Awesome Resource – The World Top Incomes Database

Any student, researcher, or #OWS protestor interested in income distribution and income growth should definitely be aware of this resource:  The World’s Top Incomes Database.  (hat tip to Krugman, from whom I learned about it).  It’s a very powerful database combined with a very easy to use interface that allows you to extract exactly the data you want as a spreadsheet (see the Database tab) or to customize your own graphs.

You can pick from a growing list countries -over 25 already and more under development.  It’s particularly interesting because it’s not just the usual developed nation suspects.  There’s also data on developing countries and some less-developed nations.  Then you can pick your time series and variables.  It’s a tremendous variety:  share of national income by the top  x% (without or with capital gains).  In some case, data series are available on actual average real incomes by percentile groups.  What’s also nice is that they don’t just leave it at a split between the top 1% and the bottom 90%.  You can specify the top 1%, 5%, 10%, 0.1% or even the 0.01%.  Amazing.  You pick the time frame from early in the 20th century up to 2008.  Then you regenerate your graph or data table.  The best part is that by right clicking on the graph, you can download and save the graph.  Students: are you listening?  Understand the implications for research papers?  

Income Inequality: Worse in US than Egypt/Tunisia

Washington’s blog observes:


Egyptian, Tunisian and Yemeni protesters all say that inequality is one of the main reasons they’re protesting.However, the U.S. actually has much greater inequality than in any of those countries.

Specifically, the “Gini Coefficient” – the figure economists use to measure inequality – is higher in the U.S.

Global Map of Income Inequality Gini Coefficients by Country

[Click for larger image]

Gini Coefficients are like golf – the lower the score, the better (i.e. the more equality).

According to the CIA World Fact Book, the U.S. is ranked as the 42nd most unequal country in the world, with a Gini Coefficient of 45.

In contrast:

  • Tunisia is ranked the 62nd most unequal country, with a Gini Coefficient of 40.
  • Yemen is ranked 76th most unequal, with a Gini Coefficient of 37.7.
  • And Egypt is ranked as the 90th most unequal country, with a Gini Coefficient of around 34.4.

And inequality in the U.S. has soared in the last couple of years, since the Gini Coefficient was last calculated, so it is undoubtedly currently much higher.
So why are Egyptians rioting, while the Americans are complacent?

Well, Americans – until recently – have been some of the wealthiest people in the world, with most having plenty of comforts (and/or entertainment) and more than enough to eat.

But another reason is that – as Dan Ariely of Duke University and Michael I. Norton of Harvard Business School demonstrate – Americans consistently underestimate the amount of inequality in our nation.

As William Alden wrote last September:

Americans vastly underestimate the degree of wealth inequality in America, and we believe that the distribution should be far more equitable than it actually is, according to a new study.

Or, as the study’s authors put it: “All demographic groups — even those not usually associated with wealth redistribution such as Republicans and the wealthy — desired a more equal distribution of wealth than the status quo.”

The report … “Building a Better America — One Wealth Quintile At A Time” by Dan Ariely of Duke University and Michael I. Norton of Harvard Business School … shows that across ideological, economic and gender groups, Americans thought the richest 20 percent of our society controlled about 59 percent of the wealth, while the real number is closer to 84 percent.

I accept the protesters at their word that inequality is a major part of what’s driving the protests, even though relative to the rest of the world, their income inequality is rather middling – certainly not as bad as the U.S.  As to why income inequality should fuel protests in Egypt/Tunisia while not in the U.S. where it is much worse, I suggest that age and expectations are part of it also.  Ariely, Norton, and Alden have a good point: Americans are largely ignorant of just how narrowly concentrated wealth and income are in the U.S..  It’s part of U.S. culture to pretend that everyone is equal or at least has an equal opportunity to become stinking rich, no matter how unlikely that truly is.

