Inequality highest in thirty years across most of the developed world.

December 5, 2011 7:33 PM

Divided We Stand: Why Inequality Keeps Rising is the latest report from the OECD Directorate for Employment, Labour and Social Affairs. It finds:

In the three decades prior to the recent economic downturn, wage gaps widened and household income inequality increased in a large majority of OECD countries. [...]Launching the report in Paris, OECD Secretary-General Angel Gurría said “The social contract is starting to unravel in many countries. This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, inequality will continue to rise.”

Links to Overview [.pdf]; press release; notes [.pdf format] for Australia, Canada, the UK, the USA; data link (excel format).
posted by wilful (53 comments total)

Quick fact on the US:

The United States has the fourth-highest inequality level in the OECD, after Chile, Mexico and Turkey. Inequality among working-age people has risen steadily since 1980, in total by 25%.

posted by wilful at 7:45 PM on December 5, 2011

This news isn't really news - it's been talked about for the last decade or more, if you knew where to look.

But it's good to hear about it on the news and to have it - finally - become a part of our public discourse. This report was one of the leading items on CBC radio news.

But I'm feeling pessimistic enough that it will do little to stop the irrational belief in trickle down economics. If 500+ years of economic history couldn't show them the problems with that theory, a mere 30 years directly contradicting it will be ignored as easily as sticking your fingers in your ears and singing, "lalala"
posted by jb at 7:52 PM on December 5, 2011 [7 favorites]

This news isn't really news - it's been talked about for the last decade or more, if you knew where to look.

Yet this trickle-down nonsense is widely believed at least in the US. So perhaps it is worth talking about a little more.
posted by sour cream at 7:56 PM on December 5, 2011

...as you point out in the rest of your comment.
posted by sour cream at 7:58 PM on December 5, 2011

Your Australia link is broken.
posted by unliteral at 8:09 PM on December 5, 2011 [1 favorite]

It's good to see such a plain statement like "This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility" coming from the OECD Secretary-General. They could have just presented the statistics without comment, but instead have given a summary that can be understood even in a news-friendly soundbite. I hope that means that it'll get wider coverage than the report by itself would do.
posted by harriet vane at 8:14 PM on December 5, 2011 [1 favorite]

When something trickles down it does so really slowly and only those very close to the source of the trickle get a drink worth having.
posted by localhuman at 8:34 PM on December 5, 2011 [3 favorites]

Galbraith noted that "trickle-down economics" had been called the horse-and-sparrow theory: 'If you feed the horse enough oats, some will pass through to the road for the sparrows.'"

It fell out of use because everybody realised it was horse shit.
posted by wilful at 8:38 PM on December 5, 2011 [25 favorites]

...except that it hasn't fallen out of use at all. "Job creators", anyone?
posted by ropeladder at 8:44 PM on December 5, 2011 [4 favorites]

It's a feature... not a bug.

And in a situation of natural gravity, the water is dispersed in vapor at the higher levels and rains down, then flows downhill into the oceans. The oceans are the elite rich, the clouds are the poor masses. The "trickle down" analogy is totally backwards, pure anti-science.
posted by oneswellfoop at 9:04 PM on December 5, 2011 [2 favorites]

The increasing povertization of the US is something that has been observed since early 2008 but its really come to the forefront this year. Their Gini coefficient is on par with mostly Sub Saharan nations.

*cough* "Analysts say" they're rapidly becoming a third world nation
posted by infini at 9:15 PM on December 5, 2011

Hustler magazine knew this in the Reagan era. No, seriously. In the 80's, I found some porn in the woods and there was a comic strip featuring porn Reagan that was used to prove just this point in a rather obscene way.

It is disturbing to me that this has been stated, proven and repeated and it is seemingly impossible to dislodge this ludicrous notion that somehow making the rich richer makes everyone richer from a portion of the collective consciousness.

Of course, there are also people who deny evolution and global warming, so what the hell do I know?

Also, jeez, why was I learning that trickle down economics was a lie from porn in the 1980's and not from, you know, my social studies teacher?
posted by Joey Michaels at 9:23 PM on December 5, 2011 [6 favorites]

Hmm. Australia overview seems reasonably solid, with one exception:

... since the mid-1990s ... In most cases, out-of-work income as a proportion of in-work income has fallen, in part due to allowance rates failing to keep pace with wage growth. Only lone parents, whose income support is tied to an average earnings measure and who benefitted from more generous family benefits, were excepted.

This is a little complicated. Since 1997, a number of wage-replacement payments have been linked to a portion of the Male Full Time Average Weekly Earnings (MTAWE), which is the "average earnings measure" mentioned above. More correctly, the pension rate which you access through a variety of payments (Disability, Age, Parenting Payment, a few others) is twice a year first indexed to CPI, then if the amount is still less than a portion of MTAWE, further increased. Interestingly enough, the Family Tax Benefit Part A and B (family payments) were also indexed to MTAWE until the 2009-10 Budget.

