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Income Inequality and how the middle class has been screwed (con’t.)

Income Inequality and how the middle class has been screwed

For most U.S. workers, real wages have barely budged in decades

By Drew DeSilver

On the face of it, these should be heady times for American workers. U.S. unemployment is as low as it’s been in nearly two decades (3.9% as of July) and the nation’s private-sector employers have been adding jobs for 101 straight months – 19.5 million since the Great Recession-related cuts finally abated in early 2010, and 1.5 million just since the beginning of the year.

But despite the strong labor market, wage growth has lagged economists’ expectations. In fact, despite some ups and downs over the past several decades, today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers.

The disconnect between the job market and workers’ paychecks has fueled much of the recent activism in states and cities around raising minimum wages, and it also has become a factor in at least some of this year’s congressional campaigns.

Average hourly earnings for non-management private-sector workers in July were $22.65, up 3 cents from June and 2.7% above the average wage from a year earlier, according to data from the federal Bureau of Labor Statistics. That’s in line with average wage growth over the past five years: Year-over-year growth has mostly ranged between 2% and 3% since the beginning of 2013. But in the years just before the 2007-08 financial collapse, average hourly earnings often increased by around 4% year-over-year. And during the high-inflation years of the 1970s and early 1980s, average wages commonly jumped 7%, 8% or even 9% year-over-year.

After adjusting for inflation, however, today’s average hourly wage has just about the same purchasing power it did in 1978, following a long slide in the 1980s and early 1990s and bumpy, inconsistent growth since then. In fact, in real terms average hourly earnings peaked more than 45 years ago: The $4.03-an-hour rate recorded in January 1973 had the same purchasing power that $23.68 would today.

A similar measure – the “usual weekly earnings” of employed, full-time wage and salary workers – tells much the same story, albeit over a shorter time period. In seasonally adjusted current dollars, median usual weekly earnings rose from $232 in the first quarter of 1979 (when the data series began) to $879 in the second quarter of this year, which might sound like a lot. But in real, inflation-adjusted terms, the median has barely budged over that period: That $232 in 1979 had the same purchasing power as $840 in today’s dollars.

Meanwhile, wage gains have gone largely to the highest earners. Since 2000, usual weekly wages have risen 3% (in real terms) among workers in the lowest tenth of the earnings distribution and 4.3% among the lowest quarter. But among people in the top tenth of the distribution, real wages have risen a cumulative 15.7%, to $2,112 a week – nearly five times the usual weekly earnings of the bottom tenth ($426).

Still more on this topic in next week’s posting

Income Inequality and how the middle class has been screwed

Income Inequality and how the middle class has been screwed

Most of us believe that our citizens are entitled to a living wage. In my mind that should include adequate nutrition, acceptable housing and affordable healthcare at a bear minimum. Overall the US is the wealthiest country in the world, by far, and yet fully 1/3 of our families could not afford the average cost of healthcare if they had to pay for it. The average cost per person (regardless of age) is approaching $11,000 per year. A young family, with both husband and wife working at minimum wage would not only not have enough to pay for healthcare, but they would have nothing for food, housing, utilities, etc.

It was recently reported the top 400 wealthiest persons have a worth in excess of fully ½ of the population at the bottom end. There are top executives in companies that are earning 500 times the average wage of rest of their workers below the executive level.

The United States has the 4th worst income inequality among all the industrialized nations. The only countries that are worse are Turkey, Mexico & Chile.

It’s hard to imagine the United States being so high on this list, but truthfully, the US hasn’t seen such large income disparity since 1928. And if you thought some of the other countries had it bad in regards to numbers, these numbers will no doubt serve to shock: From 2009 to 2012, the top 1% in the U.S. claimed 95% of gains from the economic recovery. And the rest of country, the other 99%? They only saw income growth of 0.4% while their richer counterparts saw their incomes rise by over 30%. While the economy is superficially showing recovery from the Global Financial Crisis, the reality is that the lower classes are not recovering nearly as fast as that top 1%.

The following chart is another view of the inequality. It is from 2003 and the current numbers are much worse. The adjusted average adjusted gross income for ½ of the tax payers is less than 14%. Obviously, the recent tax cut will only serve to increase the disparity as almost 2/3rd of the proceeds went to high income folks.. How can anyone think this is fair?

More on this topic in next week’s post

Income Group Number of Returns AGI ($ millions) Income taxes paid ($ millions) Group’s share of total AGI (%) Group’s share of income taxes (%) Average tax rate (%) avg income
All taxpayers 128,609,786 6,287,586 747,939 100% 100% 11.90%  $        48,889
Top 1% 1,286,098 1,054,567 256,340 16.70% 34.27% 24.31%   819,974
Top 5% 6,430,489 1,960,676 406,597 31.18% 54.36% 20.74%  $     304,903
Top 10% 12,860,979 2,663,470 492,452 42.36% 65.84% 18.49%  $     207,097
Top 25% 32,152,447 4,078,277 627,380 64.86% 83.88% 15.38%  $     126,842
Top 50% 64,304,893 5,407,851 722,027 86.01% 96.54% 13.35%  $        84,097
Bottom 50% 64,304,893 879,735 25,912 13.99% 3.46% 2.95%  $        13,681

More on this topic next week

When is a tax increase not?

When is a tax increase not?

Keeping in mind, from the prior weeks post, that borrowing money to decrease taxes does not always result in a financial benefit the opposite can also be true. If the increase in tax is used to lower the deficit, or even better create a surplus, this accrues to the financial benefit of the tax payer. Thinking about your family unit it is akin to making a payment on a loan which reduces debt and also the amount of interest.                                                                                      A good example of this was the tax increase that was put into place by President George HW Bush. Keep in mind that as a Republican this action was political suicide. Not only did it set the table for his failed bid for re-election, it also created a significant split in his party. So why did he take this unpopular action? The simple answer is that it was in the best interest of the American people.                                                                                                                                             The economy was suffering and the national debt was rising. The action taken by President Bush initiated economic recovery and started the trend toward reducing the deficit. The unfortunate political outcome was that the results bore fruit during the tenure of President Clinton. The downward trend in deficit actually resulted in several years of surplus and a financial benefit to taxpayers.

                                     FY       Deficit   Increase in Debt   Deficit/GPD      Significant events

1991 $269 $432   4.3% Recession.
1992 $290 $399   4.4%  
1993 $255 $347   3.7% Clinton signed Balanced Budget Act.
1994 $203 $281   2.8% First Clinton budget.
1995 $164 $281   2.1%  
1996 $107 $251   1.3% Welfare reform.
1997 $22 $188   0.3%  
1998 ($69) $113  (0.8%) LTCM crisis.
1999 ($126) $130  (1.3%) Glass-Steagall repealed.
2000 ($236) $18  (2.3%) Surplus.
2001 ($128) $133  (1.2%) 9/11 attacks. EGTRRA.