One of the things I’ve learned as I started digging into wage inequality statistics is that performing this data analysis is extremely complicated. Demographics have changed dramatically between then and now. The labor force participation rate for women has nearly doubled from 1950 to today. The US keeps income statistics on a per household basis, and marriage rates and household sizes have declined dramatically. The percentage of the population that is immigrants has tripled since 1970. The age distribution has changed, as well as college attendance rates (four years where young people are earning no income). Racial distributions have changed, which creates complex effects. (Phenomena that are better explained as racial discrimination show up as income inequality. Also, the median ages of people of different races varies quite dramatically, from 28 for African Americans to 43 for white non-Hispanic Americans. So some of what you might characterize as racial inequality actually ends up being age inequality.) The shift from hourly factory work to salaried service jobs, the create of tax income like the EITC, etc., all make these analyses extremely complicated.
To isolate what you might think of as income inequality due to structural economic factors, you’d want something like individual lifetime income adjusted by race, immigration status, and gender. I have yet to see anything that thoroughly adjusts for all of these confounding factors.
Ran into this a lot myself. So far I haven't been able to get very far to consolidate all these variables. Whenever I see threads pointing to economic growth or decline, I'm left saying there are tons of confounding factors, but without being able to offer the right answer.
If you have any good reading to point to, please let me know. It's one of the things I'd love to have a good answer to, and that should be able to be answered to some extent, but isn't. Moreover I feel even many top economists routinely invoke extremely simplified single-variable perspectives (e.g. average wages per worker, or average household income) which indeed leaves out so many confounding factors that I've almost lost my expectation/hope that people even consider this kind of stuff... Only in academic papers which look to study something specific, are these confounders taken into account. But in general studies of economic growth or changes in or comparisons of economic wellbeing of various demographic subgroups, it seems the simple-perspective prevails. I get that many of these discussions are inherently political, thus susceptible to cherry-picking perspectives, but I'm still surprised there isn't some standard method so far that is more complex than charting 'household income for xyz'.
Any pointers to good literature is most welcome, and thanks for posting!
Indeed, that’s one of the key problems with retrospective analysis. Fieldwork studies are promising. I find John List exploring this area and think his work is interesting: http://www.fieldexperiments.com/papers/recent/
Despite not always agreeing with Raynier, his posts are always well thought out. Glad to see this at the top.
In terms of demographics, the baby boomers caused a big bulge in the distribution of the population.
As they age, their earnings and overall wealth grow as well (take a look at income versus age). What happens when you have a disproportionate chunk of the population get wealthy? Income inequality grows.
If this is indeed a factor, once baby boomers die off, we’d likely see a decrease in inequality.
"The current Western psychiatric wisdom states that suicide is the result of mental disorder in 98% (1) or even 100% (2) of cases. However, a number of recent studies (3–5) have reported that, in Asian countries, mental disorder has been found in less than 50% of those who completed suicide.
In the late 19th century, Emil Durkheim, a sociologist, published (6) important observations. Durkheim found that suicide was primarily a function of social circumstances; he stated that people suicide when they are not supported by or well integrated into the society, and that mental disorder was relatively less important. The majority of his observations have been supported: for example, he found that marital breakdown frequently led to suicide, particularly among males, and this has been repeatedly demonstrated (7)."
Source -
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3431736/
Glad I came across this! I just started reading a book titled ‘The Origins Of Happiness’ by David Smail, which puts forth a more broad thesis of mental illness, but very comparable.
The conclusion is that computerization and automation are not the root of the change, which is at least contrary to popular wisdom. In an era of increasing returns to capital, relying on wages may ultimately be a losing strategy.
Thomas Picketty did great research in this area. The way I understood part of his theory is that the rate at which the value of wealth increases is faster then the rate at which wages increase. In other words, those people who own things like land and factories see the value of those things increase faster than workers see their wages increase.
> Thomas Picketty did great research in this area.
My understanding of the general consensus of economists on Piketty is that his data collection efforts were great work, but his analysis and interpretation of that data was not particularly excellent. His theories have been substantially criticized by that group.
I’m not really in a position to evaluate the substance of the claims of either side but just want to point out that Piketty’s work isn’t by any means universally acclaimed and it isn’t just shills that have issues with it.
And that cycle usually ends when a few people get their heads chopped off and things reset. It would be nice if we could figure out a better way to spread the wealth without costly and violent revolutions.