However, other payments like NewStart and Youth Allowance (unemployment benefits and student benefits) have been indexed to CPI.

So, some classes of people receiving wage replacements have had their payments growing faster than total average wage growth, while others have fallen behind.

There will be a somewhat significant distributional change with the introduction of the Australia's Clean Energy Future package, which increases almost all transfer payments, and notably increases tax concessions to those earning under $80,000 per annum (people over that get a $3 tax cut if I remember correctly), by an amount more than enough to compensate for the estimated cost-of-living impact of the passed-on costs of a price on carbon.

But I won't fault the OECD too much for not including all that in their otherwise nice overview.
posted by kithrater at 9:46 PM on December 5, 2011 [1 favorite]

From the press release:

The OECD underlines the need for governments to review their tax systems to ensure that wealthier individuals contribute their fair share of the tax burden. This can be achieved by raising marginal tax rates on the rich but also improving tax compliance, eliminating tax deductions, and reassessing the role of taxes in all forms of property and wealth, the report says.

That sounds great, but how are all those reforms supposed to be implemented together? The higher taxes are on the rich, the more incentive the rich have to come up with ways to avoid paying taxes. So anyone hoping to impose a much heavier tax burden on the rich while "also improving tax compliance" would seem to have an uphill battle.

I also don't see how this is a logical train of thought:

In the three decades prior to the recent economic downturn, wage gaps widened and household income inequality increased in a large majority of OECD countries. ... This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility.

Increasing income inequality does not inherently mean the poor are worse off. It just means the gap between the rich and poor is wider. That could mean everyone's situation improved, and the rich's situation happen to improve the most.

Also, inequality is not about mobility. The two are separate concepts. The fact that there's high inequality doesn't mean there isn't high mobility. Mobility is about any given person moving up or down the income ladder over time. The fact that there's always a bottom 20 percent, for instance, doesn't mean the same people are staying in that bottom 20 percent. It's misleading to talk about that statistical category as if it were a group of people called "the disadvantaged" lasting over a long period of time.

Where does that quote even come from? I couldn't find it in the links I checked, and a Google search for it turns up this thread and not much else.

The idea of measuring income by "household" is skewed, which the study recognizes by saying they "correct" for it. I'd like to see a discussion of whether this correcting is accurate.
posted by John Cohen at 10:13 PM on December 5, 2011

That sounds great, but how are all those reforms supposed to be implemented together? The higher taxes are on the rich, the more incentive the rich have to come up with ways to avoid paying taxes. So anyone hoping to impose a much heavier tax burden on the rich while "also improving tax compliance" would seem to have an uphill battle.

There is this thing called "jail". It can be used on rich people, although it seldom is.

Also, inequality is not about mobility. The two are separate concepts. The fact that there's high inequality doesn't mean there isn't high mobility.

It does not necessarily follow, but that does not mean high mobility exists in the USA: The Economist on America's social immobility and inequality
posted by benzenedream at 10:39 PM on December 5, 2011 [2 favorites]

It seems obvious why inequality has grown in the West over the past 30 years: no longer any need to compete with communism by taking care of workers and the middle class. I realize Soviet communism didn't end until 1989 but from Poland and East Germany it was already apparent in the '80s that the war was won.
posted by grubby at 11:06 PM on December 5, 2011 [2 favorites]

a) social mobility is not higher in more unequal developed countries (eg the US, UK). Indeed, both of these countries have lower levels d social mobility than more equal countries (the Scandinavian countries, even Canada).

b) Even if social mobility were extremely high, that is completely irrelevant to the moral or social problems of inequality.

I oppose inequality on moral grounds - as shown so insightfully in The rise of the meritocracy by Michael Young, inequality is unfair, even if the "talented" are moved up the social ladder. What right does anyone have to dismiss the needs and happiness of anyone else, even if they have a lower IQ or learn less quickly? or who have had disruptions to their lives, or just excel at skills that we have deemed "unskilled" (even though they are not - just low status). They, too, deserve a livelihood which allows them to live in a clean, comfortable home, to eat healthy food, and to be able to provide their children with the necessities and some of the nicer things in life.

but it's not just about moral fairness (though that would be good enough for me): high inequality, even when the poorest are relatively rich, brings with it all sorts of social and public health ills. I was talking to an epidemiologist the other day (and I'll boast and say that she really is a world expert on chronic diseases and disability, as well as a friend), and she was saying that for health outcomes, up to a certain level all that matters is base income - how much money/resources people have. But beyond a certain level, inequality has a stronger effect than simply what the lowest incomes are - that is, you can raise bottom incomes, but if higher incomes go up faster and keep the inequality at the same level, you continue to have the same public health problems.
posted by jb at 11:39 PM on December 5, 2011 [15 favorites]

Incomes are measured by households because that is the consumer unit. A man who makes $10,000 a year, but who is married to a woman who makes $100,000 a year is in a completely different economic situation than a man who is single and makes $10k a year. Nor would he and his wife live in the same circumstances a single person making $55k - two together do live more cheaply than two apart.

It's true that household size is a factor in how far money can go (but since household size tends to be related to household income, it's not that big of a deal); it also adds interesting wrinkles when you have blended households who may share some bills, but not others (thus a young person living with their parents may be in an expensive house, but may not have any money for consuming electronic goods or eating out).

But household income is still a better proxy for living standards than individual income.
posted by jb at 11:46 PM on December 5, 2011 [1 favorite]

Where does that quote even come from?

Quote appears to be assembled from here and here.

The idea of measuring income by "household" is skewed, which the study recognizes by saying they "correct" for it. I'd like to see a discussion of whether this correcting is accurate.

Skewed how so? I imagine most statistics agencies collect data on both households and individuals (I know the Australian one does), and if so it is not a problem of using real vs
constructed data. Using household figures to determine disposable income is more appropriate than using individual income because many countries have partial-or-full family-based taxation regimes, and you want to use disposable income and not gross income as a comparison point because different countries have different taxation regimes.

The usage of "corrected" is to indicate that the report adjusted the incomes to reflect differing average household sizes between countries, which again seems sensible. Furthermore, the report states that the figures being used are equivalised disposable household income, a measure which already corrects for household size within countries.

It's misleading to talk about that statistical category as if it were a group of people called "the disadvantaged" lasting over a long period of time.

I'd say the bottom 20 per cent is made up of three groups: most young people with low-paying jobs due to inexperience and lack of qualifications, poor old people who don't survive on pensions, and a group who can properly be called "the disadvantaged" - people with disability, the long term unemployed, the homeless, etc.. All three groups usually have a smaller than average household size.

The fact that there's high inequality doesn't mean there isn't high mobility.

All else being equal, then the higher the inequality the less mobility. If we divide society in to five quintiles of income, and if the distance between the midpoint of each quintile is greater, it is harder for me to move from one quintile to the next - instead of only having to increase by income by $5000, I might have to increase it by $6000 to jump in to the next quintile.
posted by kithrater at 11:53 PM on December 5, 2011 [4 favorites]

the higher the inequality the less mobility

Yes, and also because preserving inter-generational continuity of privilege is a privilege in itself. Thus, in a country where the rich are more privileged, they are better able to protect their children from the threat of competition from talented outsiders.
posted by communicator at 12:21 AM on December 6, 2011 [4 favorites]

Economics are not a zero-sum game, but wealth doesn't appear out of thin air; it requires labor and resources. However, the upper classes in developed countries are based largely on innovation (e.g. technology), organization (e.g. finance), and/or inheritance. While these things can encourage the creation of wealth, you can't eat any of them (i.e. they create no wealth for themselves). Thus, the idea that wealth "trickles down" from the already-wealthy is ridiculous on its face... it must first percolate up.

So as I've said before, Escher perfectly depicted the trickle-down model. Pro tip: it's never a good sign for a philosophy to be best depicted by an Escher work.

This is compounded by other factors. No matter how much your society supports economic mobility, there must also be wealth mobility; in other words, it doesn't matter how clear your arteries are if the blood's not pumping. So the simple fact that lower- and middle-class people spend a larger percentage of their money means that they will better drivers for mobility, all else being equal.

Furthermore, not only do lower- and middle-class people spend more of their money, they're more likely to spend it on things that drive wealth creation - food, consumer products, etc... so they spend more money, on things that inherently drive more social mobility. It's perfect.

All of the above is really simple and obvious, and we'd be naïve to assume it has escaped those who influence our economic policy. One can only conclude that social mobility is simply not their priority, and the advocacy of trickle-down economics is largely a smokescreen for a different agenda.

Well duh, of course it is. The already-wealthy have a disproportionate influence on policymakers, and they have little to gain from a richer society (because, wait for it, they're already wealthy!). However, they have a lot to lose if they were to be displaced by an upstart entrepreneur. Thus, as far as the upper class goes, we can only rely on those who support social mobility for ethical reasons, or those who have an innate desire to be a big fish in a bigger pond.

The former brings us to the culture of capitalism, which has increasingly idolized Gordon Gekko-style competitive practices (while superficially denouncing specific unethical behavior). It's a dog-eat-dog world. It's kill-or-be-killed. Is it any wonder that these ethical principles don't exactly translate into support for selfless economic policies?

But you know, this might be okay if the upper class had more empire-builders, those of the aforementioned "bigger pond" mold. Enter modern consumerism, which no longer reveres power and influence for its own sake. Now, you're measured more by the size of your yacht than the size of your fiefdom. For the modern rich, once you reach the level of wealth where you have everything you personally want and feel you're doing better than the Joneses, you can stop. You've won.

