The Death of the Great Amer­i­can Mid­dle Class

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By Sal­va­tore Babones

Sal­va­tore Babones (@sbabones) is a senior lec­turer in soci­ol­ogy & social pol­icy at the Uni­ver­sity of Syd­ney and an asso­ciate fel­low at the Insti­tute for Pol­icy Stud­ies (IPS).  You can find more of his com­men­tary on the US econ­omy at http://salvatorebabones.com.

The Amer­i­can econ­omy has done well over the past forty years.  America’s national income per per­son has almost exactly dou­bled since 1970.[1]  The United States has been the rich­est major coun­try in the world for over 100 years now, and it remains the rich­est major coun­try in the world today.[2]  The Amer­i­can econ­omy in 2010 gen­er­ated $47,436 for every man, woman, and child liv­ing in the coun­try.[3]  On cur­rent pro­jec­tions, this fig­ure will rise by a fur­ther $1000 per year for the next sev­eral years.[4]

That’s a lot of money for a lot of peo­ple.  Unfor­tu­nately, all of that money doesn’t go directly into ordi­nary Amer­i­cans’ pay­checks.  Some of it goes into cor­po­rate prof­its, pay­roll taxes, and other expenses.  The remain­ing per­sonal income actu­ally paid out to Amer­i­cans through their pay­checks and prof­its came to $40,094 per per­son in 2010.[5]  That’s still over $40,000 for every man, woman, and child liv­ing in Amer­ica.

Of course, that doesn’t mean that a fam­ily of two adults with eight chil­dren will make $400,000 a year.  Most chil­dren don’t work, and when they do work they don’t earn very much.  Spread­ing total US per­sonal income out among just the adult pop­u­la­tion[6] would give an aver­age of income of $52,952 for every Amer­i­can adult.

In other words, if America’s total per­sonal income were evenly dis­trib­uted, the typ­i­cal mar­ried cou­ple would be mak­ing over $100,000 a year.

If the typ­i­cal sin­gle per­son in Amer­ica were mak­ing $52,952 a year and the typ­i­cal mar­ried cou­ple were mak­ing $105,904 a year, the United States really would be a very rich coun­try.  The prob­lem is that most peo­ple actu­ally make much less than this.  The typ­i­cal Amer­i­can adult makes just $26,134.[7]  Half of all Amer­i­cans make less than this.

How can it be that the typ­i­cal Amer­i­can adult makes just $26,134 when Amer­ica is the rich­est nation on Earth?  The answer is that a few high-income Amer­i­cans gain the lion’s share of America’s national income.  As illus­trated in the fig­ure below, the top 5% of Amer­i­can house­holds made as much money in 2009 as the entire bot­tom 50% com­bined.[8]  That’s amaz­ing.  Out of about 120 mil­lion house­holds in Amer­ica today, the rich­est 6 mil­lion make as much money as the poor­est 60 mil­lion.

Put a slightly dif­fer­ent way, the same data show that the rich­est 20% of house­holds take home more income than the other 80% com­bined.  There really are two Amer­i­cas: the top 20%, and every­body else.  By def­i­n­i­tion, most Amer­i­cans fall into the cat­e­gory of “every­body else.”

It wasn’t always like this, and it doesn’t have to be like this.  Amer­ica used to be one of the most equal coun­tries in the free world, a place where any­body could make a decent liv­ing, sup­port a fam­ily, and retire well.  Such sim­ple dreams are increas­ingly out of reach for ordi­nary Amer­i­cans who fall in the mid­dle of the country’s income dis­tri­b­u­tion.

 

FORTY YEARS OF STAGNATION FOR AMERICAN WORKERS

The fig­ure below shows the median male income for Amer­i­can men since the end of the Civil War in 1865.[9]  The median income is the income of the aver­age or typ­i­cal per­son.  Men’s incomes are used because the pro­por­tion of women work­ing out­side the home has changed dra­mat­i­cally over the years.  Where data are avail­able for women, they tell a sim­i­lar story.

It’s obvi­ous from this fig­ure that typ­i­cal male incomes rose con­tin­u­ously from the 1860s through the 1960s.  Between 1865 to 1973 typ­i­cal male incomes rose by a fac­tor of 10, from $3425 a year to $34,762 a year.  Male incomes rose in every sin­gle decade for more than a cen­tury.

It’s also obvi­ous that this growth ended in the 1970s.  Since the 1970s there has been no increase in male median incomes — at all.  None.  In fact, since 1973 typ­i­cal male incomes have fallen by 7.4%, from $34,762 a year to $32,184 a year.  Typ­i­cal male incomes fell slightly in the 1970s, rose slightly in the 1980s and 1990s, then fell again in the 2000s.

That’s remark­able, con­sid­er­ing that Amer­i­can national income per per­son has dou­bled over the same period.  But it gets worse.  For Amer­i­can men of any given age, incomes have fallen dra­mat­i­cally since 1973.  For Amer­i­can men aged 45–54 years old incomes have fallen by 11.1%; for men 35–44 years old incomes have fallen by 18.7% since 1973, and for men aged 25–34 years old incomes have dropped by an astound­ing 26.7%.[10]

Yes, the aver­age Amer­i­can young man in 2009 makes one-quar­ter less than the aver­age Amer­i­can young man did in 1973.  Amer­i­can men today are — lit­er­ally — worse off than their fathers were.  The typ­i­cal young male Amer­i­cans made $43,530 in 1973, com­pared with just $31,914 today.[11]  No won­der young adults can’t afford to move out on their own these days.