I think another factor has to do with age as my previous post points out. The power of income inequality to enrage and fuel revolution depends also on expectations and age as well as perception.  In the U.S., we do not perceive the inequality. We are generally older and older people are more interested in security and stability (death and old age is more real to them and adventure less attractive). Finally, our culture in the U.S. conditions us to expect that if we aren’t rich now, we could become richer soon. In Tunisia and Egypt I surmise, the young adults not accurately perceive the injustice and unequal distribution of wealth/income, but they likewise do not perceive that their prospects for the future are bright unless they revolt. They do not perceive that things have or are changing and so they need to push the change.

Guard Labor « unsettling economics

More on the concept of “guard labor” as an unproductive use of resources in a private property economy with strong inequality of income/wealth.  This is from Perelman’s blog, Unsettling Economics

My article on Guard Labor is in the new issue of Dollars and Sense. It is extracted from my forthcoming book, The Invisible Handcuffs.

http://www.dollarsandsense.org/archives/2010/0110toc.html

The article begins:

Guards are everywhere in a capitalist economy. A few are dressed up in uniforms, so they are easy to spot. But most do not look like guards at all. Some sit in comfortable offices; others work on assembly lines in factories. James O’Connor, a prolific sociologist from UC Santa Cruz, describes one familiar set of guards whom we do not usually think of as guards:

Consider the labor of the ticket seller at a movie house. The seller’s task is merely to transfer the right to sit in the theater to the movie-goer in exchange for the price of a ticket. But it may not be immediately obvious that it is not the lack of a ticket that keeps you out of the theater … The ticket is actually torn up and discarded by a husky young man who stands between the box office and the seat that I want.

These guards are a central feature of capitalism. Capitalists depend upon guard labor to protect their commodities, including the goods and premises they own, but especially the labor-power in their employ. Capitalism’s reliance on guard labor deforms the entire productive process, not only wasting labor, but also snuffing out badly needed creativity.

via Guard Labor « unsettling economics.

Inequality Matters and Redistribution of Income Helps the Economy

Inequality matters, and contrary to much “conventional wisdom”, income redistribution can and does work in man countries.  In fact, the evidence is that it results in faster growing and more productive economies. (Hat tip to Mark Thoma for this summary.  I strongly urge readers to go to  Born Poor?, by: Corey Pein:     and read the full original profile of Bowles, or his Wikipedia profile.

Inequality and “Guard Labor”

This is from a profile of Samuel Bowles:

Born Poor?, by: Corey Pein: …Bowles’ most recent paper … examines how wealth is transferred from parents to children in hunter-gatherer societies versus agricultural societies. That might seem distant… But everyone can relate to his chosen subject: inequality. …

Bowles’ course was set in 1968, when he was an assistant professor at Harvard, and the Rev. Dr. Martin Luther King Jr. came to his department looking for advice on the next stage of his social justice campaign.

“We were just elated that we could use economics, which we had so painstakingly learned, to answer questions that Dr. King thought were important,” Bowles tells SFR. “We were also extremely angry that we were totally unable to answer the questions on the basis of having gotten a PhD at Harvard.”

King’s assassination that year cut short the equality movement. …

Most economists in 1968 thought of inequality as “somebody else’s problem,” Bowles tells SFR. “I actually was denied the right to teach a graduate course in inequality because it was said not to be economics.” It wasn’t always thus.

“The founders of the discipline of economics, almost to a man—and they were only men—thought that the problem of distribution between classes—they used the word classes—was the key to understanding why nations grew or not,” Bowles says. What Bowles sees as the essence of his profession [is] problems of wealth distribution…

Continue reading

Is The American Dream A Myth?

via National Journal Magazine – Is The American Dream A Myth?.

In the generation after World War II, the median income roughly doubled, increasing faster for those on the lower rungs of the ladder than for those at the top. Since 1979, the median income has advanced much more slowly overall, and it has grown much faster for the affluent than for those below them. Today, Haskins and Sawhill note, family incomes are higher than in the 1970s almost entirely because women are working, and earning, more than they did then; men in their 30s today earn less than their fathers did at the same age.

In this environment, upward mobility becomes tougher. Analyzing long-term economic studies, the authors found that millions of Americans eventually outearn their parents, no matter where they start out. But the pair’s calculations also show more continuity than our national myths imply.

