From: The New York Times
May 15, 2005
Shadowy Lines That Still Divide
By JANNY SCOTT and DAVID LEONHARDT
There was a time when Americans thought they understood class.
The upper crust vacationed in Europe and worshiped an Episcopal
God. The middle class drove Ford Fairlanes, settled the San
Fernando Valley and enlisted as company men. The working class
belonged to the A.F.L.-C.I.O., voted Democratic and did not take
cruises to the Caribbean.
Today, the country has gone a long way toward an appearance of
classlessness. Americans of all sorts are awash in luxuries that
would have dazzled their grandparents. Social diversity has
erased many of the old markers. It has become harder to read
people's status in the clothes they wear, the cars they drive, the
votes they cast, the god they worship, the color of their skin.
The contours of class have blurred; some say they have
disappeared.
But class is still a powerful force in American life. Over the past
three decades, it has come to play a greater, not lesser, role in
important ways. At a time when education matters more than
ever, success in school remains linked tightly to class. At a time
when the country is increasingly integrated racially, the rich are
isolating themselves more and more. At a time of extraordinary
advances in medicine, class differences in health and lifespan are
wide and appear to be widening.
And 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. [Click
here for more information on income mobility.] In fact, mobility,
which once buoyed the working lives of Americans as it rose in
the decades after World War II, has lately flattened out or
possibly even declined, many researchers say.
Mobility is the promise that lies at the heart of the American
dream. It is supposed to take the sting out of the widening gulf
between the have-mores and the have-nots. There are poor and
rich in the United States, of course, the argument goes; but as
long as one can become the other, as long as there is something
close to equality of opportunity, the differences between them
do not add up to class barriers.
Over the next three weeks, The Times will publish a series of
articles on class in America, a dimension of the national
experience that tends to go unexamined, if acknowledged at all.
With class now seeming more elusive than ever, the articles take
stock of its influence in the lives of individuals: a lawyer who rose
out of an impoverished Kentucky hollow; an unemployed metal
worker in Spokane, Wash., regretting his decision to skip college;
a multimillionaire in Nantucket, Mass., musing over the cachet of
his 200-foot yacht.
The series does not purport to be all-inclusive or the last word on
class. It offers no nifty formulas for pigeonholing people or
decoding folkways and manners. Instead, it represents an inquiry
into class as Americans encounter it: indistinct, ambiguous, the
half-seen hand that upon closer examination holds some
Americans down while giving others a boost.
The trends are broad and seemingly contradictory: the blurring
of the landscape of class and the simultaneous hardening of
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certain class lines; the rise in standards of living while most
people remain moored in their relative places.
Even as mobility seems to have stagnated, the ranks of the elite
are opening. Today, anyone may have a shot at becoming a United
States Supreme Court justice or a C.E.O., and there are more and
more self-made billionaires. Only 37 members of last year's
Forbes 400, a list of the richest Americans, inherited their
wealth, down from almost 200 in the mid-1980's.
So it appears that while it is easier for a few high achievers to
scale the summits of wealth, for many others it has become
harder to move up from one economic class to another. Americans
are arguably more likely than they were 30 years ago to end up in
the class into which they were born.
A paradox lies at the heart of this new American meritocracy.
Merit has replaced the old system of inherited privilege, in which
parents to the manner born handed down the manor to their
children. But merit, it turns out, is at least partly class-based.
Parents with money, education and connections cultivate in their
children the habits that the meritocracy rewards. When their
children then succeed, their success is seen as earned.
The scramble to scoop up a house in the best school district,
channel a child into the right preschool program or land the best
medical specialist are all part of a quiet contest among social
groups that the affluent and educated are winning in a rout.
"The old system of hereditary barriers and clubby barriers has
pretty much vanished," said Eric Wanner, president of the
Russell Sage Foundation, a social science research group in New
York City that recently published a series of studies on the social
effects of economic inequality.
