by hilzoy
For your labor day evening pleasure, some graphs on the state of ordinary working people in the US. First, economic mobility. We in America take pride in having been a Land of Opportunity. And we should: it's a great thing when people born to rich and poor parents alike can move up the income ladder through hard work and perseverance. People came to this country from places where the accident of their birth would have doomed them to a life of poverty, and they were able to make their own way, and succeed or fail on their merits. It was a wonderful thing.
A pity this is so much less true today. Here are current statistics on what is charmingly known as generational earnings elasticity for a number of countries. Basically, this measures the extent to which a person's income can be predicted from his or her parents' income. If it's 1.0, then there is no mobility at all: people make what their parents make, and that's that. If it's 0, then there is no relationship whatsoever between what a person's parents made and what she makes. If it's negative (which never happens), then the children of rich people are more likely than others to wind up poor, and vice versa.
Clear? If not, the basic point is: for all practical purposes, it goes from 0 to 1, and the closer to 1, the less likely people are to end up in a different class from their parents. Here are the figures (pdf):
- Denmark: 0.15
- Norway: 0.17
- Finland: 0.18
- Canada: 0.19
- Sweden: 0.27
- Germany: 0.32
- France: 0.41
- United States: 0.47
- United Kingdom: 0.50
To put it another way (pdf):
"The correlation between the income of parents and their children is so high that it would take a poor family of four with two children nine to 10 generations – over 200 years – to reach middle-income status."
Thus my use of the past tense above.
***
Kevin Drum posted this scary picture (from the Detroit Free Press), which I have shamelessly stolen:
UPDATE: This graph is, as it turns out, wrong. Kevin Drum has better data here. Disregard the rest of this paragraph. Sorry.} It shows what has happened to median income over the last six years. Median income has risen in all four of the states colored blue, plus the District of Columbia. Collectively, these blue bits had, as of 2005, a total population of 3,708,351, or 1.236117% of the US total. The remaining 98.763883% of us live in states whose median income has fallen. And it's not all due to the recession of 2001: median income has actually dropped slightly during the four years since the recession, which is unprecedented.
I mean, think about it. For four years, the economy has been growing nicely. People should be getting new jobs, earning more, and generally doing well. Instead, real median income is down 2.7% since 2000; and when you omit the elderly, whose Social Security payments are indexed to inflation and so rise automatically, it's down by 5.4%. Meanwhile, the poverty rate is higher than it was in 2001, during the worst of the recession. That's really amazing.
Still, at least not everyone is suffering:
***
Here's an interesting Labor day factoid from the Center for Budget and Policy Priorities: in an average post-WWII economic recovery, the average annual increase in wages and salaries is 3.6%; in this recovery, it's 2.0%. However, in an average recovery, the annual rate of growth in corporate profits is 7.5%; in this recovery, it's 14.1%. So normally profits grow twice as fast as wages and salaries; in this recession, however, they are growing over seven times as fast. And that's without even discussing the fact that taxes on capital gains and dividends have been cut. For some people, the good news just keeps on rolling in.
Here's a related graph:
Happy Labor Day!
nice post
Posted by: heet | September 04, 2006 at 11:18 PM
Something I've been wondering about for a while now:
In the face of alll this accumulated crud, what exactly do labels like "recession" and "recovery" mean?
Posted by: Bruce Baugh | September 04, 2006 at 11:43 PM
Median income has risen in all three of the states colored blue, which had, as of 2005, a total population of 2,081,641, or .069% of the US total. The remaining 99.3% of us live in states whose median income has fallen.
Minor nitpick: Median income has risen in four states (you missed Rhode Island), and the District of Columbia. For some reason the tiny east coast states aren't coloured properly in the map; you have to look at the data on the right-hand side. This also affects your population numbers.
Posted by: Peter | September 04, 2006 at 11:50 PM
"In the face of alll this accumulated crud, what exactly do labels like 'recession' and 'recovery' mean?"
If it's good news: stuff that happens to people making over $200,000/year.
Rough, cynical, approximation.
Posted by: Gary Farber | September 04, 2006 at 11:51 PM
Peter: Yikes, you're right. I fixed it. Thanks.
Posted by: hilzoy | September 04, 2006 at 11:57 PM
And then you read someone like Paul Craig Roberts, out of Counterpunch, and find that decent white collar jobs have fallen off the graph in The States, as well. Any employment increase seems to be happening in only casual, hospitality style jobs. Hmmm Housing Bubble, anyone?
