Phil Hauck's TEC Blog

Wednesday, August 6, 2014

On Income Inequality and the Middle Class (Ah, Controversy!) ...

Income Inequality Is Over-Stated … by a large degree!
   (And so is the Women’s Wage Gap!)
I’m reading more and more articles making this point.  There is something called the Gini coefficient, named after the man who developed it in the early 1900s, that measures the gap between those with the highest incomes and those with the lowest.  Over the past 40 years or so, the Gini coefficient has actually lowered, not increased.  Most quotes look at the gross incomes of families … but when transfer payments and tax credits are included for our lowest income (housing allowances, food “stamps”, Earned Income Tax Credit, etc.), we are actually doing pretty good.
The studies indicate the keys to progress are NOT minimum wage increases, more government benefits, and the like.  Indeed, when you compare states experiences, those states with the highest minimum wage, highest levels of benefits, etc., actually have the higher Gini coefficients, on balance.  What’s going on is that those policies chase away workers, business and capital.  They aren’t relatively more prosperous economies.
The key, they show, is having aggressive policies that “raise all boats,” which is pretty hard to do these days because increases in regulations, uncertainties, etc., lower the willingness to expand.  But some states have and are doing it.
Note:  Yes, the past several years have shown a divergence in the Gini Coefficient ... increasing inequality.  The 1% that we disparage got that way and stay that way because they earned enough money, after taxes, to SAVE money they could INVEST.  The stock market has been on a tear … so those who have SAVED have increased their INVESTMENT EARNINGS.  Those of us who work for salaries and wages don’t get those kinds of increases (nor the ups and downs of the stock market, either).  
        How do we resurrect the adage of "Pay Yourself First":  Save 10% of your paycheck and invest it, and live off the rest.
Regarding the Women’s Wage Gap:  If you take the gross wages earned of women vs. men, you get the large gap that our president talks about.  Studies that have built in the impact of differences in skill levels, hours worked, results, etc., find that the gap is still there, but it’s 4%, not  the 23% that is often quoted.

There's concern about the disappearance of the Middle Class.  
       Indeed, one study with a definition of the Middle Class indicated it has shrunk by 10 percentage points over the past 20 years, with 6% moving up and 4% moving down.  The difference was education level.
       Whereas the computer's ability to process data and provide information has eliminated millionss of Middle-Class jobs, it's also true that many formerly manual jobs have become more sophisticated and command higher wages.  That includes many health care jobs, many construction jobs, automotive repair, customer service, some call center, most administrative, teachers, designers ... and the like.  Middle Class jobs are/will be a combination of judgment and use of computer analysis skills ... requiring some training beyond high school, and on-the-job sophistication.  That's the challenge for those who want to be Middle Class.
Others simply won't.  They require much physical work, are easy to learn ... and are in plentiful supply.  They will be worthwhile, but not high-paying, and not family supporting.
Another trend:  A reduction in the costly learning considered a requirement for many "professional" positions ... a reduction to the knowledge necessary, plus on-the-job experience.  Teachers may not need a college degree, attorneys may only need two years of study.  You already see the trend in medical care with the burgeoning of nurse practitioners, hospitalists, and the like.

1 comment:

  1. Phil, I forwarded this to a bunch of my friends and acquaintances... Take Care, Dave