Category Archives: income distribution-wealth-poverty

Youth Unemployment

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Diana G. Carew writes,

Of the 17 million Americans age 16-24 not enrolled in school or working full-time in July 2013, 5.6 million were working part-time, 3.2 million were unemployed – a 17.1 percent unemployment rate – and another 8.4 million were not in the labor force altogether.

Together, these charts suggest the problem facing young Americans is structural. If worsening labor market conditions were a temporary effect of the recession, we would have expected to see improvement with the recovery. Instead, young Americans appear stuck in their post-recessionary state.

Pointer from Tyler Cowen.

Why is the gap between the reservation wage and marginal revenue product so much higher among young people than among others?

Some possibilities:

1. The trend in the Thete lifestyle is to work only sporadically, counting on support from relatives and the government.

2. The minimum wage is much more binding than we thought.

3. Downward wage stickiness is much more prevalent among people who are new to the labor market than among middle-aged workers. (I admit I am being sarcastic here)

Megan McArdle on Thetes

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She writes,

to people at the bottom of the income distribution, telling them to wait to have children until they’ve found a stable partner and a steady job seems about as reasonable as telling them to wait until after they’ve won the Heisman Trophy. There aren’t a lot of jobs that a high-school graduate can count on to deliver long-term, full-time employment.

It is possible that there are emerging two classes with very different tastes. The Vickies want long-term, full-time employment, health insurance, stable marriages to partners with “consumption complementarity,” and upper-middle class schools for their children (if any). The thetes do not value those goods as highly. They prefer to be more impulsive and less compulsive.

Did You Two Visit the Same Country?

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Timothy Taylor excerpts from the latest issue of the Journal of Economic Perspectives.

Steven N. Kaplan and Joshua Rauh write,

We believe that the US evidence on income and wealth shares for the top 1 percent is most consistent with a “superstar”-style explanation rooted in the importance of scale and skill-biased technological change. It is less consistent with an argument that the gains to the top 1 percent are rooted in greater managerial power or changes in social norms about what managers should earn.

Josh Bivens and Lawrence Mishel write,

the increase in the incomes and wages of the top 1 percent over the last three decades should be interpreted as driven largely by the creation and/or redistribution of economic rents, and not simply as the outcome of well-functioning competitive markets rewarding skills or productivity based on marginal differences.

As President Kennedy once asked two of his advisers on Vietnam, “You two did visit the same country, didn’t you?”

Comparing Vickies with Thetes

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Dave Ramsey, citing Tom Corley, has a list of twenty differences.

63% of wealthy parents make their children read 2 or more non-fiction books a month vs. 3% for poor.

I don’t recall making my children read 2 non-fiction books a year…but I’m pretty sure they did.

Here’s an interesting one that ought to make Robin Hanson’s antennae twitch:

6% of wealthy say what’s on their mind vs. 69% for poor

Here’s an obvious one:

86% of wealthy love to read vs. 26% for poor.

I think I’ve said before that fifteen years ago, when I had a relocation web site and we acquired some data on neighborhood socioeconomic characteristics, the consumer purchase most correlated with affluence was hardbound books.

Squeezed Up, Nine Years Later

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Mark Perry writes,

America’s “middle class” did start largely disappearing in the 1970s, but it was because they were moving up to a higher-income category, not down into a lower-income category. And that movement was so significant that between 1967 and 2009, the share of American families earning incomes above $75,000 more than doubled, from 16.3% to 39.1%.

Nine years ago,I wrote,

the middle has shrunk, from 22.3 percent of households to 15.0 percent…the two categories below the middle also have shrunk, from 52.8 percent of households to 40.9 percent. Adjusting for inflation, the percentage of households with incomes over $50,000 has climbed from 24.9 percent in 1967 to 44.1 percent in 2003.

Two Blog Posts on Servants

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Two years ago, I asked, Where are the Servants?

In an economy where some folks are very rich and many folks are unemployed, why are there not more personal servants? Why don’t Sergey Brin and Bill Gates have hundreds of people on personal retainer?

A few days ago, Alex Tabarrok wrote Inequality and the Servant Boom, in which he quotes an article from the Telegraph.

The number of domestic servants is booming across central London: wherever the multiple between the wages of the rich and the poor grows, so does the number of servants. Much of the time, the towering Georgian and Victorian terraced houses of Belgravia now have only servants living in them – their masters and mistresses are drifting around the world, from yacht to schloss to Park Avenue apartment, in search of pleasure or tax avoidance. Drive round the area at night, and it’s often only the lights in the attics and the basements – the servants’ quarters – that are on.

But it’s not just in the gilt-edged parts of Britain that the service industry is flourishing. According to the Work Foundation, there are now more than two million part-time or full-time domestic workers across the country. All told, 10 per cent of households now employ some sort of domestic help.

Taking Care of Elderly Parents

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Timothy Taylor writes,

Some other high-income countries have government programs to pay for long-term care. Not surprisingly, they spend a substantially greater share of GDP on long-term than does the U.S. In any event, the long-term U.S. budget picture is grim enough that adding another entitlement for the elderly isn’t likely.

As usual, he has useful links, primarily a CBO study.

I have a vision of the year 2025 in which the difference between the rich and everyone else is that the rich can afford to send their children to private schools, pay full fare for the children’s college education, and pay for their own parents’ long-term care. Everyone else will depend on public schools, community colleges and scholarships, and government-provided nursing homes. Otherwise, the lifestyles of the rich and the non-rich will look pretty similar.

A Grandparent Effect?

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The BBC covers a study that suggests that social status depends on grandparents, not just parents.

“It may work through a number of channels including the inheritance of wealth and property, and may be aided by durable social institutions such as generation-skipping trusts, residential segregation, and other demographic processes.

Pointer from Jason Collins. He also has more.

My first thought is “mean reversion.” That is, suppose that you have two genetic types–rich and poor, call them R and P. Suppose that R and P each have children. Some of R’s children get unlucky and some of P’s children get lucky. Now the grandchildren of R still carry the R gene, so unless they are unlucky, they will revert to being rich. And conversely for the grandchildren of P. So you could observe a strong grandparent effect, based on mean-reversion and genetics alone.

But I have not read the paper.

Andrew Biggs on Social Security

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He writes,

A Social Security reform that addressed the program’s structural and fiscal problems would begin by transforming today’s complex benefit formula into a two-part system consisting of a savings account and a flat universal benefit. Such a system could be implemented gradually — applying only to new workers as they entered the work force, and so very incrementally and slowly replacing today’s system without breaking any promises already made to working Americans.

First, everyone in this new system — rich and poor alike — would be given an opportunity and a strong incentive to save for retirement. Each worker would be enrolled automatically in an employer-sponsored retirement account such as a 401(k) or 403(b). Workers would contribute at least 1.5% of pay, matched dollar for dollar by their employers. Universal retirement savings accounts would allow Social Security to focus its efforts: If everyone saved as they should for retirement, Social Security could concentrate its resources on low earners who needed the program the most.

Read the whole thing. To me, it comes across as centrist. But he would described as a nutter by most of the people who I would describe as nutters.

Education and Stratification

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Megan McArdle writes,

according to Sean Reardon, there is also a gap between the middle class and the elite. American society is increasingly stratified, he says, because elite parents are investing so much in the cognitive enrichment of their kids.

But is that really the right explanation? The rich pulling away from the middle class is also exactly what we would see if test-taking ability has a substantial inherited component, and the American economy is increasingly selecting for people who are very, very good at taking tests.

Toss in changes in marriage patterns, too.