Posted by: GreginOz | September 05, 2006 at 01:45 AM
"Hmmm Housing Bubble, anyone?"
No, thanks; I'm trying to give them up.
Posted by: Gary Farber | September 05, 2006 at 02:15 AM
Would that you were Alan Greenspan, Gary.
Posted by: liberal japonicus | September 05, 2006 at 03:09 AM
Then I'd have to be an Objectivist, and married to Andrea Mitchell. No, thanks, again.
Besides, how much use is it to be a retired guy? (More people might pay attention to my blogging, though.)
Posted by: Gary Farber | September 05, 2006 at 03:15 AM
But you would be able to play sax!
Posted by: liberal japonicus | September 05, 2006 at 03:25 AM
So normally profits grow twice as fast as wages and salaries; in this recession, however, they are growing over seven times as fast.
So we should pass a law limiting corporate profits, requiring that the income be used to pay employees more instead? That is, if you see this as a problem, what should be done about it?
I do get your point. I make in about 10 years what my parents made in their lifetime. If I had children, they would be out of college and starting careers about now. They would be hard pressed to do better than I have. But that is less due to the current economic situation (and corporate profits) than to the fact that my generation just happened to come of age during a time of unprecedented opportunity – the beginning of the technology revolution (for lack of a better term). The number of white collar jobs seemingly increased exponentially every year shortly after I completed my education. We had to import technology workers from overseas because the demand simply could not be met domestically. Has that changed today? Yes – but I don’t see a clear reversal. I see more of a leveling off.
I submit that you would find a similar pattern at the beginning of the industrial revolution. The first factory workers made a lot more money in their lifetime than their parents did – but their children, also factory workers, would not likely improve their lot in life much beyond what their parents accomplished.
What about non-monetary factors? Does each generation still have an overall easier life than the last? I think it does. Even if my children could not outdo my lifetime earnings, they would certainly have an easier life when everything is considered. Do those living officially in poverty today have a better lot than those living in poverty a couple of generations ago? Of course they do.
And guess what… The next ‘revolution’ is not that far off. A couple of generations from now, most people will make more and work less.
So cheer up. Even if I hate unions, I enjoyed the day off. I hope you all did as well.
Posted by: OCSteve | September 05, 2006 at 09:17 AM
OCSteve: I'm not interested in passing laws restricting profits, of course. I do think there are other things the government can do that have an impact, one way or another, on the way these things shake out. (Raising the minimum wage would be one thing; not having the changes made to the tax code vastly favor income from corporate profits (dividend and capital gains income) and do very little for middle-income people is another.)
The thing is, while some people are, like you, making in ten years what their parents made in their lifetimes, a lot of people aren't. According to Elizabeth Warren , "Today, a fully-employed, median-earning male makes about $800 less than his counterpart made back in 1972." That means that the real wages of working men have tended to go down, not up, in the last 34 years, even though the real wages of people at the top (and here I mean not the top 1%, but the college-educated lawyers and programmers and the rest of us who have done well) have risen. We are leaving a lot of people behind (which is what focussing on median incomes tells us.)
We do in some ways have it much easier than previous generations. Some diseases that were fatal are now treatable. I don't have to physically go to the library in order to read professional journals. Etc. But for all that, people are declaring bankruptcy over medical bills, taking out second and third mortgages on their homes, and not saving at all.
There are policies that would make this happen less, witness the fact that this recovery is such an anomaly. (I mean: compared to the recovery that happened under Reagan -- not exactly a fan of command-and-control economics, this recovery is a lot more skewed towards the wealthy.) It's not as though there's anything inevitable at all about the fact that four years into a recovery, the poverty rate is climbing.
Posted by: hilzoy | September 05, 2006 at 09:34 AM
OCSteve:
"Do those living officially in poverty today have a better lot than those living in poverty a couple of generations ago? Of course they do."
That might be because a couple of generations ago one was permitted to live in poverty unofficially. Then we made it official and things got better.
Posted by: John Thullen | September 05, 2006 at 10:04 AM
I didn’t realize children in coal mines had it so good.
I wish those spoiled industrial workers would have been more grateful, during the 1920’s, the depression would not have hurt so much.
