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Talk:Income inequality in the United States

Income inequality in the United States was one of the Social sciences and society good articles, but it has been removed from the list. There are suggestions below for improving the article to meet the good article criteria. Once these issues have been addressed, the article can be renominated. Editors may also seek a reassessment of the decision if they believe there was a mistake.
Article milestones
DateProcessResult
July 7, 2007Good article nomineeListed
November 12, 2009Good article reassessmentDelisted
A fact from this article appeared on Wikipedia's Main Page in the "Did you know?" column on June 29, 2007.
Current status: Delisted good article

Contents

Proposed inclusionsEdit

"Low and middle incomes have fallen, and the top 10% of income earners have obtained almost all of the income gains in the recovery, with most of the gains going to the top 1% and the top 0.01% gaining as much as the bottom _% lost, because wage increases have not been linked to productivity gains, and because of a lack of pay equity and a lack of an employment safety net at living wages;[1] instead, incomes have diverged and inequalities have widened.[2][3]" Also, I would like to see this graph for the US instead of China, along with Herzer and Vollmer (2013) and Baumol (2007) supporting a sentence summarizing the overlapping portion of their abstracts in the economic growth section. EllenCT (talk) 14:51, 25 April 2015 (UTC)

References

  1. ^ Tcherneva, Pavlina R. (April 2015). "When a rising tide sinks most boats: trends in US income inequality" (PDF). levyinstitute.org. Levy Economics Institute of Bard College. Retrieved 10 April 2015.
  2. ^ Casselman, Ben (September 22, 2014). "The American Middle Class Hasn't Gotten A Raise In 15 Years". FiveThirtyEightEconomics. Retrieved 23 April 2015.
  3. ^ Parlapiano, Alicia; Gebeloff, Robert; Carter, Shan (January 26, 2013). "The Shrinking American Middle Class". The Upshot. New York Times. Retrieved 23 April 2015.
I support the proposed inclusions.--C.J. Griffin (talk) 03:33, 26 April 2015 (UTC)
I agree with everything EllenCT says.Farcaster (talk) 19:21, 26 April 2015 (UTC)
Wow, thanks both. Let me also suggest some Owen Zidar, e.g., "the positive relationship between tax cuts and employment growth is largely driven by tax cuts for lower-income groups and that the effect of tax cuts for the top 10% on employment growth is small." (Zidar, Owen. "Tax Cuts For Whom? Heterogeneous Effects of Income" (PDF). Retrieved 27 April 2015.) EllenCT (talk) 01:47, 27 April 2015 (UTC)


What about economic inequality in early America? Or while the 13 states were still Colonies? The article currently begins historical overview at the civil war (1860's). — Preceding unsigned comment added by 104.193.232.47 (talk) 13:24, 27 April 2017 (UTC)

The real reason we are hearing of income inequality nowEdit

The divergence of productivity and total compensation started in the 1970s (when deinsustrialization was beginning and married women began entering the workforce in a larger proportion) and the gap has been narrowing since the early 1990s. From 2000-2010 after tax income went up significantly (15-20%) for the bottom quintiles and down for the top of the income distribution. That made me wonder why income inequality suddenly became such an issue. Then when I saw the graph based on CBO date showing that all tax revenues would go to entitlements by 2030 it made perfect sense:

http://www.zerohedge.com/news/2015-07-16/how-likely-hyperinflation-us

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Decline in employment to population ratio may account for most of the decline in median family incomeEdit

People who retire from their long time careers and who seek reemployment usually earn considerably less if they continue to work and will have even less income if they fully retire. These factors can explain most of the decline in median household income. (Retraction: The age group 65 + is doing better than others others post 2008. That leaves the decline in the employment to population ratio as the main cause.)


http://bonddad.blogspot.com/2013/08/the-truth-about-decline-in-real-median.htmlPhmoreno (talk) 12:55, 29 May 2016 (UTC)

I don't believe that is a reliable source. --Ronz (talk) 16:29, 29 May 2016 (UTC)
It's not a reliable source, but there's probably one out there. I don't know why more people haven't pointed this out.Phmoreno (talk) 18:12, 29 May 2016 (UTC)
An interesting hypothesis, but it seems refuted here. Some good charts with median real wages by age group. Older folks doing quite well even in retirement, as Social Security kicks in.[Advisor Perspectives]Farcaster (talk) 00:22, 30 May 2016 (UTC)
Here is a FRED chart with some of the pertinent variables. You can download and check correlation. [FRED - Real Median Wages and Various Employment Ratios]Farcaster (talk) 00:33, 30 May 2016 (UTC)
Thanks for posting those charts. It looks like age 65 group's income increased 18% since the 2008 recession while the other age groups are not doing so well. However, that does not refute the decline in the employment to population ratio.Phmoreno (talk) 01:46, 30 May 2016 (UTC)
There certainly is a long-term decline in LFPR, about half due to aging / demographics and the other cyclical (amount varies by source). The demographic part has been predicted for a long time; the cyclical part was affected by the crisis. More people have left the workforce due to retirement, more on disability and more kids in school are key factors behind the LFPR decline (see this LFPR changes) How that ties to lower median household income is unclear. Wages are driven by supply and demand. We have substitutes now in Asia for our workforce at much lower prices, so the price has fallen. Robots are increasingly a substitute, although economists debate whether automation creates more or fewer jobs overall. We've got far fewer in unions, reducing labor bargaining power vs. capital (there is a long-term trend of more share of GDP going to capital). We've got a higher share of part-time vs. full time jobs in the workforce and we're trading higher paying manufacturing and construction jobs for lower paying service jobs. So the mix of jobs matters as well. Unfortunately, the BLS recently projected that most of the jobs to be added in the next 10 years are low-paying jobs mainly in healthcare (home caregivers for the elderly at low wages). So while the variables are lightly correlated (0.5 for the E-M ratio for the 25-54 age group with real household median wages, less for the other variables) the causes are deeper. The article on Unemployment in the United States covers some of this as well.Farcaster (talk) 16:20, 30 May 2016 (UTC)
From a supply and demand perspective, I should add that if the labor force participation rate is declining (i.e., more folks outside the labor force) that should actually help wages (less supply), as opposed to a situation where it was increasing. As I mentioned above, labor supply is more global now. The U.S. has created few or no jobs in internationally tradable goods sectors; nearly all the jobs are in non-tradable sectors (services) that are tougher to offshore.Farcaster (talk) 16:39, 30 May 2016 (UTC)
Farcaster, your statement is quite accurate. I would only add we are in a depression with unemployment masked by the change to U3 instead of U6 as the official unemployment rate [1] plus government transfer payments. Low wage countries producing internationally tradable goods is one of the reasons for the collapse in domestic investment.Phmoreno (talk) 17:03, 30 May 2016 (UTC)
I agree with your last sentence. However, U3 and U6 have been around for awhile. Here is a chart showing them over time. Not that bad. FRED-U3 and U6. We have more part-time jobs and lower paying jobs, a bigger problem than a low U3 and slightly elevated U6. Don't let all the negativity in the election cycle bring you down; opposition parties are supposed to do that!Farcaster (talk) 03:31, 31 May 2016 (UTC)

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reverted incorrect grammar fixEdit

IP 76.184.196.195 changed "1970s" to "1970's", reportedly to "fix grammar".

The "s" in "1970s" is plural -- not just one year but the group of years beginning 1970.

The "s" in "1970's" would either be possessive or a contraction: Possessive would not make sense, because the following word is a preposition "after", and 1970 cannot own "after". If a contraction, then the three word sequence "the 1970's after" should be equivalent to "the 1970 is after". That does not make sense, either.

I appreciate the effort of the anonymous editor, but s/he seems misguided in this. DavidMCEddy (talk) 04:54, 22 February 2017 (UTC)

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Bias in sections discussing real wagesEdit

I've marked a couple of sections discussing real wages as biased, they mostly argue that things have got worse for the average worker, and ignore the fact that real total compensation has roughly matched productivity gains.131.111.184.91 (talk) 03:22, 26 February 2018 (UTC)

I have pointed out the fact that real total compensation has roughly matched productivity gains many times here and in other related articles. The source is a St. Louis Fed paper. I have also pointed out why using median family income is misleading- because of the great rise in single parent families, usually headed by the mother, which is almost a sure sign of poverty. This is just Marxist propaganda and has no business being on Wikipedia.Phmoreno (talk) 04:13, 26 February 2018 (UTC)