Obviously, there are exceptions and you can't boil down individual behavior into simple black-and-white motivations, but I see the above as the primary societal trends that make it so powerful people don't care about social mobility.

So where does that leave us?

• We have to reinvigorate the lower and middle classes politically. What they lack in money, they make up for in numbers, and the voting process isn't completely fucked in most developed nations. Winning new converts to our political cause is part of it, but in a lot of cases it means driving more participation and turnout from those who already agree with us. On the American side, my personal stance (and please let's not turn this into a referendum on this issue; just stating my opinion...) is that the Democratic Party is the only viable avenue for these policies on the national stage. The left is becoming cynical and apathetic, so Democrats are moving to the right because that's where the votes are. But it's still the party of unions, and of social services, and it can be the party of more leftist causes if the left chooses to rejoin the game (and it'd be nice to see the right wing have to chase votes to the left for a change). Rallying around the Occupy movements is also great. Don't believe the common criticism that they don't have a coherent message... your voice would be part of the movement's voice, your message is its message. And its focus, largely, is on exactly the issues we're talking about here.
• We have to bolster the culture of ethics and morality. From context, it should be obvious I don't mean the Christian Right's version of those terms; I'm specifically referring to teaching equality as a virtue (cue "communist" scaremongering, but the key point here is that equal opportunities are desirable). This message should be so ubiquitous that Randianism is readily recognized as the joke that it is, so we don't have to waste time on that argument. We can change human nature, because we wouldn't be here at all if we (as a species) hadn't decided at some point to work together instead of against each other. It's just a shame that religious discourse has been so thoroughly appropriated by right-wingers, I think it discourages the religious left and deprives us of major community organization opportunities (see the major role of churches during the U.S. civil rights era).
• Counter the demonization of unions, and denounce union-busting tactics. There's this presumption that unions are permanently tarred with every criminal act ever committed on their behalf, and yet dozens of multinational corporations that aided the Nazis get off the hook with a decades-delayed press release. Any organization of significant size is inevitably going to have corruption. When it occurs, we should address it head-on, and then work to remove the incentives that led to the corruption in the first place. But without unions, employment is inherently asymmetrical. You will always individually be much more replaceable to your employer, than it is to you. Incentives again... that asymmetry gives your employer the incentive to take advantage of you, and you have minimal recourse without a union taking your back.
• Be the change we want to see. This doesn't mean making an occasional donation to a left-leaning cause, although that's also good. Instead, it means choosing ethical companies for our personal purchases and investments. We don't always have to be saints about it, but figure out the things we buy all the time and try to find a responsible manufacturer. Good habits are easy to form and hard to break. If anyone has a good resource for identifying ethical brands (one with more useful recommendations than buying all your clothes from "Sarah's Green Organic Shoppe" in Skokie, IL) I would welcome it.

And that's all I have to say about that.
posted by Riki tiki at 1:44 AM on December 6, 2011 [17 favorites]

Until I see one of these studies take non-wage/salary income, taxes, non-wage/salary benefits, and transfer payments into consideration, I'll remain skeptical of "studies" like this. Everybody knows that wages/salary aren't the only sources of income, that the more money you make the more taxes you pay, and that transfer payments like Social Security and Medicare are real things. But no one looks at them when calculating "income inequality".

I wouldn't be at all surprised if, once we took those things into account, inequality has actually been pretty flat for the past fifty years.
posted by valkyryn at 2:32 AM on December 6, 2011

We will always have execution and confiscation.
posted by CautionToTheWind at 3:09 AM on December 6, 2011

Until I see one of these studies take non-wage/salary income, taxes, non-wage/salary benefits, and transfer payments into consideration, I'll remain skeptical of "studies" like this. Everybody knows that wages/salary aren't the only sources of income, that the more money you make the more taxes you pay, and that transfer payments like Social Security and Medicare are real things. But no one looks at them when calculating "income inequality".

Apparently the OECD count as part of "everybody". From the overview (pp.26):

It is useful, therefore, to consider the following concepts...

* Household market income inequality (including incomes from capital, savings and private transfers).

*Household disposable income inequality (taking into account public cash transfers received and direct taxes paid)

*Household adjusted disposable income inequality (taking into account the values of publicly provided services such as health or education).

Box 1 outlines how they went about the process of getting to the final stage used for comparisons, the household adjusted disposable income inequality measure.
posted by kithrater at 3:24 AM on December 6, 2011 [8 favorites]

The OECD has no choice but to take these kinds of payments into account since many of their member countries offer such facilities as universal healthcare, payments for old age, childcare or unemployment and other elements of the social safety net more prevalent in Europe.

A snippet on their history from their website

The Organisation for Economic Co-operation and Development (OECD) is celebrating its 50th anniversary, but its roots go back to the rubble of Europe after World War II. Determined to avoid the mistakes of their predecessors in the wake of World War I, European leaders realised that the best way to ensure lasting peace was to encourage co-operation and reconstruction, rather than punish the defeated.

The Organisation for European Economic Cooperation (OEEC) was established in 1947 to run the US-financed Marshall Plan for reconstruction of a continent ravaged by war. By making individual governments recognise the interdependence of their economies, it paved the way for a new era of cooperation that was to change the face of Europe. Encouraged by its success and the prospect of carrying its work forward on a global stage, Canada and the US joined OEEC members in signing the new OECD Convention on 14 December 1960. The Organisation for Economic Co-operation and Development (OECD) was officially born on 30 September 1961, when the Convention entered into force.
posted by infini at 3:33 AM on December 6, 2011 [1 favorite]

Apparently the OECD count as part of "everybody".

They still don't include non-wage/salary benefits. As a result, the US winds up looking considerably worse than it might otherwise, as employer-provided health insurance is a huge percentage of most employed Americans' actual compensation. Increases in employer-provided health insurance costs have eaten up a decade of income growth. Not only have out-of-pocket costs gone up markedly, but employers are basically shunting raises into increased premiums.

The OECD does not take this phenomenon into account.
posted by valkyryn at 3:57 AM on December 6, 2011 [1 favorite]

The OECD does not take this phenomenon into account.

It might. Unfortunately, I don't have access to the full report at the moment, so if (or how) non-wage/salary benefits are being accounted for is not readily apparent. My presumption is that given the level of detail these kind of reports go in to, the OECD will have mentioned it somewhere, if at least to make a note that they're not including it.

In any case, I don't see how if the report excluded employer-provided health insurance it would make the US look comparatively worse in terms of US-based inequality. Presumably, those people without jobs that offer employer-provided health insurance are overwhelmingly poorer, (with the exceptions such as wealthy self-employed would be a small portion). The exclusion of the employer-provided health insurance from calculation of household income would remove a lot of income from the wealthier, while removing relatively little from the poorer, and appear to improve the overall US equality.
posted by kithrater at 4:17 AM on December 6, 2011

The exclusion of the employer-provided health insurance from calculation of household income would remove a lot of income from the wealthier, while removing relatively little from the poorer, and appear to improve the overall US equality.

Quite the opposite. Most of the people with employer-based health insurance are actually middle class. By an overwhelming majority. The bottom quintile doesn't probably get heath coverage, but the second, third, and fourth probably do. So we're talking about significantly under-counting the income of about 60% of the country, from the 20th to 80th percentiles. This is going to significantly increase perceived income inequality, because non-wage/salary health benefits are a larger percentage of the income of a person who makes $40,000 than a person who makes $150,000. Potentially much larger if that person is a union or government employee, i.e. twelve percent of the workforce.

Does eliding this eliminate income inequality? Certainly not. But it will significantly skew the growth of income inequality, particularly as a larger and larger percentage of compensation is in terms of non-wage/salary health benefits as time goes on. The way this works is that though incomes generally grow on a percentage basis, in group care plans, upper management has the same policy and pays the same amount as the receptionist. This is actually now required by federal law, though it's been true for a while. But the receptionist sees a much higher percentage of her total compensation tied up in those benefits. So say everyone in the company has a health policy that costs $5,000 total. Say everyone gets a 3% raise, and everyone's health care package costs an extra 20% (which is totally realistic, by the way). The assistant VP who was making $100,000 now makes $103,000, and the receptionist making $25,000 now makes $25,750. But their health plan, which cost $5,000 each, now costs $6,000. The AVP used to see 5% of his salary go to health care and now sees 5.8%, but the receptionist was paying 20% and is now paying 23.3%, a much larger percentage and a much larger increase. On a percentage basis, the receptionists' total compensation has actually grown more than the AVP's (5.8% v. 3.8%), and her total compensation is now a higher percentage of his (28.6% then v. 29.1% now) even though their actual salaries are even farther apart than they used to be.

But wait a sec. Total compensation didn't actually go up by 3% here. Under these numbers, the AVP would get an effective raise of 3.8%, but the receptionist would get an effective raise of 5.8%. Which is why the receptionist probably isn't getting much of a raise this year. If everyone is going to get a raise of the same percentage, the AVP needs to get his 3% and the extra $1,000 in benefits, but the receptionist only gets an 0.56% raise and the extra $1,000 in benefits. In effect, the vast majority of her compensation increase comes in the form of increased benefits, and her salary hardly changes while his goes up 3%, for a significant increase in perceived income inequality.

