(In)Equality In America

I don't remember where I saw the data that led me to this 2007 New York Times article and then to the latest CBO data. From 1979 to 2005, the (inflation-adjusted) before-tax income of the lowest quintile (20%) of US households remained flat, increasing only 1%. Conversely, household income for the top 1% tripled (a 301% increase), giving visual rebuttal to the "rising tide lifts all boats" metaphor used by Reagan (and before him, by JFK).

The total household income of the upper 1% in 2005 was almost five times greater than that of all households in the bottom 20%; in 1979, it was only 1.6 times greater.

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Given that politicians are starting to talk about race in America, maybe we can get a conversation going about class, too.

The gap exists within the top 20% as well. In 1979, the upper 1% household income average was about four times that of the top quintile. In 2005, the gap had skyrocketed almost sevenfold.

Don't kid yourself that this is simply "the market at work." Politics determines who and what gets taxed and at what rate. These kinds of policy decisions are usually wrapped up in rhetoric about "the market" and "fairness" and the like, but they are political decisions ... and results should be eye-opening, regardless of where you live on the economic or political spectrum.

The Upper 1% Deconstructed
Contrary to the myth that these top tier "earners" are "workers" ... much of this income in the upper 1% of US households isn't from wages. It's from stocks (including options) and investments ... or ... celebrity (on the silver screen, stage, court and field).

The growing inequality between upper management compensation and that of the average employee has been well-documented.

American CEOs in 2005 earned 411 times as much as average workers; in 1990, it was 107 times; in 1980, 42 times average blue collar pay. Indeed, we are living in another gilded age:

The income shares of the top 1% in the USA are now on a par with the 1920s – the share was 23.9% in 1928 and 80 years on it is 21.8% (2005), having been 10% in 1979. The world’s richest 1% of adults in the world own 40% of the planet’s wealth.

The Myth of Reward Linked To Performance
Are workers slacking off? Not according to these data: "Between 1979 and 2004, American workers raised their productivity 64 percent, while their median hourly compensation rose only 12 percent. And according to Robert Putnam:

Many social scientists believe this sudden rebirth of economic inequality is the biggest news of the last half-century... too often in our public discourse in America class is taken as code for talking about race. In fact, class isn't race.... The numbers on racial segregation are actually moving in the right direction, but on class segregation, the numbers are moving in the wrong direction. Interracial marriages are increasing, but inter-class marriages are decreasing.

In an article that examines the pay gap within the top management team, published in JSTOR in 2001, the authors assert that behavioral scientists argue that large pay gaps have clear negative impacts: they encourage managers to be competitive, focusing on individual goals, rather than to be collaborative, focusing on organizational goals. Economists, not surprisingly, argue that compensation gaps, instead, "provide strong, tournament-like incentives" (as though a business were a "game" and all the rules were clear-cut, open and objective).

Although I've not seen research that compares motivation at "lower" levels within the organization, it seems logical that if large gaps disrupt collaboration at the top that a similar impact would be felt "at the bottom," where the gap is even more acute. Imagine the productivity gains. Well, you don't have to imagine them: just look at the difference in salaries, productivity and turn-over between Costco and Sam's Club.

And In The Future ...
At a time when the nation has a growing deficit ... and an unknown long-term liability called the Iraq War and its aftermath ... now is not the time to be pushing for permanent income tax cuts for the super-wealthy. The converse may be overdue and is not unprecedented: in the "late 1920s only about the top 7 to 8 percent of Americans were subject to federal personal income taxes."

Also, see Another Win for the Top from PolEcoLaw.

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