Productivity chartEdit

I recently removed a chart of productivity and median family income that is being used to deceive people. Part of the problem is that the income measure uses a different set of economic statistics than the productivity measure and when an adjustment for these twor data series is made most of the difference disappears.[1]

'Feldstein concludes that two principal measurement mistakes have led some analysts to conclude that the rise in labor income has not kept up with the growth in productivity. The first is a focus on wages rather than total compensation: because of the rise in fringe benefits and other non-cash payments, wages have not risen as rapidly as total compensation. Feldstein feels it is important to compare the productivity rise with the increase in total compensation rather than the increase in the narrower measure of just wages and salaries." "The second measurement problem that Feldstein addresses is the way in which nominal output and nominal compensation are converted to real values before making the comparison. Although any consistent deflation of the two series of nominal values will show similar movements of productivity and compensation, Feldstein concludes that it is misleading to use two different deflators, one for measuring productivity and the other for measuring real compensation."

The other problem is that the composition of a family has changed over the decades with households being increasingly being headed by single mothers.[2] Overlooking one of these errors may be forgivable, but combining them is purposely misleading.Phmoreno (talk) 02:53, 4 March 2018 (UTC)

I agree with the removal, although ideally we'd have some info on various measures of inequality and the potential pitfalls of different approaches.Volunteer Marek (talk) 06:32, 4 March 2018 (UTC)
I disagree with the removal. EPI considers the chart highly relevant. If another economist disagrees, then post the commentary from that economist. Do not remove it because you don't like the result or want to believe what Feldstein says.Farcaster (talk) 16:12, 4 March 2018 (UTC)
EPI is either ignorant of their errors purposely misleading. The St. Louis Fed says that people promoting this should know better and so does NBER. Because it is using economic statistics, we should trust those who understand the statistics, not those promoting falsehoods. There are several papers debunking this type of chart and other inequality claims.Phmoreno (talk) 16:20, 4 March 2018 (UTC)
Even the BLS says the same thing EPI is saying in the excellent article below, which has some great charts we could include to support the point EPI is making. "This Beyond the Numbers article studies underlying trends over the 1987–2015 period in 183 industries that are driving some of the widening gap between labor productivity and compensation observed in the nonfarm business sector. Most of the industries studied had increases in both labor productivity and compensation over the period studied; however, compensation lagged behind productivity in most cases." It also has adjustments that Feldstein mentions.[3]Farcaster (talk) 16:39, 4 March 2018 (UTC)
Here is a FRED chart we could use instead of the EPI chart if that source bothers you; it has productivity and real compensation per hour instead.[4]Farcaster (talk) 16:39, 4 March 2018 (UTC)
Total compensation is the accurate way to measure what workers are receiving. One reason cash compensation has stagnated relatiave to total compensation is because companies are contributing more to health insurance and savings plans and workers have more paid leave. Here are a few more articles that show that total compensation tracks productivity.

[5][6][7][8]Phmoreno (talk) 01:01, 5 March 2018 (UTC)

Krugman's explantion is that compensation, to the extent it's kept up, reflects more hours worked, with a stagnant rate of pay. EPI has also "debunked the debunkers" more or less reviewing Sherk's analysis (the subject of three of the links you gave). So put Krugman in the camp of this being a big problem.[9] I don't know how to replicate the EPI chart Krugman references with FRED; I'll give it a shot next weekend. Again, if you think the graph is misleading, add some text with the pro/con arguments. I think we probably should have a pay and productivity section; the graph isn't in the right place.Farcaster (talk) 03:36, 5 March 2018 (UTC)

I fail to see how anything you presented makes the EPI graph acceptable. "Median family income" is not an acceptable measure over long periods of time because the composition of "family" has changed. It is well known that single mother headed families have been on the rise and that they are low income. How about a graph of median family income in families where fathers are present?Phmoreno (talk) 13:44, 5 March 2018 (UTC)

Nor have you presented anything that makes it unacceptable. It is a fact that EPI reported it. We have EPI on the Left and Heritage on the Right (Sherk's work is the basis for several of your links) making arguments that are very different. Heritage acknowledges a large difference, but then tries to use alternate inflation measures to lessen the difference. EPI doesn't think the inflation adjustment is particularly relevant. Krugman thinks there is a big difference because hours had to go up because compensation rates were stagnant, siding with EPI's conclusion. Fortunately, the BLS (our most impartial source) sides clearly with EPI. In other words, you lost the argument. If you want to put the EPI chart in a section about productivity and wages along with the Heritage commentary, go right ahead. But do not delete a factual graph and statements.Farcaster (talk) 14:28, 5 March 2018 (UTC)

