Class Struggle?

[SnyderShrugged]

http://www.cato.org/pub_display.php?pub_id=3773

Can you imagine it? Those that work hard and get educated earn more than those that don't?

Class Struggle?

by Alan Reynolds

Alan Reynolds is a senior fellow with the Cato Institute and a nationally syndicated columnist.

Major newspapers are in the throes of Mobility Mania: who "makes it" in America, and why; who doesn't, and why not. The Wall Street Journal began a series last week titled "Challenges to the American Dream." The New York Times followed suit with a multiparter on "Class in America," which aims to disparage the notion that the U.S. is a land of opportunity by claiming that "new research on mobility, the movement of families up and down the economic ladder, shows there is far less of it than economists once thought and less than most people believe."

Yet the scholarship commonly cited in support of such assertions--new research by Gary Solon of the University of Michigan, David I. Levine of Berkeley, and Bhashkar Mazumder of the Chicago Fed, among others--says no such thing. A paper last fall by Mr. Solon observed that several of the newest estimates, including two from Messrs. Levine and Mazumder, suggest that it has become substantially easier to move from one economic class to another (as a 1997 Urban Institute study also concluded). Those new results were statistically weak, however, and an alternative estimate from Messrs. Levine and Mazumder pointed in the opposite direction--implying family background might have grown more important between the early 1980s and early 1990s. But they described the latter result as merely "suggestive," and Mr. Solon now suspects the data were distorted. As for the latter's own research, he concluded that "our estimates are still too imprecise to rule out modest trends in either direction."

The discovery that something has not changed, or might have moved imperceptibly in either direction, would not normally be considered front-page news. But income distribution is an agenda-driven ideological fixation that frequently impairs journalistic judgment. To fully understand this non-news about unchanged class mobility, it helps to focus on a few reasons why some people earn more than others--they work harder, and have more experience and/or more schooling. Some observations:

Households with two full-time workers earn five times as much as households in which nobody works. Median income for households with two full-time earners was $85,517 in 2003 compared with $15,661 for households in which nobody worked. Median income for households with one worker who worked full-time all year was $60,852, compared with $28,704 for those who worked part-time for 26 weeks or less.

Alan Blinder of Princeton emphasized this point in a 1980 study: "The richest fifth of families supplied over 30% of the total weeks worked in the economy," he wrote, "while the poorest fifth supplied only 7.5%. Thus, on a per-week-of-work basis, the income ratio between rich and poor was only 2-to-1. This certainly does not seem like an unreasonable degree of inequality."

Experienced supervisors earn twice as much as young trainees. Median income for households headed by someone age 45 to 54 was $60,242 in 2003, compared with $27,053 for those younger than 24. When we define people as poor or rich at any moment in time, we are often describing the same people at earlier and later stages of life. Lifetime income is a moving picture, not a snapshot.

Those with four or more years of college earn three times as much as high school dropouts. Median income for college grads was $68,728 in 2003, compared with $22,718 for those without a high school diploma.

To repeat, there is no evidence that it has become harder to get ahead through hard work at school and on the job. Efforts to claim otherwise appear intended to make any gaps between rich and poor appear unfair, determined by chance of birth rather than personal effort. Such efforts require both a denial that progress has been widespread and an exaggeration of income differences. To deny progress, the Times series claims that "for most workers, the only time in the last three decades when the rise in hourly pay beat inflation was during the speculative bubble of the 90's." Could anyone really believe most workers have rarely had a real raise in three decades? Real income per household member rose to $22,966 in 2003 from $16,420 in 1983 (in 2003 dollars)--a 40% gain.

To exaggerate inequality, the authors claim that "the after-tax income of the top 1 percent of American households jumped 139 percent, to more than $700,000, from 1979 to 2001, according to the Congressional Budget Office." But that is mainly because the CBO subtracts corporate income taxes from its idiosyncratic measure of the "comprehensive income" of individual stockholders. Because the top 1%'s share of corporate taxes rose to 53.5% in 2002 from 35.6% in 1980, the CBO records that as an increasingly huge individual tax cut and therefore as an invisible increase in stockholders' after-tax incomes. Arbitrarily subtracting corporate taxes from after-tax incomes of investors has nothing to do with labor income, though occupational mobility is the essence of the income mobility debate.

Since the Census Bureau overhauled the way it counts income in 1993-94 (making the figures incomparable with prior years), the share of income earned by the top fifth rose to 49.8% in 2000-03 from 49% in 1993-94. Because differences in household income can largely be explained by the number of workers and their education, it follows that a rising share of income earned by the top fifth of households should be largely explainable by work and education.

