The Growth in Inequality
The results of the neoliberal experiment
In previous posts, we’ve discussed the growing inequality in the United States, but have not focused on the particulars. We’ll do that here.
The fact is that baby boomers grew up in a much more egalitarian country than the one we live in today. Most of us could be confident that we could get a job paying a living wage. That’s not true today. All of the economic expansion of the past 40 years has gone to the top 10% of earners, and much to the top 1%.
Income Diverted to Top Earners
The share of national income of the top 20% of earners grew from 43% in 1968 to 52% in 2018 at the same time the earnings of those in the top 5% grew from 16% to 23% of all national income. In other words, almost a quarter of all income earned in the United States today goes to just 5% of workers.
Most of this came out of the pockets of middle-income taxpayers whose share of national income fell from 62 percent in 1970 to 43 percent in 2018.
The transfer of income and wealth to the top earners in the United States began before 1980. In 1996 in The Future of Capitalism: How Today’s Economic Forces Shape Tomorrow’s World, economist Lester C. Thurow described the decline in real wages and incomes for males between 1973 and 1992 except those in the top 20% of earners and of all families except those in the top 40%. The reason a larger percentage of families than of male workers were holding their own during this period, no doubt, is that more women went to work boosting their families’ incomes.
The decline in manufacturing and other lower-skill jobs explains some of the loss in income for some formerly middle-class Americans. The number of manufacturing jobs in the United States peaked at 19.5 million in 1979, dropped to about 17.5 million in a few years, maintained more or less that level until 2000, and then dropped precipitously to a low of 11.5 million in 2010 following the Great Recession. Manufacturing employemnt has made up some ground during the long recovery since then to average about 12.5 million over the last decade.
Asians and White Women Faring Best in the New Economy
Yet, since 1980, median incomes have trended up for most workers, but especially for Asian Americans and white women. White men, while no better off on average today than they were in 2000, still earn far more than any other group of men or women other than Asian men. During this time, the median income of all men in the United States stayed level, that of white men grew 7%, and the income of Asian American men grew 25%.
At the same time, the median income of women in the United States grew by almost a third. But this was not evenly distributed, with most of this growth went to white and Asian American women, as follows: Hispanic women - 16%, Black women - 21%, white women - 30%, Asian American women - 33%.
Winner Take All CEOs
A marker of how the top 1% has monopolized income growth over the last 40 years has been the skyrocketing pay of corporate executives. While the average CEO of the 350 largest U.S. companies earned 31 times the average worker in 1980, he (and it’s almost always a white man) earns 278 times the average worker today. This ratio actually reached a high of 368 times the average worker in 2000.
Minimum Wage Retrenchment
Most of the change in the ratio of corporate executive to corporate employee income is due to the boost in executive pay and stock options. But some of it is the result of lower pay to American workers. This is reflected in the buying power of the minimum wage, which reached its peak in 1968.
Decline in Tax Rates for the Rich
At the same time, the top marginal income tax rate dropped almost in half from 70% in 1980 to 37% today.
One Factor Leading to Greater Concentration of Wealth
No wonder the picture in terms of wealth is even more distorted that that for income, as those with greater income have been able to accumulate more of it. The share of U.S. wealth of upper-income Americans grew from 60% to 79% between 1983 and 2016 while that owned by middle-income families fell from 32% to 17%.
Not surprisingly, much of this concentration of wealth is in the hands of those baby boomers who have benefited from the economy over the last 40 years, both because they’ve had time to accumulate such wealth and they’ve inherited wealth from their parents. Together, baby boomers and their parents now hold 70% of wealth in the United States. They will pass this on over the coming decades, but it will continue to be concentrated in fewer and fewer hands as the wealthy continue to use their wealth to advocate for policies that permit them to keep it and pass it on to their progeny.
How Did We Get Here?
There are a lot of reasons that inequality in the United States has grown over the last 40 years, some of which have to do with global trends and others the result of policy changes in the United States. These include:
Globalization — American workers increasingly are competing with workers from other countries with lower wage structures.
Technological change — There’s less work available for lower-skilled workers as their jobs are automated at the same time higher-skilled workers can demand more compensation fo their expertise.
The neoliberal experiment — The United States adopted the neoliberal argument that an unfettered economy will bring the best rewards for everyone. This has included lower taxes, less regulation, disempowerment of unions, failure to maintain the minimum wage in response to inflation, and increasing the cost of higher education.
The results of the neoliberal experiment are now in. Fortunately, President Biden is working to end the experiment and correct the results.