Posted by: SomeOtherDude | September 05, 2006 at 10:31 AM
But what to do? As best as I can tell your Detroit Free Press map just shows that the U. S. has continued to lose manufacturing jobs and that, in states with small populations, federal spending can help a lot. I'm not sure there's a lot to be learned from that.
We have a pretty good idea of how to lower the incomes of those in the highest quintile. Is that enough? That doesn't automatically translate into gains by the lowest quintile. It'll raise median income though.
There are other obvious ways to raise the median income. For example, if we limit the number of unskilled immigrant workers, that alone will raise the median income.
Are those the right policies?
My take is that over the last, say, 40 years a combination of events and policies have resulted in owning things being significantly more important in producing income than working. That, and that those in the higher income brackets have been able to seek rents more effectively than those in the lower brackets (some of those in the highest quintile are there mostly due to rent-seeking). How we correct that course isn't obvious to me.
Posted by: Dave Schuler | September 05, 2006 at 12:28 PM
As I was driving out to the coast last week I tried to imagine how rural Washington state would look to a vistor from Ireland or Sweden.
Impoverished. Unpainted houses, old cars, untended yards, sheets hanging in the windows for curtains.
This isn't unusual. Drive around almost any rural area , outside a resort or retirement community zone, and that's what you'll see. Big sections of the towns and cities are getting like that, too.
My generation is the last one that will be able to retire. No one else will ever earn enough money to be able to save for anything. Except for the veneer of rich people at the top, this country is on the verge of being a nation of the working poor. And all that work won't even get them health insurance. Maybe the poor are better off now than the poor of one hundred years ago, but as a rationalization for supporting conservative policies which have encouraged the economic changes of the last thirty years, that's pretty weak.
Right now those areas of white rural poverty are also wingnut areas where Republicans get elected by appealing to jingoism, mean-spirited religion and the myth of the liberal elite. Bread and circuses. I'm not sure how much longer those appeals will work, however, since the biggest circus of all, the war in Iraq, has gone so badly wrong and the liberal elites have no politcal power. After six years of Republican rule it is hard even to fool the ignorant about the nature of Republican policies.
I don't think a democractic government can continue to screw its own citizens indefinately.,. After awhile something has to give. Either the government has to go the way the Bush administration wishes, ie become not really a democracy, or there will be a rebellion at the voting booth.
Posted by: lily | September 05, 2006 at 12:55 PM
OCSteve: I make in about 10 years what my parents made in their lifetime.
I can see that for a person of the generation prior to mine; certainly my dad made orders of magnitude more money than his parents, but that's in large part a question of the life they chose to lead. [Missionaries and other lives in Christ.] For someone of my generation, though, that's damn near impossible -- or at least, damn near impossible to be true across the board.
In fact I think that's particularly revealing, and goes to the point about the decline in median wages. If you can make it into the upper stratosphere in terms of pay then yes, you'll make more now than in any time in recent history... but the vast majority of people won't, the opportunities for transitioning from one income bracket to the next are rapidly diminishing, and those lower brackets are hurting. Frankly, not being of the right temperament to enter those upper echelons, I fully expect to never make as much as my father did. Whether that's a sign of a "natural market correction" or of the utter failure of the Republican economic ideology I leave as an exercise to the reader (:
Posted by: Anarch | September 05, 2006 at 01:21 PM
I'm normally non-awful in interpreting graphs, but I'm really confused about the interaction between the state map chart and the average income graph. I know that median and average are different, but I can't for the life of me picture a situation where the high, middle and low are all positive but the median is negative unless the omitted fifths are radically different from the high, middle and low.
Posted by: Sebastian Holsclaw | September 05, 2006 at 02:27 PM
Whoops, I see it now. The problem is the years are different. My bad.
Posted by: Sebastian Holsclaw | September 05, 2006 at 02:28 PM
Seb: yes -- last year seems to have been the first in which real median income actually rose, though only slightly.
I should note that the charts I offer are constrained by what I can find online, since I tried and failed to make other ones in Excel, which I have never been able to master. (Sitting down with the manual might help, if I had a manual...)
Posted by: hilzoy | September 05, 2006 at 02:37 PM
If you have any questions about Excel, feel free to email me. I'm fairly good with it, even though like all Microsoft products it tries and fails to read your mind at annoying moments.
Posted by: Sebastian Holsclaw | September 05, 2006 at 02:50 PM
"But you would be able to play sax!"