There are two workers per household in the top fifth of income distribution, but fewer than one in the bottom fifth, which relies heavily on transfer payments that generally keep pace with inflation. Yet by definition, rising real wages mean incomes of two-earner families rise more rapidly than inflation. Real median income among families with two full-time workers was $85,517 in 2003 and $75,707 (in 2003 dollars) in 1987--a 13% increase. But median income among families in which neither spouse worked ($27,130 in 2003), was just 1.4% higher than in 1987. The gap between two-earner families in the top fifth and no-earner families in the bottom must grow wider when salaries rise in real terms.

It is statistically dubious to compare long-term growth of average income in any top income group with growth below. Only the top group has no income ceiling, and the lower income limit defining membership in that top group rises whenever incomes are rising. In 2003, a household needed an income above $86,867 to make it into the top 20%, but an income above $68,154 (in 2003 dollars) would suffice in 1983. When the Census Bureau averaged all the income above $86,867 in 2003, they were sure to come up with a larger figure than in 1983, when the average was diluted by including incomes nearly $20,000 lower.

The endless academic fascination with murky income distribution figures generally ignores differences in work effort and focuses on formal schooling--a wider "skill premium" between those with and without a college degree. And when it comes to differences in schooling, we can't talk sensibly about the struggles of poorly educated people without mentioning immigration: 52% of male immigrants from Latin America did not finish high school (usually in their home countries, though we count many as U.S. dropouts). Most were legal immigrants because they had relatives here. Because the U.S. has humanely imported millions of poorly educated people in recent decades, it is unreasonable to compare U.S. income mobility with countries--e.g., Germany--that are far more restrictive about admitting unskilled immigrants.

A kernel of truth within the income mobility confusion is that good parenting matters to a child's lifetime success. Economics Nobel laureate James Heckman notes that "good families promote cognitive, social and behavioral skills," but "single parent families are known to produce impaired children who perform poorly in school, the workplace and society at large." Yes, there are many attentive parents with low incomes who spend hours reading to toddlers, and there are negligent parents with high incomes. But many dysfunctional families do have low incomes, and collecting more taxes from functional families in order to send more transfer payments to dysfunctional families can have perverse results. Mr. Heckman points out that "generous social welfare programs . . . discourage work and hence investment in workplace based skills. . . . Subsidizing work through the EITC . . . can reduce the incentives to acquire skills and so perpetuate poverty across generations."

Recent "news" reports implying it has become more difficult for young Americans to live better than their parents fail to identify any genuine problem. And they suffer from one added handicap: They are demonstrably untrue.

[jpillian]

Very interesting read, there SNV.

[stevenaa]

Hmmm. So, work and make more money. Work more and make more money. Be educated and make more money. Add two workers to a family and make more money. These are such difficult concepts to comprehend. However will the down trodden embiciles ever keep aspiring to the American Dream when it is so difficult to understand how it works.

[gbear]

Not a bad article, in that I tend to agree the income disparity blips are sometimes over reported. It says reporting on income distribution is pollicaly driven. It is in so much as one party cares and the other doesn't care about income inequality or see it as a bad thing. So if I don't care about the issues of the religous right, can I claim right to life articles are just polically driven and sumarily dismiss them as this article does?

After all nobody really cares about the right to life. It's just an issue to get tehir party in power right? That's one of the problems I have with the logic ofthe article.

The problem is that the changes in purchasing power among the rich and poor rarely happen over night. So each blip is really not that news worthy except to note a trend.

edited for lack of reading comprehensiooon on my part.

[Riggo-toni]

gbear,

It is giving the figures in inflation adjusted or constant dollars, so I'm not sure I get your second point. The fact that it picked 2003 dollars as a reference point and then expanded values for previous years as opposed to selecting an earlier year and reducing the current figures for inflation doesn't change proportions/ratios.

For instance, if $1 in purchasing power in 1980 is the equivalent of $2 in 2000, and the average income in 1980 is $20k and in 2000 it's 60k, a conventional approach might be to compare salaries in 1980 dollars, and say the average income rose from $20k to $30k in 1980 dollars, but it's perfectly reasonable to say the average inflation adjusted income rose from $40k to $60 in 2000 dollars. Either way, the ratio is the same - a 50% increase in real incomes, aka purchasing power (unless I'm missing something in your argument).

[gbear]

sorry, missed it. My bad. I guess that example works. it was me that misread.

[Destino]

Yes if you work hard you will make more then others in a similar situation to yours. If you have more access to education your value will increase....but that access is not always up to you. Articles like this detail a fictional land where everyone is what they want to be and are entirely made of their own efforts. The world however shows that where you start plays a major role in where you finish.

[Kilmer17]

Judge Smails- "well the world needs ditch diggers too"

[jpillian]

Whoah, whoah, whoah -- are you telling me the world might just not be FAIR?!?!? :doh: :laugh:

Destino, I agree with your point to an extent. Where you start plays a role (I'd disagree with "major") as to where you go in life.

However, so does what most would consider "luck." Blame the leprechauns.