This is actually a pretty major talking point for supporters of national health care, so I'm surprised it's controversial.
posted by valkyryn at 5:15 AM on December 6, 2011

valkyryn: Health care benefits are more generous (and thus more expensive) for those at the high end of the scale. Moreover, as of 2008, less than 60% of Americans had employer-based health care. Claiming that these rising costs - which exclude over 40% of the country - offset all of the very clearly documented increase in income inequality is a thin, unsubstantiated objection.

Moreover, it's irrelevant for the majority of the countries in the report, which have government-based health care.

Adjusted for inflation, lower wages have not just been flat - they have seriously decreased. The introduction of a second income as more women went to work offset this for a bit, but the reality is stark. In my own hometown - Toronto - the plurality of households made an income within about 20% of the median income in 1970 - the graph of household incomes was a nice bell curve (quite narrow one too). Now the plurality of households make below 80% of the median, while there is smaller bump for income at 140%+ of the median - graphed, there are two distinct bumps like a lopsided camel. My city really is now a city of inequality.
posted by jb at 6:09 AM on December 6, 2011 [6 favorites]

just to reiterate my point: most organizations do not offer the same health care benefits to someone making $25,000 a year as to someone who makes $100,000. Pretending that they do - and then using that to dismiss a report of this stature is naive at best and disingenuous at worst - even if you do throw a lot of theoretical numbers at it.
posted by jb at 6:13 AM on December 6, 2011 [3 favorites]

And inequality in the U.S. has soared in the last couple of years, since the Gini Coefficient was last calculated, so it is undoubtedly currently much higher.

So why are Egyptians rioting, while the Americans are complacent?

Well, Americans – until recently – have been some of the wealthiest
people in the world, with most having plenty of comforts (and/or
entertainment) and more than enough to eat.

But another reason is that – as Dan Ariely of Duke University and Michael I. Norton of Harvard Business School demonstrate – Americans consistently underestimate the amount of inequality in our nation.

As William Alden wrote last September:

Americans vastly underestimate the degree of wealth inequality in America, and we believe that the distribution should be far more equitable than it actually is, according to a new study.

Or, as the study’s authors put it: “All demographic groups — even those not usually associated with wealth redistribution such as Republicans and the wealthy — desired a more equal distribution of wealth than the status quo.”

The report … “Building a Better America — One Wealth Quintile At A Time” by Dan Ariely of Duke University and Michael I. Norton of Harvard Business School … shows that across ideological, economic and gender groups, Americans thought the richest 20 percent of our society controlled about 59 percent of the wealth, while the real number is closer to 84 percent.

Here’s the study. VIA
posted by infini at 6:22 AM on December 6, 2011 [1 favorite]

But their health plan, which cost $5,000 each, now costs $6,000. The AVP used to see 5% of his salary go to health care and now sees 5.8%, but the receptionist was paying 20% and is now paying 23.3%, a much larger percentage and a much larger increase. On a percentage basis, the receptionists' total compensation has actually grown more than the AVP's (5.8% v. 3.8%), and her total compensation is now a higher percentage of his (28.6% then v. 29.1% now) even though their actual salaries are even farther apart than they used to be.

I think you are missing something here. It seems to me that you are conflating nominal and real dollars in a way that makes your rhetorical point but only obfuscates the issue.

If the cost of health insurance rises 20% year-over-year, as in your example, and that cost is covered by your employer every year, you are receiving a raise in nominal dollars. Neither your standard of living nor your spending power have increased. You're not any richer.

At the same time, the unemployed, and those whose employer does not cover all or part of this increase, see their standard of living and spending power decline over the same period. They have to spend more today to get what they had yesterday. They are poorer.

Since some non-zero part of the population falls into the second category, inequality rises across the population with every increase in health insurance premiums.
posted by gauche at 6:28 AM on December 6, 2011 [1 favorite]

In effect, the vast majority of her compensation increase comes in the form of increased benefits, and her salary hardly changes while his goes up 3%, for a significant increase in perceived income inequality.

I'm confused by the use of the word 'perceived' here. In your scenario, the more one earns, the less they have to pay for health care as a percentage of income.
posted by romanb at 6:28 AM on December 6, 2011

just to reiterate my point: most organizations do not offer the same health care benefits to someone making $25,000 a year as to someone who makes $100,000.

Uhh... really? Not been my experience at all. I've seen multiple HR departments, and it's all been pretty much the same. As an associate attorney, I get exactly the same plan as my secretary.
posted by valkyryn at 6:32 AM on December 6, 2011

If the cost of health insurance rises 20% year-over-year, as in your example, and that cost is covered by your employer every year, you are receiving a raise in nominal dollars. Neither your standard of living nor your spending power have increased. You're not any richer.

In a sense, perhaps, but in a sense, you are. You're just spending more money than you used to on health care. Which may well not be where you want to spend that money and is an excellent argument for divorcing health insurance from employment, simply because it obfuscates what's really going on with income growth.