I'd rather just have sax.
Posted by: Gary Farber | September 05, 2006 at 02:50 PM
"That is, if you see this as a problem, what should be done about it?"
One of my answers: strengthen unions, and eliminate some of the Republican-passed laws of recent decades that weakened them.
I'm sure there are other useful suggestions without, well, let me point out, with all due respect (and I do respect you, OCSteve!) that this sentence doesn't even quite make sense: "So we should pass a law limiting corporate profits, requiring that the income be used to pay employees more instead?"
That wouldn't be limiting corporate profits, which is why I say the sentence doesn't quite make sense. It would directing the profits (whether away from executives or stockholders, or whathaveyou, you didn't say), not limiting them.
I do think it would be only just for workers to get a fairer share of profits, and for the share of executives to quit growing to such insane proportions, but since I'm not an economist, I'm not at all sure what would be the least harmful, for the company and economy, and best way to accomplish that goal.
Posted by: Gary Farber | September 05, 2006 at 02:56 PM
How all these rich liberal elites conned Republicans into filling their bank accounts is beyond me.
Posted by: SomeOtherDude | September 05, 2006 at 03:13 PM
Great post.
Really wish I could see the numbers on earnings elasticity (strange use of "elasticity", no?) broken down by ethnicity in the US.
Posted by: Ara | September 05, 2006 at 05:15 PM
So how do we solve the problem? Tax redistribution remedies it, but that doesn't change the before tax numbers. What steps could be taken that wouldn't harm economic competitiveness?
Posted by: Ara | September 05, 2006 at 05:43 PM
Ara: there are some class mobility figures broken down by race here. E.g.:
Posted by: hilzoy | September 05, 2006 at 05:49 PM
Do those living officially in poverty today have a better lot than those living in poverty a couple of generations ago? Of course they do.
Roy Edroso has had some interesting things to say about this topic recently.
Posted by: Phil | September 05, 2006 at 07:48 PM
Even more added graphs, this time going back to the dark ages (shudder) before the dotcom bubble.
Posted by: Slartibartfast | September 06, 2006 at 07:46 PM
Income inequality matters. What we see now even here in egalitarian Norway is that once wealthy people start using their wealth to compete for limited supply commodities like fuel and electricity (as in the present energy situation), it's much more unpleasant for the rest of us than when they're only investing or bidding for the occasional luxury goods.
What I'm trying to get through is that we don't see what it actually means that Bill Gates has so much more money than us. We don't see the extreme power of the rich, how immensely much resources and skills they can commandeer, because for the most part they invest it rather than spending it on consumption.
The mansions, the cruise ships, the private jets, they're just the top of the iceberg. I hope there never comes a crisis that shows the size of the part that is now below water.
Posted by: Harald Korneliussen | September 07, 2006 at 02:41 AM
Slarti: fwiw, Roy Edroso (in the second of the two links Phil put above) addresses at least some of Back Talk's arguments.
Posted by: Anarch | September 07, 2006 at 10:34 AM
Making verbal arguments in some bizarre English dialect is a counter to data? Ok, then.
I dunno. Maybe if he'd just gone ahead and rebutted, without all the extra stuff, I'd have a bit more patience. And of course it's possible that I'm reading all that he writes through the filter of his former association with the rocket scientists at Warbloggerwatch, of which group he was inarguably the smartest. Anyway, if anyone would care to translate his response in #2 link to English, I'd be much appreciative, because I can't for the life of me understand his point.
Posted by: Slartibartfast | September 07, 2006 at 10:43 AM
Making verbal arguments in some bizarre English dialect is a counter to data? Ok, then.
I have absolutely no idea what you're talking about here, Slarti. I never said that Roy Edroso "countered" Back Talk's arguments, just that he addressed them, and he's writing in straight-up SAE so far as I can see; you sure you clicked on the right link?
Posted by: Anarch | September 07, 2006 at 10:51 AM
If not countered, what? Agreed? Disagreed, but offered nothing supportive? I'm really at a loss to see what Edroso added to the discussion, here. Other than scoffing.
Posted by: Slartibartfast | September 07, 2006 at 11:09 AM
So first of all, you're referring to two separate "he"s in your response, right? The first sentence "he" is Edroso, the second sentence "he" is the guy who writes Back Talk, the third sentence is Edroso again? And the remarks about Edroso's "bizarre English dialect" are entirely substance-free, correct? [I mean, you're not actually accusing Edroso of illiteracy, right?] I'm still trying to figure out what you meant there.
