[tags]income distribution, US income distribution, US income inequality, income inequality[/tags]

. . . From World War II through the 1970s, while most Americans were getting solid raises every year, the incomes of the richest 1 percent were doing only a little better than inflation. Since the 1980s, the two groups have switched places. The affluent have received huge gains, and everyone else’s pay growth has slowed down. For the last six decades, in other words, the American economy has been much more of a zero-sum game than we might like to believe.

I analyzed the presentation of economics data on TV in my Master’s thesis so I was interested in the last example in the article. Television and dense data displays don’t not go together.

CNN Screenshot

It may just be that income inequality isn’t the real story. Instead, suggests Hacker of Yale, it may be income volatility. “While the gaps between the rungs on the ladder of our economy have increased, what has increased even more quickly is how far people slip down the ladder when they lose their footing,” Hacker says. According to his research, pretax family income volatility peaked in the early to mid-1990s at a level between four and five times as high as its level in the early 1970s. Although volatility fell during the strong economy of late 1990s, it remained well above 1970s levels, and it’s on the rise again. “I just analyzed the 2002 data,” he says. “Family income volatility increased by 50 percent over the past two years, so it is now three times its early-1970s level.” Hacker says the median decline in income for families that suffer a drop has increased from more than 25 percent in the 1970s to about 40 percent today. Moreover, research by Princeton University economist Henry Farber found that people who lost their jobs after the Internet bubble popped–and then found new ones–earned on average 13 percent less in their new positions.

[tags] income inequality, income volatility, Jacob Hacker[/tags]

It is little jerky when the graph is updating, but the interaction builds upon Google Map’s click and drag behavior and integrates the news into the graph which is very helpful.

[tags] Google Finance [/tags]

In the U.S., it is the presence of great inequality of wealth that undermines people’s feeling of well-being and also places them at a disadvantage relative to their fellow citizens. From the article:

Since relative deprivation confers many of the disadvantages of absolute deprivation, it should be reflected in the poverty statistics. A simple way to do this would be to classify a household as impoverished if its pre-tax income was, say, less than half the median income—the income of the household at the center of the income-distribution curve. In 2004, the median pre-tax household income was $44,684; a poverty line based on relative deprivation would have been $22,342. (As under the current system, adjustments could be made for different family sizes.)

A new research paper by Ian Dew-Becker and Robert Gordon of Northwestern University, “Where Did the Productivity Growth Go?,” gives the details. Between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn’t a ticket to big income gains.

But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that’s not a misprint.

Just to give you a sense of who we’re talking about: the nonpartisan Tax Policy Center estimates that this year the 99th percentile will correspond to an income of $402,306, and the 99.9th percentile to an income of $1,672,726. The center doesn’t give a number for the 99.99th percentile, but it’s probably well over $6 million a year.

[tags] Paul Krugman [/tags]

First, that we all need all need more and better tools to help us create and analyze these visual explanations. Second, that the natural home for such tools is online. We should expect to find much more there than static PDFs of the printed infographics. The data, as well as the interactive tools used to analyze the data, can and should be online. It should be straightforward to verify facts and explore alternate interpretations.

Although I would agree with this sentiment, the current size and resolution of monitors limits their ability to display data visualizations effectively. However, the New York Times is making some effort to include Flash-based interactive graphics in their online edition: The State of Executive Pay in 2005

So again, has the housing bubble created a wealth illusion? It does seem that many Americans feel wealthier because of the large increases in home equity in recent years. However, it is difficult to gauge how people feel about their wealth. The most obvious way to demonstrate that we feel wealthier because of increases in home equity is by measuring how much equity many Americans have pulled out of their homes in recent years. As we have seen in this paper, the numbers are enormous. Most people will not use their homes as a piggybank unless they are feeling pretty good about your wealth (or if they are very desperate – it doesn’t appear that many people fall into this category). Based on this, it is safe to say that most of us are feeling wealthier these days because of the soaring prices of our homes.

This paper presents new homogeneous series on top wealth shares from 1916 to 2000 in the United States using estate tax return data. Top wealth shares were very high at the beginning of the period but have been hit sharply by the Great Depression, the New Deal, and World War II shocks. Those shocks have had permanent effects. Following a decline in the 1970s, top wealth shares recovered in the early 1980s, but they are still much lower in 2000 than in the early decades of the century. Most of the changes we document are concentrated among the very top wealth holders with much smaller movements for groups below the top 0.1%. Consistent with the Survey of Consumer Finances results, top wealth shares estimated from Estate Tax Returns display no significant increase since 1995. Evidence from the Forbes 400 richest Americans suggests that only the super-rich have experienced significant gains relative to the average over the last decade. Our results are consistent with the decreased importance of capital income at the top of the income distribution documented by Piketty and Saez (2003), and suggest that the rentier class of the early century is not yet reconstituted. The most plausible explanations for the facts are perhaps the development of progressive income and estate taxation which has dramatically impaired the ability of large wealth holders to maintain their fortunes, and the democratization of stock ownership which now spreads stock market gains and losses much more widely than in the past.

Top Wealth Shares in the United States, 1916-2000: Evidence from Estate Tax Returns