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| Topic | New studies show that the poorest workers accrue the largest economic gains |
| FLUFFYGERM 10/25/18 1:35:58 PM #1: | Most people believe that the middle class and the poor are stagnating, treading water, while the rich get all the goodies. Nobel Laureate Paul Krugman writes that Wages for ordinary workers have in fact been stagnant since the 1970s. Jared Bernstein writes in the New York Times, for middle-income households earnings have declined in real terms 7 percent from 1979 to 2010. But these depressing conclusions rely on studies and data that are incomplete or flawed. They understate economic growth for the poor and the middle class because they use measures of prices that mis-measure inflation. Some studies leave out important components of compensation such as fringe benefits which have become increasingly important in recent years. And some studies include the elderly which lowers measured progress because the elderly are an increasing share of the population and they are less likely to be working full-time if at all. And many of the most pessimistic studies about the fate of the American middle class ignore the fall in marriage and the increase in divorce since the 1970s and the effects that demographic change has had on the way we measure changes in household income. But the biggest problem with the pessimistic studies is that they rarely follow the same people to see how they do over time. Instead, they rely on a snapshot at two points in time. So for example, researchers look at the median income of the middle quintile in 1975 and compare that to the median income of the median quintile in 2014, say. When they find little or no change, they conclude that the average American is making no progress. But the people in the snapshots are not the same people. These snapshots fail to correct for changes in the composition of workers and changes in household structure that distort the measurement of economic progress. There is immigration. There are large changes in the marriage rate over the period being examined. And there is economic mobility as people move up and down the economic ladder as their luck and opportunities fluctuate. How important are these effects? One way to find out is to follow the same people over time. When you follow the same people over time, you get very different results about the impact of the economy on the poor, the middle, and the rich. Studies that use panel data data that is generated from following the same people over time consistently find that the largest gains over time accrue to the poorest workers and that the richest workers get very little of the gains. This is true in survey data. It is true in data gathered from tax returns. Here are some of the studies that find a very different picture of the impact of the American economy on the economic well-being of the poor, middle, and the rich. This first study, from the Pew Charitable Trusts, conducted by Leonard Lopoo and Thomas DeLeire uses the Panel Study of Income Dynamics (PSID) and compares the family incomes of children to the income of their parents. Parents income is taken from a series of years in the 1960s. Childrens income is taken from a series of years in the early 2000s. As shown in Figure 1, 84% earned more than their parents, corrected for inflation. But 93% of the children in the poorest households, the bottom 20% surpassed their parents. Only 70% of those raised in the top quintile exceeded their parents income. https://medium.com/@russroberts/do-the-rich-capture-all-the-gains-from-economic-growth-c96d93101f9c --- Do good. Eat communists. ... Copied to Clipboard! |
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