Category Archives: Econ Data

The Worsening Distribution of Income: The Top 1% vs. the Other 99%

Posted on by

The Occupy Wall Street and related groups have brought to the fore concerns about the distribution of income in the US.  And there is validity to these concerns, as the distribution of income has deteriorated markedly in recent decades, starting with the Reagan period in the 1980s.  The share of the top 1% has well more than doubled, to a level not seen since the 1920’s just prior to the Great Depression, with this coming out of a declining share of the bottom 90%.

The graph above is taken from material assembled by Professor Emmanuel Saez and his colleagues and co-authors, and is available through his web site (link here). The specific data here is from a July 2010 update of material originally published by Professor Saez with Professor Thomas Piketty in 2003, with data now through 2008.  Professor Saez and colleagues from around the world have assembled an amazing set of data for a large number of countries, using tax return data to produce long time series of family (tax unit) income levels.  Such data can go much farther back in time than available income surveys will allow, to produce historical data otherwise unavailable.  While there are drawbacks (for example, tax units are not always the same as the household units one would prefer), nothing else can span such periods of time.

The US data show that there was a previous boom in the 1920s in the income share of the top 1%, peaking at 23.9% of national income in 1928.  But the share then fell in the Great Depression and during World War II, and with the reforms and structural changes implemented during that period, eventually came to about a 10% share in the 1950s and 1960s, and to about 9% in the 1970s.  But it then started to grow, and reached a 23.5% share in 2007.  It fell back in 2008, with the onset of the financial collapse in the last year of the Bush Administration.  But as noted in this blog posting of November 26 on this site, profits rebounded in 2009 to now, so it is likely the top 1% share has also rebounded.

It is also interesting that this increase in income concentration is essentially only at the very top:  the top 1% is seeing almost all of the increase.  Those in the 90 to 95% percentile, and in the 95 to 99% percentile, have seen some trend rise in their income shares in recent decades, but they have been close to flat.  Rather, the higher share of the top 1% has come out of a falling share of the bottom 90% (the shares of all groups together must sum to 100%).  The share of the bottom 90% has dipped to about 50%, from a level of about 65% (plus of minus a percentage point or two) from 1942 to 1982.  This is a remarkable change after four decades of such stability.

Another interesting calculation, done by Professor Saez, found that 52% of the increase in real national income between 1993 and 2008 accrued to the top 1% of families, even though this top 1% only had a 14% share of national income at the start of this period (and 21% at the end).  That is, more than half of income growth over this 15 year period went to just the top 1% of the population, and where this group accounted for only a 14% share of income at the beginning.  Had the growth been balanced, the top 1% would have obtained 14% of the income growth, not 52% of it.

The data here does not explain why there has been this increasing concentration of income in the US.  One has also seen increasing concentration in other countries around the world in recent decades (the data is available here), which suggests some basic global structural changes are part of the cause.  But the global pattern has not been as extreme as in the US, suggesting that policy changes in the US begun under Reagan and continued since, are also part of the cause.

Unemployment Rate Drops, but How Significant?

Posted on by

The US unemployment rate dropped by a quite large 0.4% points in November, from the previous 9.0% to 8.6%, according to the December 2 release of the US Bureau of Labor Statistics.   But the drop did not generate much excitement among analysts.  Why?

While at first glance, such a drop would generally be viewed as quite positive, an analysis of the underlying numbers suggests caution.  The estimated number of unemployed fell by 594,000, to a total of 13,303,000.  A fall of 594,000 is major.  However, the estimated increase in the number of employed was only 278,000.  Why the difference?  The reason was an estimated reduction in the size of the civilian labor force of 315,000.  Hence only a bit less than half (47%) of the fall in unemployment came from more workers being employed.  A bit more than half (53%) came from workers leaving the labor force.

Workers may leave the labor force for many reasons, including retirement, but also because they may be unemployed and see little prospect in getting a reasonable job.  Furthermore, the labor force will normally grow (rather than contract) over time as the population grows, but month to month it can vary.  In recent years it has been unusually flat or even falling in the face of high unemployment and hence poor job prospects for many.  Older baby boomers may also be dropping out of the labor force and taking early retirement.

