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Orange County Register

 

Income Inequality Is a Distraction

October 16, 2013

By Scott Winship

True or false? Rising inequality is leading to diminished opportunity in America.

To judge the conventional wisdom, the answer is obvious. The share of income received by the top 1 percent, according to economists Thomas Piketty and Emmanuel Saez, has grown from one out every 10 dollars in 1979 to one out of every five. Others say middle-class wages and household incomes have stagnated. Poverty has risen. Economic mobility has fallen.

But a sober assessment of the evidence shows that in reality we have little reason to think that inequality is doing the damage attributed to it. There is the question of whether the inequality that matters is really on the rise. A number of scholars using a variety of data sources have found that inequality between the middle class and the poor remains at or close to its late-1980s levels. That appears true for male hourly wages, annual earnings for both men and women, and household income. It may be less relevant from the perspective of a poor child whether the top 1 percent is pulling away from everyone else.

But is the top one percent pulling away? The ubiquitous estimates of Piketty and Saez - which inspired the Occupy Wall St. slogan, "We are the 99 Percent" - take practically no account of the very remedies we have for inequality. They exclude cash transfers - such as unemployment insurance, Social Security and welfare - as well as noncash transfers such as food stamps, Medicare and Medicaid. Nor do they account for taxes, which are progressively larger the higher one's income is and which have become more progressive since 1979. What is more, they only include some kinds of gains from asset appreciation. New research by Cornell economist Richard Burkhauser suggests that after these and other omissions are taken into account, inequality actually fell between 1989 and 2007. So perhaps the 99-percent-versus-one-percent inequality story is the same as the poor-middle-class one.

It is also untrue that middle class incomes and earnings have fallen or poverty risen over the long run. Analyses that take into account the full range of employee compensation and government assistance show middle-class incomes rising by at least 30 percent since 1979, male earnings rising by at least 10 percent and incomes at the bottom rising by at least 20 percent. Those are not necessarily large gains, but other countries with smaller increases in inequality have seen income and male earnings growth slow too. Industrialized nations have witnessed a productivity slowdown and the disappearance of a patriarchal era when male breadwinners were paid a "family wage" so that mothers could be kept in the home. (Talk about limited opportunity.)

The evidence for declines in economic mobility is decidedly mixed. My own research suggests that today's 30-year-old men have experienced no less mobility than those in the mid-1970s. The incomes of adult children are more closely tied to parental incomes in the U.S. than in our peer countries, but that could reflect any number of economic, political or cultural factors rather than our inequality levels.

Opportunity can be too unequally distributed - as I believe it is - even if it is not diminishing and even without rising income inequality being an important contributor. Focusing on the top one percent is barking up the wrong tree.

Original Source: http://www.ocregister.com/articles/inequality-531196-percent-one.html

 

 
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