You also haven't dismissed the issue of total compensation closely tracking productivity. Health insurance, retirement plan benefits and paid leave all have to be counted to honestly do a comparison.Phmoreno (talk) 14:47, 5 March 2018 (UTC)

BLS uses compensation, which is an all-in measure (as opposed to wages). I've included their chart instead; hopefully that resolves the argument while showing we still have a significant productivity gap.Farcaster (talk) 18:03, 11 March 2018 (UTC)

plot of income inequalityEdit

@Farcaster: Thanks for the addition of your new plot of "U.S. Real Before Tax Median Family Income 2001-2016". It's a very useful addition to this article.

Two questions:

 
This graph shows the income of the given percentiles plus the average from 1947 to 2010 in 2010 dollars. The 2 columns of numbers in the right margin are the cumulative growth 1970-2010 and the annual growth rate over that period. The vertical scale is logarithmic, which makes constant percentage growth appear as a straight line. From 1947 to 1970, all percentiles grew at essentially the same rate; the light, straight lines for the different percentiles for those years all have the same slope. Since then, there has been substantial divergence, with different percentiles of the income distribution growing at different rates. For the median American family, this gap is $39,000 per year (just over $100 per day): If the economic growth during this period had been broadly shared as it was from 1947 to 1970, the median household income would have been $39,000 per year higher than it was in 2010. This plot was created by combining data from the US Census Bureau ("Table F-1. Income Limits for Each Fifth and Top 5 Percent of Families (All Races): 1947 to 2010", Current Population Survey, Annual Social and Economic Supplements, United States Census Bureau, median computed as the geometric mean of the 20th and 40th percentiles |access-date= requires |url= (help)) and the US Internal Revenue Service.(Piketty, Thomas; Saez, Emmanuel. Atkinson, A. B.; Piketty, Thomas (eds.). "Income Inequality in the United States, 1913-2002". Retrieved 2012-02-08.). There are systematic differences between these two sources, but the differences are small relative to the scale of this plot. (The differences between the Census and Internal Revenue Service Data can be seen most easily in the 95th percentile, present in both data sets. For more details see the help file for the "incomeInequality" data in the Ecdat package available from the Comprehensive R Archive Network (CRAN; see r-project.org).)}}
  1. Have you considered plotting these same number on a log scale? I do this routinely with numbers that must be positive (like incomes) for multiple reasons. For one thing, growth at a constant percentage rate appear like a straight line on a log scale and like an exponential growth curve on a linear scale. Deviations from a straight line are instantly recognizable to a naive observer, while deviations from exponential growth cannot be judged visually by any human, I don't think. Second, it's easier to compare variability between the bottom line and the top in plots like this: Percentage variations may be more important to people in the bottom quintile than the top decile, but variations for the bottom quintile are visually suppressed by a plot like this. With your linear scale, a standard human eye can pretty much only see the variations in the top lines and the differences between the lines and none of the fluctuations in the bottom line. Third, numbers like are nearly always, in my experience closer to being log-normally distributed than normally distributed. It's far easier to tell the difference between systematic and random changes on a log scale than on a linear scale.
  2. Have you compared these numbers with those available from Thomas Piketty and Emmanuel Saez (2006) "Income Inequality in the United States, 1913-1998", Quarterly Journal of Economics, 118(1), 2003, 1-39, (Currently available updated to 2015 from https://eml.berkeley.edu/~saez) and Census F-1 data (from https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-inequality.html)? See my plot of these numbers in the accompanying plot. This plot has not been updated in roughly 6.5 years. It hasn't been, because I have not found the time to do it.
 
