession of 2008-2009 and in its aftermath,” the paper said. Largely because of the decline in housing prices, the share of wealth held by the bottom 90 percent fell more than 10 percent from the middle of 2007 to mid-2008. Afterward, real wealth continued declining at a rate of 0.6 percent a year on average through 2012, while it increased at a rate of almost 6 percent a year for the top 1 percent and almost 8 percent a year for the top 0.1 percent.

The bottom line: “Wealth is getting more concentrated in the United States,” and is in fact “ten times more concentrated than income today.”

How did this happen? “The share of wealth owned by the middle class has followed an inverted-U shape evolution,” the paper said. Middle-class households reached the apex of the upside-down “U” in the mid-1980s, driven by the accumulation of housing wealth and, more significantly, pensions. Since then, housing values for the bottom 90 percent as a share of total household wealth has fallen by as much as two-thirds, and most workers have IRAs or 401(k) defined contribution plans instead of pensions. And these households have significantly higher debt than they did in the 1980s.

What can we do about it? The paper points out that it was New Deal policies of the 1930s that began reversing the effects of Gilded Age inequality in the 1930s, particularly “very progressive income and estate taxation” that made it difficult for the wealthy to accumulate large fortunes and pass them to their heirs. “The historical experience of the United States and other rich countries suggests that progressive taxation can powerfully affect income and wealth concentration,” the paper said.

Other steps that can help include “access to quality and affordable education, health benefit cost controls, minimum wage policies, or, more generally, policies shifting bargaining power away from shareholders and management toward workers.” Finally, the paper suggests policies that “nudge” workers toward sound investment and savings vehicles and offer alternatives to short-term debt at high interest rates.

The fact that a group of people equal to the population of Salem, Oregon controls as much of the nation’s wealth as 90 percent of the rest of the country speaks to the fundamental unfairness of our economy. It is a level of imbalance that is as unsustainable today as it was before the crashes of 1929 and 2008. It also stands as a dire warning that we cannot afford to elect more politicians whose policies of giving more relief to the wealthy and more pain to the working class would only make wealth inequality and, and economic inequity, even worse.

This blog originally appeared in Ourfuture.org on October 20, 2014. Reprinted with permission. http://ourfuture.org/20141020/wealth-inequality-and-middle-class-decline-is-worse-that-we-think.

About the Author: Isaiah J. Poole has been the editor of OurFuture.org since 2007. Previously he worked for 25 years in mainstream media, most recently at Congressional Quarterly, where he covered congressional leadership and tracked major bills through Congress. Most of his journalism experience has been in Washington as both a reporter and an editor on topics ranging from presidential politics to pop culture. His work has put him at the front lines of ideological battles between progressives and conservatives. He also served as a founding member of the Washington Association of Black Journalists and the National Lesbian and Gay Journalists Association.


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