Does a person's natural God given talents play into it? You betcha. Blame God.

The "playing field" will never be totally "fair" in our eyes. We should make reasonable progress towards making it "fairer" -- but, to steal the well-worn quote: "we are all dealt a hand of cards; it's how we play it that matters. "

[Destino]

Originally posted by jpillian

Whoah, whoah, whoah -- are you telling me the world might just not be FAIR?!?!? :doh: :laugh:

Destino, I agree with your point to an extent. Where you start plays a role (I'd disagree with "major") as to where you go in life.

However, so does what most would consider "luck." Blame the leprechauns.

Does a person's natural God given talents play into it? You betcha. Blame God.

The "playing field" will never be totally "fair" in our eyes. We should make reasonable progress towards making it "fairer" -- but, to steal the well-worn quote: "we are all dealt a hand of cards; it's how we play it that matters. "

If not "major" then please show me the numbers of people born into the bottom 20% of that finish in the top 20%. If it wasn't a "major" factor then you should see people at the top falling all the way to the bottom and vice versa ALL THE TIME.

But life isn't just about your ability. It's also about your parents ability to parent and to provide. I'm not saying that life should be fair, I'm pointing out how many of you like to pretend that it is.

[du7st]

So in response to biased articles, this writer picks and chooses the stats that backs up his case and ignores the rest of the evidence. What a terrible article.

[China]

Households with two full-time workers earn five times as much as households in which nobody works.

These people in households where nobody works must have significant "unearned" income, because where I come from 5 times nothing is still nothing. And is it supposed to be startling information that people who work earn more than people who don't? Shocking!

[jpillian]

Originally posted by Destino

If not "major" then please show me the numbers of people born into the bottom 20% of that finish in the top 20%. If it wasn't a "major" factor then you should see people at the top falling all the way to the bottom and vice versa ALL THE TIME.

But life isn't just about your ability. It's also about your parents ability to parent and to provide. I'm not saying that life should be fair, I'm pointing out how many of you like to pretend that it is.

Eh, yeah -- major is a pretty subjective term -- so you may be right. Who the heck knows? And for my part, who the heck cares?

Life is what you make of it - bottomline.

[Larry]

Now, granted, to pick some examples we're familiar with, a case can be made that:

• If it wasn't for his dad, our current President might be a High School dropout with a drug conviction or two right now.
  
• OTOH, I haven't heard anything to imply that Dan Snyder inherited the Redskins, or any of his other businesses.
  

So, I suppose your outlook may depend on whether you think the world has more Ws than it has Dan Snyders.

[jpillian]

Two fine examples, Larry!

[Predicto]

The writers of that article accuse their ideological opponents of manipulating statistics to reach a desired result, then go ahead and do that very thing themselves in a blatant fashion.

The article concludes: "Recent "news" reports implying it has become more difficult for young Americans to live better than their parents fail to identify any genuine problem. And they suffer from one added handicap: They are demonstrably untrue." They may be demonstrably untrue, but this article did not provide that demonstration.

[SnyderShrugged]

Originally posted by Predicto

The writers of that article accuse their ideological opponents of manipulating statistics to reach a desired result, then go ahead and do that very thing themselves in a blatant fashion.

The article concludes: "Recent "news" reports implying it has become more difficult for young Americans to live better than their parents fail to identify any genuine problem. And they suffer from one added handicap: They are demonstrably untrue." They may be demonstrably untrue, but this article did not provide that demonstration.

Then you didnt read it.

[SnyderShrugged]

Originally posted by Destino

Yes if you work hard you will make more then others in a similar situation to yours. If you have more access to education your value will increase....but that access is not always up to you. Articles like this detail a fictional land where everyone is what they want to be and are entirely made of their own efforts. The world however shows that where you start plays a major role in where you finish.

You use the false assumption that there is less access to education for the poor? Why, when just the opposite is actually true?

Everybody is successful on their own merits to a degree. Yes, the wealthiest can buy more opportunities but the onus is still upon them o make the most of what they were given or squander it.

Tell me, who are those that qualify for a free ride in our current education system vs, who has to pay out of their pockets?

Your world is the "protect the lazy and unmotivated" mentality.

The only thing I can agree with you with here is that you don't have control over where you start, but you have all the choice in the world where you finish. There are too many success stories of those that started with nothing and are now huge success stories to believe otherwise (unless you live in a liberal fantasy land of handouts for those that won't try).

[Destino]

Originally posted by skin-n-vegas

You use the false assumption that there is less access to education for the poor? Why, when just the opposite is actually true?

It's sad that people might actually believe that.

Originally posted by skin-n-vegas

Tell me, who are those that qualify for a free ride in our current education system vs, who has to pay out of their pockets?

It's funny to me that you would consider someone that has to bust their @ss to earn a grant that still won't cover eveything as having a "free ride" but someone who just gets daddy to pay....as having to pay out of their pocket.

