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Is this good news, bad news, or a bit of both? From the Associated Press and CNBC:
Incomes for the bottom 99 percent of American families rose 3.3 percent last year to $47,213, the biggest annual gain in the past 15 years, according to data compiled by economist Emmanuel Saez and released Monday by the Washington Center for Equitable Growth. “For the bottom 99 percent of income earners, this marks the first year of real recovery from the income losses sparked by the Great Recession,” Saez, a professor at the University of California-Berkeley, said in a summary of his findings. … Still, income inequality worsened in 2014. The richest 1 percent of Americans posted a much bigger increase in pay: their incomes soared an average of 10.8 percent to $1.3 million. The wealthiest 1 percent also captured 21.2 percent of all income in 2014, up from 20.1 percent the previous year.
Saez is that other French economist and inequality researcher (though he works with Thomas Piketty, author of Capital in the Twenty-First Century). A few thoughts here:
1.) It’s always worth pointing out what Saez means by “income.” It’s basically income from the private economy, but not including the safety net or employer benefits such as health insurance or retirement contributions.
Now that’s a lot, but it obviously isn’t everything. For example, using a more inclusive, after-tax income measure finds median incomes up about 40% over the past three decades versus flattish “market income” gains. The point here is that when you factor in total compensation plus the safety net, middle class incomes and consumption power are doing much better than Saez’s data would suggest. As the Manhattan Institute’s Scott Winship noted back in late 2013, “By 2011, the safety net had returned middle-class and poor households’ incomes to the highest levels ever seen. Since then, the situation has likely improved. Disposable income among the poor and middle class is probably at an all-time high.” Yay, safety net.
2.) Of course, I would prefer more of those income gains come from “market income” than the government or healthcare benefits. As Saez notes, “By 2014, bottom 99% families have recovered slightly less than 40% of the 2007- 2009 Great Recession losses.” (Again, not counting all that other stuff.) Faster growth would help a lot, though there are also reasons to worry a “rising tide” isn’t lifting and won’t lift all boats as in the past without (a) more economic dynamism and innovation, (b) more capable workers, and (c) expanded income supports.
3.) But when prosperity is broadly shared and upward mobility is robust, there is less reason to fret about rising inequality — especially if it comes from market capitalism rather than crony capitalism. See the below chart from Saez:
Hey, incomes rose a lot during the much-revered Clinton expansion. And income growth for the 1% was five times as great as for the 99%. Overall, income going to the top 1% rose to 21.5% in 2000 from 14.2% in 1993. (And for the richest of the rich, the top 0.01%, the top income share rose to 5.1% in 2000 from 2.3% in 1993.) A rising tide wasn’t lifting all boats equally, but they were all getting a pretty good lift nonetheless. During the Obama expansion, however, top incomes are again rising about five times as fast as for everyone else, but everyday people seem to care a lot more since their income growth is tepid at best.
4.) Is high-end inequality just going to get more and more extreme? Here is a chart showing what it’s done each year since 1993 through 2014.