There needs to be equity in employment relationships. A society that's stratified into two classes, the ownership class and the working class, will always result in the cycle you identified.
Sure, but the normal working class hero have limited capital and limited time to research and limited knowledge of the stock market. Sure, he can own 0.00002% of a company, but in the end it doesn't really matter. He still doesn't have control over the means of production of which he puts his own labor into. He's still dependent on his salary which the true owner of the means of production can take away at any time.
> Sure, but the normal working class hero have limited capital
Everyone has limited capital. You get it to grow by buying stock and participating in the ownership class. Poor people instead tend to buy lottery tickets, which have a negative return on capital, meaning lottery tickets are a route to poverty. Stocks have a positive return. (On average, of course.)
> and limited time to research and limited knowledge of the stock market.
There's never been more information about stock investing that's for free and just a click away.
> Sure, he can own 0.00002% of a company, but in the end it doesn't really matter. He still doesn't have control over the means of production of which he puts his own labor into.
He gets paid for his labor, which he can use to buy ownership stock.
> He's still dependent on his salary
Buying stock with one's salary is a route to financial independence.
> which the true owner of the means of production can take away at any time.
That kind of ownership does not yield the kind of returns we’re talking about, and more importantly does not allow for control. The centralization of returns and control reinforce one another.
Assuming someone bought in at the absolute bottom of the market in 2008 and has continued to hold for 11 years, fund symbol SPY has yielded 6.5% per year before inflation.
The median net worth in the USA is $50,000, inclusive of real estate wealth which is a bit illiquid. Assuming the median citizen puts in $50,000 in 2008, that person would receive $3,250 in pre-tax wealth per year.
This is barely enough to put a low quality roof over family members' heads in Vietnam, let alone the USA. And we haven't talked about food, transport, or health insurance as well.
So then, I don't think it's sufficient to say that the median citizen can expect to gain very much from the products of asset ownership.
Assuming you absolutely do not touch the money, and cash out at the correct time after 11 years.
I understand that the income is passive, but you do have to monitor the markets to make sure you don't get caught during a downturn. For me, I would rather invest my time into my career as that money is more safe in the form of cash income than it is in the form of a portfolio. Just my opinion :)
> With stocks you get the same returns and votes per share that anyone else does.
I believe founders have wised-up to that and now there are differently voting shares, the most prominent being Facebook, which is controlled by the Zuck & friends even though they only own 18% of the stock
>> Mark Zuckerberg owns the majority of the voting rights to Facebook due to a dual class structure that weights certain shares over others.
>> Facebook’s Class B shares, controlled by Zuckerberg and a small group of insiders, has about 18 percent of the shares, but they also have 10 votes per share.
>> Surprisingly, it’s not that uncommon: 355 of the companies in the Russell 3000 (11.8 percent) have a dual voting-class structure.
Not sure if you're pulling my leg here with the stock picking suggestion; but directly holding stocks seems to be overall a losing bet for retail investors. A few do well but most don't; and that makes sense because retail investors have full-time jobs and they're up against traders whose full-time job is investing.
> directly holding stocks seems to be overall a losing bet for retail investors
I'm not pulling your leg at all. I've been holding individual stocks for 40 years, started buying since my first job. I spend very little time on it, I just buy and hold, and hold, and hold, and hold. I still have the stock I bought 40 years ago.
It's the constant trading based on emotion that'll eat you alive. Statistically, the most successful investors are dead people (while their estates are in probate) because they aren't trading.
I'll ride a stock all the way to zero (hello Enron), but most of the time it works out well.
The problem is building a stable system. You can have high taxes on the rich, but they will always use their riches to lobby to have them abolished. And even if you don't have an elite ultra-rich class and massive income equality, the nature of liberalism (in the classical sense) is this will always eventually happen through the upward flow of wealth. To have a system that won't destabilise itself like this you would need a radically different economy, but I don't know how.
It's nice to think this and there certainly are high-achievers who accomplish this, but Piketty's research relates to the economy as a whole and the entire point is that the economy's aggregate return on capital is outpacing economic growth (r > g). This means even if some do obtain wealth, ultimately there's more losers than winners. Outliers mean little in statistics and economics.
Part of how returns to capital work is taking on risk and then hedging. Without significant cash (for hedged investments) or control (take care of that risk by dealing with it) taking on a lot of risk is just going to the casino. That’s why index funds work for casual investors and stock picking doesn’t.