In place of the old system, Dr. Wanner said, have arisen "new
ways of transmitting advantage that are beginning to assert
themselves."
Faith in the System
Most Americans remain upbeat about their prospects for getting
ahead. A recent New York Times poll on class found that 40
percent of Americans believed that the chance of moving up from
one class to another had risen over the last 30 years, a period in
which the new research shows that it has not. Thirty-five
percent said it had not changed, and only 23 percent said it had
dropped.
More Americans than 20 years ago believe it possible to start out
poor, work hard and become rich. They say hard work and a good
education are more important to getting ahead than connections
or a wealthy background.
"I think the system is as fair as you can make it," Ernie Frazier, a
65-year-old real estate investor in Houston, said in an interview
after participating in the poll. "I don't think life is necessarily
fair. But if you persevere, you can overcome adversity. It has to
do with a person's willingness to work hard, and I think it's
always been that way."
Most say their standard of living is better than their parents'
and imagine that their children will do better still. Even families
making less than $30,000 a year subscribe to the American
dream; more than half say they have achieved it or will do so.
But most do not see a level playing field. They say the very rich
have too much power, and they favor the idea of class-based
affirmative action to help those at the bottom. Even so, most say
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they oppose the government's taxing the assets a person leaves
at death.
broken down into dozens of microclasses, defined by occupations
or lifestyles.
"They call it the land of opportunity, and I don't think that's
changed much," said Diana Lackey, a 60-year-old homemaker and
wife of a retired contractor in Fulton, N.Y., near Syracuse.
"Times are much, much harder with all the downsizing, but we're
still a wonderful country."
A few sociologists go so far as to say that social complexity has
made the concept of class meaningless. Conventional big classes
have become so diverse - in income, lifestyle, political views that they have ceased to be classes at all, said Paul W. Kingston,
a professor of sociology at the University of Virginia. To him,
American society is a "ladder with lots and lots of rungs."
The Attributes of Class
One difficulty in talking about class is that the word means
different things to different people. Class is rank, it is tribe, it is
culture and taste. It is attitudes and assumptions, a source of
identity, a system of exclusion. To some, it is just money. It is an
accident of birth that can influence the outcome of a life. Some
Americans barely notice it; others feel its weight in powerful
ways.
At its most basic, class is one way societies sort themselves out.
Even societies built on the idea of eliminating class have had
stark differences in rank. Classes are groups of people of similar
economic and social position; people who, for that reason, may
share political attitudes, lifestyles, consumption patterns,
cultural interests and opportunities to get ahead. Put 10 people in
a room and a pecking order soon emerges.
When societies were simpler, the class landscape was easier to
read. Marx divided 19th-century societies into just two classes;
Max Weber added a few more. As societies grew increasingly
complex, the old classes became more heterogeneous. As some
sociologists and marketing consultants see it, the commonly
accepted big three - the upper, middle and working classes - have
"There is not one decisive break saying that the people below this
all have this common experience," Professor Kingston said. "Each
step is equal-sized. Sure, for the people higher up this ladder,
their kids are more apt to get more education, better health
insurance. But that doesn't mean there are classes."
Many other researchers disagree. "Class awareness and the class
language is receding at the very moment that class has
reorganized American society," said Michael Hout, a professor of
sociology at the University of California, Berkeley. "I find these
'end of class' discussions naïve and ironic, because we are at a
time of booming inequality and this massive reorganization of
where we live and how we feel, even in the dynamics of our
politics. Yet people say, 'Well, the era of class is over.' "
One way to think of a person's position in society is to imagine a
hand of cards. Everyone is dealt four cards, one from each suit:
education, income, occupation and wealth, the four commonly used
criteria for gauging class. [Click here to see where you fit in the
American population.] Face cards in a few categories may land a
player in the upper middle class. At first, a person's class is his
parents' class. Later, he may pick up a new hand of his own; it is
likely to resemble that of his parents, but not always.