As to the other question, I think Edroso has a legitimate point in these two paragraphs:
I'm not saying it's the Ultimate Takedown -- there's a reason I prefaced my earlier remark with "FWIW" -- just that I think it captures a certain truth that isn't well-measured by the statistics Mr Back Talk used, and one which is worth thinking about.
Posted by: Anarch | September 07, 2006 at 11:41 AM
In this response I should have said.
Posted by: Anarch | September 07, 2006 at 11:41 AM
So first of all, you're referring to two separate "he"s in your response, right?
No. I have no idea why you might think this.
I mean, you're not actually accusing Edroso of illiteracy, right?
No. Since I actually didn't, and all.
just that I think it captures a certain truth that isn't well-measured by the statistics Mr Back Talk used, and one which is worth thinking about
Ah, that's the part that seemed to be written in some other dialect, because it didn't appear to be in response to any particular point advanced by the Back Talk fellow. Nor did it seem to follow that advances in real wages might tend to insure one against those very twists and turns in life that he mentions.
Posted by: Slartibartfast | September 07, 2006 at 12:05 PM
I found Edroso's post fairly close to content-free, so I wasn't sure what Phil found interesting.
The part that Anarch quotes is interesting to me especially in the idea that this somehow represents a nasty change brought about by Republicans. A nasty disease, a failed marriage, an extra child, shifts in market forces, these things have always been problems for almost everyone. My grandfather's middle-class divorce made things almost impossible for my grandmother. Having twins instead of just a third child was very difficult for my parents. Disease has been causing huge problems forever--even for the very rich and even for Europeans! Technological change has been putting people out of work since before the Luddites (1811). These are not part of some evil Republican plot. These are parts of real life. Yes there is are all sorts of balancing problems in mitigating these harms. But even with problems, this is not the 1800s or 1930s or 1950s or 1960s or 1970s. Would you rather have cancer and be poor now, or have cancer and be rich in 1950? There has been significant material progress--even just in the last 5 and 10 and 15 years and even among people in the bottom fifth.
In related news, it appears that the Detroit Free Press isn't using the standard numbers in its analysis. See here and if you dismiss JaneGalt because you don't 'trust' her without engaging the points she makes I will glare. :)
Main point:
Posted by: Sebastian Holsclaw | September 07, 2006 at 12:10 PM
No. I have no idea why you might think this.
The "rocket scientists" threw me; I thought you were referring to actual rocket scientists there, not employing a sarcastic throwaway. Seeing as how you are an actual real-life rocket scientist and all.
No. Since I actually didn't, and all.
See, if you write a post in a cryptic and, let's face it, snide style, you're going to be misinterpreted. Wouldn't it just be easier to say "I disagree" (or "I think his response is content-free" if you feel like being even more forthcoming) or something similar like that? It'd make life easier all around; you wouldn't have to explain yourself to morons and I wouldn't have to waste half an hour trying to parse what should have been an extremely simple point to make.
Posted by: Anarch | September 07, 2006 at 12:28 PM
Fair point, as always. I guess I have sufficient regard for your opinion that I thought to myself something like this: if Edroso is making any sort of relevant argument, here, it's not put forth in a way that I can understand. I hadn't really considered pointless.
Posted by: Slartibartfast | September 07, 2006 at 12:48 PM
hilzoy, Megan McArdle has pointed out some flaws in how the numbers behind the map were arrived at; apparently Kevin Drum concurs.
Posted by: Slartibartfast | September 08, 2006 at 08:53 AM
Fair enough, Slarti. And I apologize if I was unnecessarily tetchy above; it's been a rough week and I suspect my brain, let alone my comity, ain't firing as it oughtta.
Also, seconded about the correction of the numbers. I'm somewhat appalled to see that the big loser now is Wisconsin -- appalled, but not especially surprised. And it's only going to get worse.
Posted by: Anarch | September 09, 2006 at 01:33 AM
i dont like child labor at all. whats the point of it.. =( just think of how you work now but probally harder. and your like 4 to 16!!!!!! jeese.. makes you wanna give blood or something right?
thanks for listening
Posted by: jamie | May 21, 2007 at 09:21 PM