I’ve read that politicians pushed the H1B program to drive down wages in the STEM fields, in order to reduce perceived wage inequality. The top 1/10 of 1% can remain hidden if the bottom 50% aren’t seeing the much more visible top 10% driving their BMWs around.
Skilled immigration is an economic home run, those opposed to it are similar to the NIMBY’s in the Bay Area that vote down all new housing so their home values rise.
IMHO, there is no conspiratorial reason politicians pushed the program, it was common sense. H1B is a flawed half measure of a program because of upper middle class voters.
Your response is tangential to the original point.
OP asserts correctly that increasing supply of labor depresses wages, by lowering the negotiating leverage. Your response handwaves it away with "skilled immigration is better for the whole economy".
Sorry to burst your bubble - this is a thread about balancing the wages / profits split. OP is right; the higher the supply of labor, the lower the price of labor, thus leaving higher proportion of the surplus as profits. Aka the dreaded inequality.
It's fine to prefer profit over wages, if that's how you make your living. But let's not pretend we're for increasing wages while in fact for increasing profit.
But this is all else being equal, which is the “lump of labor” fallacy.
It’s not obvious that skilled immigrants have the net effect of reducing the wages of non-immigrants with those same skills — tons of new firms are started by skilled immigrants and/or their kids, and the current SV economic expansion particularly so.
So, sure. If you already assume that the pie is of fixed size and a skilled immigrant reduces the work available to others, then you can draw the conclusions you do. But otherwise it’s a weak argument.
I agreee increasing labor supply can decrease wages. If we allowed uncapped skilled immigration for upper middle class professions like physicians, surgeons, dentists, engineers, scientists, and more their wages may go down or stagnate. Though in a functioning marketplace, costs will go down and production of goods and services will go up. It’s not a zero sum game.
I’m not in favor of labor supply protections for any highly paid industry, they are not the segment of society that needs a helping hand.
It’s more than that... drive down STEM salaries, and the profits go to the top 1/10 of 1%, but the bottom 50% doesn’t even see that top 1/10 of 1%, so societal stability is preserved, even while the inequality grows even greater (when looking at the top 1/10 of 1% compared to everyone else)
The problem is H1B employees cannot switch jobs easily, and so have greater trouble negotiating raises or seeking other opportunities that are a better fit for them. Employers take advantage of this and offer lower salaries. It's this property of the H1B program that results to decreases salaries among holders, which in turn results in lower salaries across the industry (since a citizen or permanent resident has to consider market rate). If anything, citizens should support increased mobility among H1B holders, since this would eliminate the "dual salary" bases between the two groups.
"the Bay Area that vote down all new housing so their home values rise."
Every community (local, regional, national) has a right to decide their future.
If some locality doesn't want to be New York or Hong Kong, that's fine, it's their choice.
There are vast, vast areas of the US that are not super high rent/income, or even totally under developed. Even around the Bay Area.
19th/20th century growth strategies are not consistent with sustainability in most ways.
Also - any policy which has the effect of displacing local workers for foreign workers primarily as a function of wage should be totally outlawed. A lot of H1B is not this obviously, but a lot of it is. H1B might need a more nuanced approach in order for it to be a real net-gain and not just a 'labour input cost' policy.
I don’t get this argument, outside of Indian consulting firms, every tech person, whether or H1B or not, earns a top 10% salary and rends to drive stupid BMWs.
Where did you read that, I found that hard to believe, more h1bs to reduce inequality. More likely there's a continuing shortage of software engineers and companies follow all paths to hire more from all sources.
I saw no discussion of this in earlier H1B policy discussion (saw plenty of it on the net, or course). It’s pretty hard to keep something like that a “hidden agenda” given the statistical data bases.
The oldest millennial is now 38. This group - now the largest as a percentage - will see wage growth year over year for the next 15 years for three reasons 1) their skills improve year after year 2) employers will have a harder time replacing them - and will pay them not to leave 3) productivity is about to accelerate after a decade of flat productivity.
> US inequality is up but global inequality is down.
Not sure if you are implying otherwise, but the reduction in global inequality doesn't necessarily require growth in US inequality, although that's the form that this has taken.
Growth in US inequality is to an extent a policy choice: US GDP has grown a huge amount during the same period, but the same period the majority of those gains have gone to those in the top fractions of 1% of the wealth distribution.
To isolate what you might think of as income inequality due to structural economic factors, you’d want something like individual lifetime income adjusted by race, immigration status, and gender. I have yet to see anything that thoroughly adjusts for all of these confounding factors.