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Bill Clinton traded in a hand of low cards with the help of a
college education and a Rhodes scholarship and emerged decades
later with four face cards. Bill Gates, who started off squarely in
the upper middle class, made a fortune without finishing college,
drawing three aces.
Many Americans say that they too have moved up the nation's
class ladder. In the Times poll, 45 percent of respondents said
they were in a higher class than when they grew up, while just 16
percent said they were in a lower one. Over all, 1 percent
described themselves as upper class, 15 percent as upper middle
class, 42 percent as middle, 35 percent as working and 7 percent
as lower.
"I grew up very poor and so did my husband," said Wanda Brown,
the 58-year-old wife of a retired planner for the Puget Sound
Naval Shipyard who lives in Puyallup, Wash., near Tacoma. "We're
not rich but we are comfortable and we are middle class and our
son is better off than we are."
The American Ideal
The original exemplar of American social mobility was almost
certainly Benjamin Franklin, one of 17 children of a candle maker.
About 20 years ago, when researchers first began to study
mobility in a rigorous way, Franklin seemed representative of a
truly fluid society, in which the rags-to-riches trajectory was the
readily achievable ideal, just as the nation's self-image promised.
In a 1987 speech, Gary S. Becker, a University of Chicago
economist who would later win a Nobel Prize, summed up the
research by saying that mobility in the United States was so high
that very little advantage was passed down from one generation
to the next. In fact, researchers seemed to agree that the
grandchildren of privilege and of poverty would be on nearly equal
footing.
If that had been the case, the rise in income inequality beginning
in the mid-1970's should not have been all that worrisome. The
wealthy might have looked as if they were pulling way ahead, but
if families were moving in and out of poverty and prosperity all
the time, how much did the gap between the top and bottom
matter?
But the initial mobility studies were flawed, economists now say.
Some studies relied on children's fuzzy recollections of their
parents' income. Others compared single years of income, which
fluctuate considerably. Still others misread the normal progress
people make as they advance in their careers, like from young
lawyer to senior partner, as social mobility.
The new studies of mobility, which methodically track peoples'
earnings over decades, have found far less movement. The
economic advantage once believed to last only two or three
generations is now believed to last closer to five. Mobility
happens, just not as rapidly as was once thought.
"We all know stories of poor families in which the next
generation did much better," said Gary Solon, a University of
Michigan economist who is a leading mobility researcher. "It isn't
that poor families have no chance."
But in the past, Professor Solon added, "people would say, 'Don't
worry about inequality. The offspring of the poor have chances as
good as the chances of the offspring of the rich.' Well, that's
not true. It's not respectable in scholarly circles anymore to
make that argument."
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One study, by the Federal Reserve Bank of Boston, found that
fewer families moved from one quintile, or fifth, of the income
ladder to another during the 1980's than during the 1970's and
that still fewer moved in the 90's than in the 80's. A study by
the Bureau of Labor Statistics also found that mobility declined
from the 80's to the 90's.
The incomes of brothers born around 1960 have followed a more
similar path than the incomes of brothers born in the late
1940's, researchers at the Chicago Federal Reserve and the
University of California, Berkeley, have found. Whatever children
inherit from their parents - habits, skills, genes, contacts, money
- seems to matter more today.
Studies on mobility over generations are notoriously difficult,
because they require researchers to match the earnings records
of parents with those of their children. Some economists
consider the findings of the new studies murky; it cannot be
definitively shown that mobility has fallen during the last
generation, they say, only that it has not risen. The data will
probably not be conclusive for years.
Nor do people agree on the implications. Liberals say the findings
are evidence of the need for better early-education and
antipoverty programs to try to redress an imbalance in
opportunities. Conservatives tend to assert that mobility remains
quite high, even if it has tailed off a little.
But there is broad consensus about what an optimal range of
mobility is. It should be high enough for fluid movement between
economic levels but not so high that success is barely tied to
achievement and seemingly random, economists on both the right
and left say.
As Phillip Swagel, a resident scholar at the American Enterprise
Institute, put it, "We want to give people all the opportunities
they want. We want to remove the barriers to upward mobility."
Yet there should remain an incentive for parents to cultivate
their children. "Most people are working very hard to transmit
their advantages to their children," said David I. Levine, a
Berkeley economist and mobility researcher. "And that's quite a
good thing."
One surprising finding about mobility is that it is not higher in
the United States than in Britain or France. It is lower here than
in Canada and some Scandinavian countries but not as low as in
developing countries like Brazil, where escape from poverty is so
difficult that the lower class is all but frozen in place.
Those comparisons may seem hard to believe. Britain and France
had hereditary nobilities; Britain still has a queen. The founding
document of the United States proclaims all men to be created
equal. The American economy has also grown more quickly than
Europe's in recent decades, leaving an impression of boundless
opportunity.
But the United States differs from Europe in ways that can gum
up the mobility machine. Because income inequality is greater
here, there is a wider disparity between what rich and poor
parents can invest in their children. Perhaps as a result, a child's
economic background is a better predictor of school performance
in the United States than in Denmark, the Netherlands or
France, one recent study found.
"Being born in the elite in the U.S. gives you a constellation of
privileges that very few people in the world have ever
experienced," Professor Levine said. "Being born poor in the U.S.
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gives you disadvantages unlike anything in Western Europe and
Japan and Canada."
Blurring the Landscape
Why does it appear that class is fading as a force in American
life?
For one thing, it is harder to read position in possessions.
Factories in China and elsewhere churn out picture-taking
cellphones and other luxuries that are now affordable to almost
everyone. Federal deregulation has done the same for plane
tickets and long-distance phone calls. Banks, more confident
about measuring risk, now extend credit to low-income families,
so that owning a home or driving a new car is no longer evidence
that someone is middle class.
The economic changes making material goods cheaper have
forced businesses to seek out new opportunities so that they now
market to groups they once ignored. Cruise ships, years ago a
symbol of the high life, have become the ocean-going equivalent
of the Jersey Shore. BMW produces a cheaper model with the
same insignia. Martha Stewart sells chenille jacquard drapery and
scallop-embossed ceramic dinnerware at Kmart.
"The level of material comfort in this country is numbing," said
Paul Bellew, executive director for market and industry analysis
at General Motors. "You can make a case that the upper half lives
as well as the upper 5 percent did 50 years ago."
Like consumption patterns, class alignments in politics have
become jumbled. In the 1950's, professionals were reliably
Republican; today they lean Democratic. Meanwhile, skilled labor
has gone from being heavily Democratic to almost evenly split.
People in both parties have attributed the shift to the rise of
social issues, like gun control and same-sex marriage, which have
tilted many working-class voters rightward and upper income
voters toward the left. But increasing affluence plays an
important role, too. When there is not only a chicken, but an
organic, free-range chicken, in every pot, the traditional
economic appeal to the working class can sound off key.
Religious affiliation, too, is no longer the reliable class marker it
once was. The growing economic power of the South has helped
lift evangelical Christians into the middle and upper middle
classes, just as earlier generations of Roman Catholics moved up
in the mid-20th century. It is no longer necessary to switch one's
church membership to Episcopal or Presbyterian as proof that
one has arrived.
"You go to Charlotte, N.C., and the Baptists are the
establishment," said Mark A. Chaves, a sociologist at the
University of Arizona. "To imagine that for reasons of
respectability, if you lived in North Carolina, you would want to be
a Presbyterian rather than a Baptist doesn't play anymore."
The once tight connection between race and class has weakened,
too, as many African-Americans have moved into the middle and
upper middle classes. Diversity of all sorts - racial, ethnic and
gender - has complicated the class picture. And high rates of
immigration and immigrant success stories seem to hammer home
the point: The rules of advancement have changed.
The American elite, too, is more diverse than it was. The number
of corporate chief executives who went to Ivy League colleges
has dropped over the past 15 years. There are many more
Catholics, Jews and Mormons in the Senate than there were a
generation or two ago. Because of the economic earthquakes of
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the last few decades, a small but growing number of people have
shot to the top.
"Anything that creates turbulence creates the opportunity for
people to get rich," said Christopher S. Jencks, a professor of
social policy at Harvard. "But that isn't necessarily a big
influence on the 99 percent of people who are not
entrepreneurs."
These success stories reinforce perceptions of mobility, as does
cultural myth-making in the form of television programs like
"American Idol" and "The Apprentice."
But beneath all that murkiness and flux, some of the same forces
have deepened the hidden divisions of class. Globalization and
technological change have shuttered factories, killing jobs that
were once stepping-stones to the middle class. Now that manual
labor can be done in developing countries for $2 a day, skills and
education have become more essential than ever.
This has helped produce the extraordinary jump in income
inequality. 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, which adjusted its numbers to account for
inflation. The income of the middle fifth rose by just 17 percent,
to $43,700, and the income of the poorest fifth rose only 9
percent.
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. Reduced pensions have made retirement less
secure.
Clearly, a degree from a four-year college makes even more
difference than it once did. More people are getting those
degrees than did a generation ago, but class still plays a big role
in determining who does or does not. At 250 of the most
selective colleges in the country, the proportion of students from
upper-income families has grown, not shrunk.
Some colleges, worried about the trend, are adopting programs to
enroll more lower-income students. One is Amherst, whose
president, Anthony W. Marx, explained: "If economic mobility
continues to shut down, not only will we be losing the talent and
leadership we need, but we will face a risk of a society of
alienation and unhappiness. Even the most privileged among us will
suffer the consequences of people not believing in the American
dream."
Class differences in health, too, are widening, recent research
shows. Life expectancy has increased over all; but upper-middleclass Americans live longer and in better health than middle-class
Americans, who live longer and in better health than those at the
bottom.
Class plays an increased role, too, in determining where and with
whom affluent Americans live. More than in the past, they tend
to live apart from everyone else, cocooned in their exurban
chateaus. Researchers who have studied data from the 1980,
1990 and 2000 censuses say the isolation of the affluent has
increased.
Family structure, too, differs increasingly along class lines. The
educated and affluent are more likely than others to have their
children while married. They have fewer children and have them
later, when their earning power is high. On average, according to
one study, college-educated women have their first child at 30,
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up from 25 in the early 1970's. The average age among women
who have never gone to college has stayed at about 22.
Those widening differences have left the educated and affluent
in a superior position when it comes to investing in their children.
"There is no reason to doubt the old saw that the most important
decision you make is choosing your parents," said Professor
Levine, the Berkeley economist and mobility researcher. "While
it's always been important, it's probably a little more important
now."
The benefits of the new meritocracy do come at a price. It once
seemed that people worked hard and got rich in order to relax,
but a new class marker in upper-income families is having at least
one parent who works extremely long hours (and often boasts
about it). In 1973, one study found, the highest-paid tenth of the
country worked fewer hours than the bottom tenth. Today, those
at the top work more.
In downtown Manhattan, black cars line up outside Goldman
Sachs's headquarters every weeknight around 9. Employees who
work that late get a free ride home, and there are plenty of
them. Until 1976, a limousine waited at 4:30 p.m. to ferry
partners to Grand Central Terminal. But a new management team
eliminated the late-afternoon limo to send a message: 4:30 is the
middle of the workday, not the end.
A Rags-to-Riches Faith
Will the trends that have reinforced class lines while papering
over the distinctions persist?
The economic forces that caused jobs to migrate to low-wage
countries are still active. The gaps in pay, education and health
have not become a major political issue. The slicing of society's
pie is more unequal than it used to be, but most Americans have a
bigger piece than they or their parents once did. They appear to
accept the tradeoffs.
Faith in mobility, after all, has been consciously woven into the
national self-image. Horatio Alger's books have made his name
synonymous with rags-to-riches success, but that was not his
personal story. He was a second-generation Harvard man, who
became a writer only after losing his Unitarian ministry because
of allegations of sexual misconduct. Ben Franklin's autobiography
was punched up after his death to underscore his rise from
obscurity.
The idea of fixed class positions, on the other hand, rubs many
the wrong way. Americans have never been comfortable with the
notion of a pecking order based on anything other than talent and
hard work. Class contradicts their assumptions about the
American dream, equal opportunity and the reasons for their own
successes and even failures. Americans, constitutionally
optimistic, are disinclined to see themselves as stuck.
Blind optimism has its pitfalls. If opportunity is taken for
granted, as something that will be there no matter what, then
the country is less likely to do the hard work to make it happen.
But defiant optimism has its strengths. Without confidence in
the possibility of moving up, there would almost certainly be
fewer success stories.
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Data overlook upward mobility
By Steven G. Horwitz
January 26, 2011
The Economic Policy Institute (EPI) is once again
arguing that the United States is suffering from a
widening gap between the rich and the poor. Using
a variety of economic data, they argue in “The
State of Working America” that a few are profiting
at the expense of the many, whose hard work
continues to go unrewarded. Indeed, they argue
that the “poor are getting poorer.”
Common sense and our own observations inform
us that the reality of the U.S. economy in 2011 is
that upward mobility is alive and well. One look
around the homes of American households today
— even those in the bottom fifth, where the family
is watching cable TV, surfing the Web, or chatting
on a cell phone while Dad takes free generic
antibiotics and mom heats something up in a
microwave — is evidence that the poor are hardly
poorer than 10, 20, or 50 years ago.
But simply comparing poor Americans of today to
poor Americans of yesteryear makes little sense
either. That’s because the poor Americans of
yesteryear are actually the middle class Americans
of today.
Much of EPI’s argument involves comparing the
income or wealth gains of groups within the income
distribution across some number of years. This
allows them to argue that, on average, the bottom
fifth of households earned only $200 more per year
on a pre-tax basis in 2005 than they did in 1979
(adjusted for inflation).
But the bottom fifth in 2005 are not the same as
those that occupied the bottom fifth in 1979. If we
really want to know what happened to the poor in
1979, we need to be able to track specific
households through time. Fortunately, we can do
that. Researchers at the University of Michigan
found that the poorest fifth of households in 1975
earned, on average, almost $28,000 more per year
by 1991, adjusted for inflation. According to U.S.
Treasury data, an astounding 86 percent of
households that constituted the bottom fifth in 1979
had climbed out of poverty by 1988.
EPI’s new report does not account for the fact that
individual households move up and out of poverty
and are then “replaced” in the bottom fifth by new
and different households. The bottom fifth is made
up of newly formed households — recent high
school graduates or new immigrants, for example
— taking their first steps up the income ladder.
The vast majority of American households do move
up: The reality of the U.S. economy over the last 30
years is that everyone has gotten richer in absolute
terms; significantly so.
Poor Americans today are more likely to own
household goods like washing machines,
dishwashers, color TVs, refrigerators and toasters
than the average household was in 1973.
The inequality of personal well-being has clearly
narrowed over time even if we grant that income
gaps have increased. Both Bill Gates and over 80
percent of poor U.S. households own cars, though
they likely differ in quality. Fifty or 100 years ago,
the gap would have not been one of quality, but of
owning a car at all.
Yes, during a recession there are more Americans
in poverty than normal — some of them in deep
poverty. EPI’s data shows that; but it also shows
that since about 1980, the share of the population
below half the poverty line has hovered between 5
and 6 percent. There’s been no long-term upward
trend.
So when you hear someone tell you that the poor
are getting poorer, don’t be fooled. Instead, ask
yourself how much better off you are now than you
were 10, 20, or 30 years ago and take comfort in
the fact that the poor of today will likely be similarly
better off 10, 20 and 30 years in the future.
Steven G. Horwitz is the Charles A. Dana
Professor and Chair in the Department of
Economics at St. Lawrence University in Canton,
N.Y.
Myths of the rich and poor
can lead to many false conclusions.
Upward mobility among groups more common
than usually portrayed.
For example, from 2000 to 2009, inflation-adjusted
household income fell 4.5 percent, but consumer
spending increased 22.4 percent. This raises an obvious
question: How did people dramatically increase
spending on shrinking paychecks?
Steven R. Cunningham is director of research and
education at the American Institute for Economic
Research in Massachusetts
The answer is: They didn't.
One of the most enduring economic myths in our
society is that the rich keep getting richer, while the
poor keep getting poorer. It isn't true.
When most people think of the rich, they probably are
thinking of people with great wealth. When they think of
the poor, they probably are thinking of people with low
incomes.
While there's obviously a correlation between wealth
and income, they're not the same. And we shouldn't
confuse them.
A retiree who has $1 million invested in CDs is a
millionaire; most people would consider this person
wealthy. But at a 2.5 percent rate of return on the CDs
- about twice what the typical bank is paying today this person could have an annual income of just
$25,000.
We don't have to rely on hypotheticals to illustrate this.
The households of people ages 70 to 74 have the
highest average wealth of any age group in America but
less than half the income of those in the 35-to-44 age
bracket.
Government data, if misunderstood or improperly used,
They did increase spending. But paychecks weren't
shrinking. Instead, the number of individuals per U.S.
household was shrinking, which lowered the average.
Real disposable income, which is essentially total aftertax income, rose 25.2 percent from 2000 to 2009. At
the same time, however, households got smaller, as
more people divorced, or rejected or delayed marriage.
So total spending went up, while average household
income - due to the larger number of households - went
down.
Like household-income data, income-distribution data
often are misunderstood. For purposes of analysis, the
Census Bureau divides households into fifths - or
quintiles - yielding the bottom 20 percent of income
earners, the next 20 percent, and so on, up to the
highest 20 percent.While this is a reasonable approach,
it can be extremely misleading.
We often hear, for example, that the top 20 percent of
U.S. households receives roughly 50 percent of total
income, while the bottom 20 percent receives less than
4 percent. According to the Census Bureau's household
data and quintile distribution, this is correct.
1
The problem is that we are not told that the top 20
percent of households includes four times as many
workers as the bottom 20 percent, and nearly six times
as many full-time, year-round workers. Knowing this
makes a lot of difference in interpreting the original
statement.
Is U.S. income growth stagnant? Are the rich getting
richer and the poor getting poorer? Neither is true.
Income-distribution data provide, at best, a snapshot,
but this snapshot tells us little about movement within
the economy.
Contact Steven R. Cunningham via www.aier.org.
The power of the U.S. economy is that it provides
opportunity. The income-mobility numbers make this
abundantly clear.
Yet, economic mobility is a characteristic that helps
differentiate the United States from many other
countries. Between 2004 and 2007, for example,
roughly a third of the households in the lowest income
group moved up to a higher income group, according to
the Census Bureau, while roughly a third of the
households in the highest income group moved down.
Another study, conducted in 2007 by the U.S. Treasury,
examined income-tax returns from 1996 to 2005. Over
the period, the median income of the study group rose
24 percent. Almost 58 percent of those in the lowest
income group in 1996 moved to a higher group by 2005.
About a fourth of them rose to middle- or upper-middleclass incomes; more than 5 percent made it into the
highest income group - in 10 years. The only group
experiencing a decline in income was the richest 1
percent. This is hardly what most people have been led
to believe.
While this may seem like an economic version of
"musical chairs," it tells us that mobility among
economic groups is high and chronic poverty is rare.
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