As to the rest of your point, we're still talking about 60% of the country here. Saying that something which has a significant effect on the consumption numbers of more than half of the country doesn't matter in terms of figuring out income inequality just strikes me as completely implausible.
posted by valkyryn at 6:37 AM on December 6, 2011

whereas when I was a junior employee at one organization, my benefits would not cover my spouse; those of more highly paid people covered spouses and children. And in my current job, I have no benefits, while my superior has excellent benefits.

you can't generalize from one organization.
posted by jb at 6:39 AM on December 6, 2011 [1 favorite]

you can't generalize from one organization.

Neither can you. In any case, we're still talking about a potentially significant factor on income growth an inequality, and I want to see those numbers.
posted by valkyryn at 7:02 AM on December 6, 2011

we wouldn't be here at all if we (as a species) hadn't decided at some point to work together instead of against each other

That puts it rather nicely, but I can't even say it with a straight face. We as a species have never decided any such thing -- certain groups, in some cases quite narrow subsets of our species, may have decided for various reasons to work together, but almost immediately used the powered derived from that cooperation, and that derived by dint of geography, to dominate or exterminate anyone who wasn't interested in getting with the program.

You have to stretch pretty hard to call that a "decision." It's a decision in the same sense that you might "decide" to let a mugger take your wallet when they have a gun pressed in your kidneys.

Certainly that cooperation has been nice in many of its effects, but lets not pretend that everyone sat around in a circle and decided that it would be mutually beneficial to play along. Many, if not most, societies may have preferred to remain isolated and not 'cooperate' with the dominant paradigm (to say nothing of individuals), but were not given that option.
posted by Kadin2048 at 7:06 AM on December 6, 2011

In a sense, perhaps, but in a sense, you are.

Yes. In a nominal sense. Like I said. You're spending more to get the same standard of living, and you can afford to spend it.

As to the rest of your point, we're still talking about 60% of the country here. Saying that something which has a significant effect on the consumption numbers of more than half of the country doesn't matter in terms of figuring out income inequality just strikes me as completely implausible.

40% of the population are worse off, year-over-year, due to health insurance costs rising. Their standard of living, their purchasing power, declines every year in your example. 40%. Let's say that the remaining 60% get a nominal raise every year such that their standard of living remains the same. We'll ignore any other kind of raises or bonuses that the top (say) 10% may also be getting: we'll just stipulate that 60% stay where they are, and 40% fall further and further behind.

This is the very stuff of inequality. You're not talking about a few folks at the margins: you're talking about 40% of the population watching their dollar go less and less far every year, while the 60% remain at the same standard of living.
posted by gauche at 7:07 AM on December 6, 2011 [3 favorites]

Neither can you.

So... is this a meaningless phrase intended just to be contrary and argumentative, or are you actually arguing that one can't use a small set of items that are different to show that not all items in the superset are the same?
posted by IAmUnaware at 7:13 AM on December 6, 2011 [3 favorites]

Note that this is just a discussion of how health insurance costs lead to inequality: it does not take into account the increases in other kinds of costs such as higher education; housing; and decaying public infrastructure also contribute to inequality.
posted by gauche at 7:13 AM on December 6, 2011

To those of us who have been shouting from the rooftops for three decades, this can be summed up in three words: VERY FUCKING OBVIOUS.
posted by Benny Andajetz at 7:20 AM on December 6, 2011 [2 favorites]

What a shock that tax policies specifically designed to redistribute wealth upwards would lead to dramatically increasing imbalances in wealth distribution. There must be something wrong with these results; double check the math! No? Okay, let's debate the foundations of math, then!
posted by saulgoodman at 7:28 AM on December 6, 2011 [6 favorites]

I'm doing my final ENG112 paper on this. My thesis is that people should support OWS because it has successfully drawn attention back to the real issue that threatens our democracy: the increasing income disparity between the super rich and the rest of the country, fueled by taxpayer funded bank profits and enabled by a political class that is more interested in the favor of the rich than the good of the country. You guys have been providing me with great sources every week, thanks.

The only thing I really have to add to the discussion right now is a link to Wealth, Income, and Power by G. William Domhoff, Professor of Sociology at the University of California. His paper mainly focuses on wealth distribution between the top 1%, 20%, and bottom 80%, and it also talks about inheritance and estate taxes, home ownership, and much, much more. The reason I bring it up here is because it also talks about the Gini Coefficient and income equality in other countries, so it should be of interest to those of you that care about this stuff.
posted by daHIFI at 8:53 AM on December 6, 2011 [1 favorite]

Most of the people with employer-based health insurance are actually middle class. By an overwhelming majority. The bottom quintile doesn't probably get heath coverage, but the second, third, and fourth probably do. So we're talking about significantly under-counting the income of about 60% of the country, from the 20th to 80th percentiles.

Let's go hunting for figures.