More than 60 percent of Americans whose parents scaled the top fifth of the income ladder have reached the top two-fifths themselves, Haskins and Sawhill found. By contrast, 65 percent of Americans with parents from the lowest fifth of earners remain stuck in the bottom two-fifths. Though we venerate the American Dream, studies show that children born to low-income parents in the United States are more likely to remain trapped near the bottom than their counterparts in Europe, the authors report.

And this via inside.org.au/american-dreams/

But the mobility myth is so widely believed and so deep-seated that it’s not surprising he [Obama] hasn’t tried to confront the problem head on. When the Economic Mobility Project surveyed 2100 adults and ran ten focus groups earlier this year it found that respondents overwhelmingly believe that personal attributes – “like hard work and drive” – are the prime determinants of how economically successful an individual can be. A smaller majority also disagreed with the statement that “In the United States, a child’s chances of achieving financial success is tied to the income of his or her parent.”As the studies show, that statement is true for most children in the United States, and for a higher proportion of American children than in most comparable countries. Among the twelve countries analysed by d’Addio in her 2007 report, Intergenerational Transmission of Disadvantage: Mobility or Immobility across Generations?, the United States was in a group of four – with France, Italy and Britain – where family background plays the greatest role in influencing adult income. Children born into a poor family in any of these countries had a much lower chance of breaking into a higher income group than in any of the other countries in the study. (For historical and data-related reasons, most evidence used in these studies relates to the earnings of sons compared to their fathers.)

Britain came out worst, with around 50 per cent of a person’s income explained by his or her parents’ income. In other words, Britain was halfway between a situation in which there is no statistical relationship between a son’s income and that of his father and a situation in which his income is statistically identical to his father’s income. (The lower the percentage, the greater the mobility.) Italy and the United States weren’t far behind, at around 47 per cent. At the other end of the range were Denmark, Norway, Finland and Canada, where parental income explained less than 20 per cent of the child’s eventual earnings. If these figures are correct – and they’re generally accepted as being broadly accurate – then it’s those four countries, rather than the United States, that come closest to realising the American Dream.

Some studies have found that mobility is not only limited in the United States but has worsened in recent decades. A report for the Future of Children project, a collaboration of the Woodrow Wilson School and the Brookings Institution, found that “occupational mobility” – the measure favoured by sociologists – increased during the 1970s but reverted to the levels of the 1940s–60s during the two subsequent decades.

Countries-with-the-biggest-gaps-between-rich-and-poor

One of the ways economists measure income distribution is through the use of “Gini coefficient”. The Gini coefficient measures relative income distribution on  a scale of 0-100.   A Gini of 100 means 1 person has all of the income in a country and everybody else has zero.  A Gini of  zero means everybody in the country gets exactly the same income.

The U.N. Development Program recently came out with a report looking, among other things, at income inequality worldwide.More from BusinessWeek.com:• A Rebound for China and India’s Millionaires• World’s Best and Worst Property Markets• The World’s Best Places to Live 2009The UNDP ranked countries and regions based on a number of factors, including their Gini coefficient, named for Italian statistician Corrado Gini.

The U.S. has a very unequal distribution of income with a Gini of 40.8.  That makes the U.S. the 3rd most unequal distribution among advanced economies, with only Hong Kong and Singapore being more unequal.    via:  Business Week/ Yahoo News

US income gap widens as poor take hit in recession – Yahoo! News

Not much else to say:

The recession has hit middle-income and poor families hardest, widening the economic gap between the richest and poorest Americans as rippling job layoffs ravaged household budgets.The wealthiest 10 percent of Americans — those making more than $138,000 each year — earned 11.4 times the roughly $12,000 made by those living near or below the poverty line in 2008, according to newly released census figures. That ratio was an increase from 11.2 in 2007 and the previous high of 11.22 in 2003.Household income declined across all groups, but at sharper percentage levels for middle-income and poor Americans. Median income fell last year from $52,163 to $50,303, wiping out a decade’s worth of gains to hit the lowest level since 1997.

via Yahoo & AP.