Originally posted by skin-n-vegas

Your world is the "protect the lazy and unmotivated" mentality.

No I live in the real world where people born rich tend to die rich and vice versa. I don't pretend the world is fair and that everyone has the same shot and the poor are stupid unmotivated people that choose to be poor.

Originally posted by skin-n-vegas

There are too many success stories of those that started with nothing and are now huge success stories to believe otherwise

You know why we talk about "success stories"......it's because they are rare. You don't people saying "Hey you want to hear something awesome, Mike was born rich and he was so successful that he was still rich when he died" There is a reason for that, and that reason is because I'm right and you are holding on to a ideological fantasy land.

[Kilmer17]

Wouldnt you agree that at some point, a rich family had someone who worked his/her tail off to get to that point?

[luckydevil]

Russell Roberts over at Cafe Hayek has talked about this the last week. Skin-n-vegas and others should check it out

[Destino]

Originally posted by Kilmer17

Wouldnt you agree that at some point, a rich family had someone who worked his/her tail off to get to that point?

Yes. But there are many peopel that work their tails off and never make it rich. Many people that are unable to escape from under the burden they were born into. I dislike the mentality that people who don't make didn't work hard enough because if you look around it's OBVIOUSLY bullsh!t.

I can't complain myself because my old man made sure my life was pretty damn easy for me. But I'm not the one claiming that some poor kid living in a violent hell hole has the same chance to make it as I do. I acknowledge the ADVANTAGES I was handed at birth and thank god for them. I also refuse to deny they exist to feel better about where I am today.

BTW - I'm not in favor of a handout. I think the poor woudl benefit more from a little repeated positive message then they woudl from a hand out. For example the "ways to not be poor" (graduate highschool, don't have babies until you are married, etc etc) should be posted in every poor area school all over the place.

[luckydevil]

I do agree with the thesis that income mobility is not strong has it once was (though is still very much of a real phenomenon- despite what many doomsayers would like us to believe).

The various good and services consumed by low income Americans dwarf what the middle-class had 25 years ago. So even is mobility is not as high as it once was, standard of living has improved dramatically.

[Baculus]

Working hard and education can most certainly help, but it's not always how the dice rolls for some folks. And there are most certainly some folks who didn't work hard to gain wealth, or they use the labor of others to gain that wealth.

Now, the article made some obvious assumptions - if you sometimes work less, you earn less. But this article is almost suggestion that the working poor don't work much, or don't work very hard, which I am not sure is necessarily true. Also, I am not sure what definition the author is using to definte "rich," since he used income brackets, as an example, that may be defined as upper middle-class, but probably not as "rich."

Now, I suppose the point of the article is that:

1. Those who work harder and are more educated earn more wealth.

2. Families with two income-earners earn have more income.

Yes, both are often true. But, in the end, I am unsure of the entire point of the article. Perhaps that upward mobility is still alive in this nation? I believe that is true, though it is more difficult for some single-income families to get by then in the past, due to a disparity between wages and cost of living. That there isn't class warfare? Well, that is a debate, from many sides, unto itself and not well covered in the article.

[chomerics]

Originally posted by Destino

Yes if you work hard you will make more then others in a similar situation to yours. If you have more access to education your value will increase....but that access is not always up to you. Articles like this detail a fictional land where everyone is what they want to be and are entirely made of their own efforts. The world however shows that where you start plays a major role in where you finish.

Ding ding ding, we have a winner.

That is the problem with cases like this, we won't see the effect of the bankruptcy bill for 10-15 years, then it will be too late for the people who are caught in the rental trap. Make no mistake, Bush is ALL about the seperation of classes, it is in almost EVERY law which has been passed.

To exaggerate inequality, the authors claim that "the after-tax income of the top 1 percent of American households jumped 139 percent, to more than $700,000, from 1979 to 2001, according to the Congressional Budget Office." But that is mainly because the CBO subtracts corporate income taxes from its idiosyncratic measure of the "comprehensive income" of individual stockholders. Because the top 1%'s share of corporate taxes rose to 53.5% in 2002 from 35.6% in 1980, the CBO records that as an increasingly huge individual tax cut and therefore as an invisible increase in stockholders' after-tax incomes. Arbitrarily subtracting corporate taxes from after-tax incomes of investors has nothing to do with labor income, though occupational mobility is the essence of the income mobility debate.

Here is where CATO and others are sooooo full of :pooh: it's laughable. Notice how they use the word "income". They are just talking about income as far a job is concerned. The vast majority of wealth is not in income, but in capitol gains. The top 1% make something like 90% of their salary from earnings, not from income, yet they neglect this and leave this factor out because it goes against their ideology. Furthermore, their capiton gains earnings is taxed in the same bracket as somebody making $25K. . .real fair, and this doesn't promote a deperation of classes :doh: