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Uprooting Inequality

By Ben Leet. This article was first published on Economics Without Greed.

Inequality of income and wealth has set in like a deep rot undermining the foundation of our society and economy. Uprooting it will not be simple.

I enjoy numbers and think they explain better than anything the problem, so bear with me. “If wages had kept up with productivity over the last three decades your pay would be closer to:” states the Economic Policy Institute web page, and then one types in an income amount. An income of $20,000 would be $32,576, a 63% increase; an income of $40,000 would be $61,055, up 53%; an income of $60,000 would increase 40% to $83,728, and an income of $80,000 would be $101,782, up 27%. The median worker income for 2014 was $28,851 states the Social Security Administration (SSA), that would be $44,357 states the EPI. The Congressional Budget Office issued a report on income distribution in 2011, revealing that $93,900 was the average household income, and adjusting for inflation it is now $99,000. And adjusting to find average worker income, each worker contributes $80,379 to the national income — mean average. The SSA report shows the lower-earning 45% of U.S. workers earn less than $25,000, and the average income for this 45% is $10,523. The lower-earning 45% of workers earn in wage income about 6% of the total national income. Even though this seems unbelievable, you can do the simple math by following the steps in footnote below.

It’s depressing, isn’t it? The United Nations issued its Human Development Index and found the U.S. ranked 5th among all 187 nations of the world. The U.N. also issued an index adjusted for inequality in which the U.S. drops to the 28th rank. Who would know that 31% of the U.S. population lives in households with zero or negative net worth? Or that 44% of the adults live in “liquid asset poverty”, or that 44% of U.S. children are being raised in families that are low income or poor?

As a result, millions of lives are damaged, and a few unfortunate ones are destroyed.

Reversing this baked-in, nearly invisible condition will not be easy, but it is the political imperative of our time. Money is power and our political institutions have been corrupted. It will take education and a collective determination to readjust the flow of monetary resources.

Remedies to Tame Inequality

Of the remedies put forth, those that raise wage income are the most promising: 1) create public jobs directly or through infrastructure improvement projects; 2) stronger and clearer labor union rights; 3) increasing the minimum wage and the earned income tax credit. In the late 1990s, during Clinton’s last term, the employment to population ratio reached its historical high, workers became scarce and employers raised wages.

The EPI has over the decades become the nation’s strongest advocate for workers, and they present eleven proposals that will raise wages. The renown economist Joseph Stieglitz has just released the book Rewriting the Rules of the American Economy. Ellen Dannin has written about reforming the labor laws in Taking Back the Workers’ Law. And Salvator Babones has presented sixteen solutions for 2016 in his book Sixteen for ’16. And my favorite solution is found in Phillip Harvey’s report Back to Work, proposing a government direct employment program. For an investment of $180 billion a year we could raise the employment to population ratio for prime working age workers, age 25 to 54, back to its high of 2000. This would raise wage income for 80% of workers (who are nonsupervisory workers) in the U.S.

It’s not that I want to snow readers of this article with numbers, but two more examples are very telling. The first deals with wealth. The average private household savings now is $691,000, and only 10% of households reach or surpass this level. The second deals with income. The Bureau of Labor statistics says that the “median weekly earnings of the nation's 110.4 million full-time wage and salary workers were $803 in the third quarter of 2015,” and that equals $41,756 a year. The EPI says that median income could be $63,259, except that inequality distorted the economy. Today only 20% of workers receive $63,259 a year, not 50% which would make it the median yearly income for full-time workers.

The Bureau of Labor statistics says the “median weekly earnings of the nation's 110.4 million full-time wage and salary workers were $803 in the third quarter of 2015,” and that equals $41,756 a year. The EPI web page would convert that amount to $63,259, except that inequality distorted the economy.

I packed a lot of information into this short article. The take-away is: Progress at this point is not necessarily growth of total output, the GDP, but is a fairer distribution of resources. This excessive inequality is a blemish on the nation.

Notes: calculating 6% of national income.

Determine $12.7 trillion as total national income, at Congressional Joint Committee on Taxation report, page 30.

Multiply by .06. Answer $762 billion.

For workers earning below $25,000 a year, see the SSA report.

Add the “net compensation” figures for the below $25,000 groups.

It comes to $748,994,000,000.

Divide national income, $12.7 trillion into $749 billion.

Answer 6%.

 

Sources:

Social Security Administration report on wages:

https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2014

Economic Policy Institute, Wage Calculator

http://www.epi.org/multimedia/wage-calculator/

Congressional Budget Office, page 2

https://www.cbo.gov/publication/49440

Congressional Joint Committee on Taxation, Overview for 2015, page 30

https://www.jct.gov/publications.html?func=startdown&id=4763

United Nations Human Development Index Inequality-Adjusted

http://hdr.undp.org/en/content/table-3-inequality-adjusted-human-development-index

Zero or Negative “non-home” savings, page 10

http://www.colorado.edu/AmStudies/lewis/1025/incomestudy2012.pdf, Table 1

Low Income Children

http://www.nccp.org/publications/pub_1100.html

Liquid Asset Poverty

http://scorecard.assetsandopportunity.org/2014/measure/liquid-asset-poverty-rate

Economic Policy Institute, Agenda to Raise America’s Pay

http://www.epi.org/pay-agenda/

Joseph Stiglitz, Rewriting the Rules of the American Economy

https://www0.gsb.columbia.edu/faculty/jstiglitz/download/papers/2015%20Rewriting%20the%20Rules.pdf

Ellen Dannin, Taking Back the Workers’ Law

http://mrzine.monthlyreview.org/2006/yates010806.html

Salvatore Baboons, Sixteen for ’16

http://press.uchicago.edu/ucp/books/book/distributed/S/bo20718704.html

Phillip Harvey, Back to Work

http://www.demos.org/sites/default/files/publications/Back_To_Work_Demos.pdf

$691,000 average household net worth

Federal Reserve Flow of Funds Report, September 2015, page 2

http://www.federalreserve.gov/releases/z1/Current/z1.pdf

Divide $85.712 trillion by 124 million households, $691,226 average net worth.


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