About 55 per cent of the US population is covered by employment-based insurance.

By household income (about 2/3rds way down the page), that breaks down as:

* Less than $25,000 - 15 per cent (as in, 15 per cent of the population is in a household that earns less than $25,000 and is covered by employer-based insurance)
* $25,000 to $49,999 - 42 per cent
* $50,000 to $74,999 - 64 per cent
* $75,000 and over - 80 per cent.

So clearly the greater the household income, the more likely that household is going to be covered by employer-based insurance. The median US household income is $49,445, so we could restate the above table to look like this:

* Poorest 50 per cent of households covered by employer-provided insurance: 30 per cent
* Richest 50 per cent of households covered by employer-provided insurance: 75 per cent.

Granted, these figures are not equivalised household - there are only 130 million people in the bottom 50 per cent of households, as opposed to 175 million in the richest 50 per cent. However, even without equivalising, the very large disparity between the two halves indicate that if we don't count employer-provided insurance in disposable household income, we are understanding the top half of households by far more than we are the bottom half of households.
posted by kithrater at 3:01 PM on December 6, 2011 [4 favorites]

Apologies, final link is a mis-link. The correct link is as follows: http://www.census.gov/hhes/www/cpstables/032011/hhinc/new01_001.htm
posted by kithrater at 3:11 PM on December 6, 2011 [1 favorite]

Thank you very much, kithrater, for taking the time to look that up. Though I think you meant that 15% of households with $25k or less have health insurance? And 42% of households earning 25k-49k, etc.

So it appears that employer-based healthcare or not is itself very unequal. Even in a country like Canada, where basic health care is supposed to be universal, so much necessary care - like eye examinations, dentistry and prescriptions - is paid for by the working poor out of pocket (or they just do without), while more well-to-do people are much more likely to have employer-based benefits that cover them. My mother finally has dental coverage - now that she makes twice as much as she did before. I don't have dental coverage on an income of $42,000 a year; my boss does on an income of $100,000 a year. Those who could most easily afford to pay out of pocket are so often those who don't have to.
posted by jb at 4:28 PM on December 6, 2011

Though I think you meant that 15% of households with $25k or less have health insurance?

No. The healthcare data is on an individual basis - if you look at the raw numbers, and not the percentages, it gives a total of 306,110, which is thousands of individuals, or the US population of ~300 million. So it is not true to say 15 per cent of households have both less than $25,000 of income and employer-provided health insurance. It is true to say that 15 per cent of individuals, or 12,000 out of 72,000, live in households that have both less than $25,000 of income and employer-provided health insurance.
posted by kithrater at 4:45 PM on December 6, 2011

For the very rich and for corporations, the idea of nations is an antiquated one. A big part of widening inequality has to be the globalization legislation that has allowed corporations to become truly global entities and shifting jobs all around the world while maintaining a small elite corporate management structure that greatly enriches the corporate officers and major shareholders.

"Job creators", anyone?

Jobs are being created, just not in the places they used to be.
posted by cell divide at 4:53 PM on December 6, 2011 [1 favorite]

Bleh.

That is, it is true to say that of the 72 million people who live in households which earn less than $25,000, 12 million of those people are covered by employer-provided health insurance.

Even better news, I now have my hands on the full report. And valkyryn, you appear correct. My understanding of the detailed report methodology is that they do exclude what are termed "fringe benefits" from the calculation of income, and explicitly identify employer-provided health insurance as one such fringe benefit.
posted by kithrater at 4:55 PM on December 6, 2011

But if that benefit were included, would "incomes" then be more or less equal? The evidence you found from the census, kithrater, suggests that far from making up for direct income-inequality (as valkyryn suggested), fringe-benefits are themselves highly unequal and the lack of benefits for poorer people contribute to inequality in the US.
posted by jb at 6:19 PM on December 6, 2011

My thinking is that for a point-in-time comparison, including employer-provided medical insurance as part of income would likely show an increase in inequality within the US, because as sketched out above households earning more than the median income are more than twice as likely to have employer-provided insurance than those households earning less than the median income.

Crunching the numbers to properly equivalise household sizes and show comparative advantages to each quintile would properly resolve the question, but unfortunately the US Census data for health insurance doesn't break neatly in to quintiles, and it's only blind luck it does almost split either side of median income.

For an across-time comparison, I don't have access to nearly enough data nor time to properly answer that, nor a good enough gut feel for how US employer-provided health insurance adequacy has changed since the 1980s to make a reasonable guess at it.
posted by kithrater at 7:00 PM on December 6, 2011 [1 favorite]

The opposite of poverty is not wealth - it is justice. The objective is to create a more just society, not necessarily a wealthier one. And the great question is how do we do this?"- Leonardo Boff, Franciscan Theologian, Brazil.
posted by infini at 10:09 PM on December 6, 2011 [1 favorite]