In addition, it is not clear that the estimated increase in the number of employed, of 278,000 in the month, is accurate.  In the same December 2 release, the BLS stated that the number of employed in the month was only 120,000.  Why the difference?  The reason is that both are estimates obtained from surveys, and the figures come from two different surveys.  The 278,000 figure that accompanied the unemployment estimates comes from a survey of households.  The 120,000 figure comes from a survey of establishments (generally firms, but including governmental entities and other employers).

Over time the figures will on average be close to each other, but they can differ in any given month.  Coming from surveys, they are both subject to sampling errors, where it should be kept in mind that both of these figures are the relatively small differences between two estimates (for October and November) of the much larger number of total workers employed in that period.  Furthermore, the timing of the surveys within the month will differ.  Finally, there are some definitional differences, although such differences probably do not affect too much the estimates of the change in employment levels between the two periods.  The household survey asks whether the person has been employed in any occupation during the period.  The establishment survey surveys employers of non-farm workers.  Hence the household survey will include (and the establishment survey will not) those employed on farms, the self-employed, unpaid family workers, private household workers, and those on unpaid leave from work.  The establishment survey, on the other hand, will count each worker, and hence a worker with two jobs will be counted twice.  There are some other small differences as well.

The difference between the two estimates, of 278,000 more employed vs. 120,000 more employed, is large.  The estimates are also preliminary and hence subject to change.  Observers will therefore be looking at the trends over the next few months to see which estimate was likely the more accurate.

Employment Growth Continues, But at Too Low a Rate

Posted on by

The monthly change in employment figures continue to show growth in total employment, although at rates that remain too low for a reasonable recovery.  Total non-farm employment, both private sector and government, grew by 120,000 in November, based on the Establishment Survey conducted by the Bureau of Labor Statistics.  This total of 120,000 reflected an increase of 140,000 in private employment, offset by a decline in 20,000 in government employment (primarily state and local governments, which account for 87% of government employment in the US).

The 120,000 figure is too low.  Based on employment growth seen during recent periods of growth in the US, the figure would need to be roughly 200 to 250,000 per month for a sustained period for unemployment to decline on a sustainable basis.

The decline in government employment is hurting this.  If government employment were growing at a more historically normal rate of 20,000 per month rather than falling by 20,000 per month, total employment would growth in November would have been 160,000 by this direct effect alone.  That would by itself have accounted for about half the increase one would need to get to the lower end of the 200 to 250,000 band one needs (160,000 is half way between 120,000 and 200,000).  Furthermore, once one recognizes that there will be multiplier effects as well from such increased direct government employment in this economy (with its still very high unemployment), then with a multiplier of only just one (i.e. one additional private job for every additional government job, due to the resulting demand for goods and services from the new government workers), one would have gotten all the way to the 200 to 250,000 band.  And with a not unreasonable multiplier of two, one would be at 240,000, near the top end of this band.  That is, a major reason for the sluggish growth in employment in the US is the cut-backs being forced by conservative politicians on our government.  And they say they are forcing these cut-backs in the interest of “job creation”.

It is also of interest to look at the monthly employment figures in the longer term context.  Obama is being repeatedly blamed by Republican politicians for the high unemployment in the US, but the graph above clearly shows the turn-around that began precisely at his inauguration in January 2009.  At that point, the economy was in free-fall.  This first decelerated, and then, from the summer of 2009, the economy started to grow.  The turnaround and subsequent growth was a result of a large number of government programs rapidly put in place (including, to be fair, programs put in place at the end of the Bush Administration, such as TARP).  Note that the bump in government employment in the spring of 2010 was due to temporary workers hired for the decennial population census, where these jobs then were finished a few months later.  Indeed, the figures do not show a significant number of net new government jobs created in 2009 or since as a result of the stimulus package of Obama.  Government employment has in fact declined since Obama took office.  At most, the stimulus programs reduced the number of government job losses that might otherwise have taken place.

In sum, employment turned around dramatically in January 2009, when Obama took office, and there has been positive overall job growth since early 2010.  But job growth needs to be higher for unemployment to decline to acceptable levels, and it has proven difficult to do this in the face of a contracting government sector.