Productivity and Real Median Family Income Growth 1947-2009

Also, have you considered plotting the numbers relative to one another, e.g., with multiple lines starting at "1" or "0" for reference, similar to the accompanying plot of "Productivity and Real Median Family Income Growth 1947-2009"? As suggested by item "1" above, I believe this plot would be more informative if plotted with the numbers plotted as a ratio rather than a linear difference from their starting points. It's been a long-term task for me to update my plot comparing Piketty and Saez with the Census F-1 table in this form with also the GDP data (e.g., from Louis Johnston and Samuel H. Williamson (2011) "What Was the U.S. GDP Then?" MeasuringWorth, http://www.measuringworth.org/usgdp). For this, I think I might limit the plot to the bottom quantile, the median (which I computed as the geometric mean of the third and fourth quintiles from F-1), the growth in real GDP per capita from MeasuringWorth, and the top 99th, 99.5th, 99.9th, and 99.99th percentiles from Piketty and Saez. I'd use all those lines, at least in one version of this analysis, because I know the 99th percentile has NOT grown at the same rate as real GDP per capita, and the 99.99th percentile has. I haven't done this, but I believe that the 99.5th percentile has grown at the same rate as real GDP per capita -- and higher incomes have grown faster.

Again, thanks for this addition. DavidMCEddy (talk) 09:45, 3 April 2018 (UTC)

Happy to help. It will take me some time to digest all you've said above but I will look into it. I'm going to be reviewing & updating budget stuff based on the CBO budget & economic outlook that will be released on Monday, but late April or May I should get back to this.Farcaster (talk) 03:03, 4 April 2018 (UTC)
Sam Williamson, President of MeasuringWorth, wrote me, "The Historical Statistic of the United States is the best source of deficit and debt numbers. MeasuringWorth is the best for GDP." From what I know, he's correct. DavidMCEddy (talk) 23:05, 4 April 2018 (UTC)

Added section on debate over multi-year data.Edit

Over LifetimesEdit

I proposed to add the following in response to the Krugman editorial references on lifetime (i.e. multi-year, not annual) income inequality:

 
Change in median income of each quintile of income from 1980-2014, using panel data.

"Economist David Splinter of the United States Congress Joint Committee on Taxation claims that using panel data (i.e. following the same people over that time period) is more accurate for estimating distribution of economic growth, as "mobility reshuffles adults across income groups, meaning cross-sectional comparisons provide inaccurate measures of the incidence of growth." Up to three-quarters of the increase in annual income inequality is explained by the widening gap between annual and multi-year income inequality.[1] Economist Russ Roberts claims that further adjustments on Splinter's numbers for age shows the largest percentage gains from the past few decades go to the poorest workers [2] "

These sources are at least at the level of the Krugman editorial (one is a working paper from an economist who has been on the United States Congress Joint Committee on Taxation since 2012, and the other is a similar style editorial to Krugman's that references many different studies). Given that these are all reputable professionals (none are "fringe") with different takes on the data, I believe all should be included or, failing that, the Krugman editorial should also be excluded.

Barnhorst (talk) 14:33, 24 May 2019 (UTC)

I think the above plot of "Change in median income of each quintile of income from 1980-2014, using panel data" is misleading by itself. We need an international comparison, e.g. "the Great Gatsby Curve" in the Wikipedia article on "Socioeconomic mobility in the United States". More research on that is available, presented in a more easily understandable form, but I don't have time to research it right now. DavidMCEddy (talk) 15:00, 24 May 2019 (UTC)
The "Great Gatsby Curve" is intergenerational. I don't know of one that exists intragenerational. Barnhorst (talk) 16:30, 24 May 2019 (UTC)
I believe what you say, but I don't know how that relates to the issues involved here and how they might most effectively be communicated to a lay audience. It's known that people with more experience tend to have higher income. Therefore, this plot of "Change in median income of each quintile of income" should not be surprising. I would expect that the first job of a teenager could be sub-minimum wage, with wages rising on average more rapidly for young adults than people older, and the incomes of very successful professionals could be expected to fall a decade later as many retire.
However, these effects are subtle and therefore take time to process -- and could easily be misinterpreted.
Consequently, without an international comparison, an analysis of this nature could easily add more heat than light to the discussion and to popular understanding of the issues involved.
I think an international comparison of intergenerational effects might most effectively help people understand the issues involved here. I've seen analyses of that nature but cannot find such now. DavidMCEddy (talk) 23:02, 24 May 2019 (UTC)
There is an intergenerational section labeled "between generations", and it does have the Great Gatsby Curve. I am proposing additions to the "Over Liftetimes" section, which would be intragenerational. The very idea that you say "should not be surprising" is exactly what many people are missing! I'm not against having an international comparison if you can find the data.Barnhorst (talk) 17:41, 25 May 2019 (UTC)
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