How it is pos­si­ble that the US econ­omy has dou­bled in size with­out help­ing the aver­age work­ing man at all?  The answer can be divided into three parts.  First, more and more women work out­side the home.  This boosts the over­all size of the econ­omy with­out boost­ing the wages paid by any par­tic­u­lar job.  Sec­ond, the pop­u­la­tion is get­ting older as baby boomers mature.  Older peo­ple are more expe­ri­enced and thus earn more (on aver­age), even though incomes for peo­ple of any par­tic­u­lar age haven’t changed.

The third part, how­ever, is the biggest.  It’s ris­ing inequal­ity.  Pretty much all of the eco­nomic gains of the past forty years have gone to the top half of Amer­i­can work­ers.  Most of those gains have gone to the top 1%.  It has been esti­mated that 58% of all the income growth in the US econ­omy between 1976 and 2007 went to the top 1% of house­holds in Amer­ica.[12]  To get into that top 1% a house­hold has to be bring­ing in over $405,000 a year.[13]

For the 99% of Amer­i­cans whose house­hold incomes are well under $400,000 a year, there has been very lit­tle improve­ment since the 1970s.  For indi­vid­ual Amer­i­cans in the mid­dle of the income dis­tri­b­u­tion, there has been no improve­ment at all.[14]  For Amer­i­cans at the bot­tom, things have actu­ally got­ten worse since the 1970s.[15]

It sounds like the same old story: the rich get richer and the poor get poorer.  But as shown in the fig­ure above, that’s not really true.  For at least a cen­tury from 1870 to 1970 it was the peo­ple in the mid­dle — or at least the work­ing men in the mid­dle — who got richer.

 

THE MIDDLE SIXTY AT HOME AND ABROAD

Accord­ing to a recent sur­vey, 91% of Amer­i­can adults iden­tify them­selves as “mid­dle class.“[16]  Of these, 53% iden­tify them­selves as falling in the mid­dle of the mid­dle class, 18% in the upper mid­dle, and 18% in the lower mid­dle class.  Tak­ing the mid­dle of the mid­dle as a bench­mark, over half of all Amer­i­cans seem to feel like they live pretty typ­i­cal lives.  They’re prob­a­bly right.

On sur­veys and in actual incomes there’s a bulge of Amer­i­cans who fall some­where in the mid­dle of the dis­tri­b­u­tion.  They’re more than half the pop­u­la­tion, but far short of the whole pop­u­la­tion.  They’re the Mid­dle Sixty.  Above them are the Top Twenty — lawyers, doc­tors, invest­ment bankers, and busi­ness exec­u­tives.  Below them are the Bot­tom Twenty — the poor.  The Mid­dle Sixty, Top Twenty, and Bot­tom Twenty roughly cor­re­spond to nor­ma­tive ideas of well-off, mid­dle-class, and poor.

The “Mid­dle Sixty” are the roughly 60% of Amer­i­cans who live lives of plenty, but not lives of lux­ury.  They never go hun­gry, but they can’t afford to hire kitchen help.  They’re not home­less, but they have one home, not two or three.  Their kids don’t go to pri­vate prep schools, but their kids can go to col­lege if they work hard and get the grades.  The Mid­dle Sixty live ordi­nary, typ­i­cal Amer­i­can lives.

A good way to think about what it means to be a mem­ber of the Mid­dle Sixty is to think about own­ing a car.  Most Amer­i­cans own a car.  It might be a Hyundai or it might be a Hum­mer, but either way it’s one car for each adult dri­ver.  Only poor Amer­i­cans can’t afford their own cars.  Only rich Amer­i­cans can afford to have col­lec­tions of cars.  For the vast major­ity of Amer­i­cans in the mid­dle, one car per dri­ver is enough.

Peo­ple at the high end of the Mid­dle Sixty might drive expen­sive new cars while peo­ple at the low end of the Mid­dle Sixty drive cheap used cars, but life is pretty sim­i­lar either way.  They all drive their cars on the same roads and park in the same spaces at the same super­mar­kets.  They all have kids in carseats and pump their own gas.  When the car needs ser­vice, they have to get up early and drop it off before work.  Some of the Mid­dle Sixty have nicer lifestyles than oth­ers, but they all have pretty much the same lifestyle.

A good indi­ca­tor of the strength of the mid­dle class in a coun­try is the pro­por­tion of all the income in that coun­try that goes to the Mid­dle Sixty.  For exam­ple, one prob­lem in Mex­ico is the lack of a strong mid­dle class.  In Mex­ico, the Mid­dle Sixty take home just 46.6% of Mexico’s income, even though they make up 60% of Mexico’s house­holds.[17]  In Mex­ico, so much of the nation’s income goes to the Top Twenty that there’s very lit­tle left for the Mid­dle Sixty, or for the poor.

The amaz­ing thing is, by this mea­sure even Mex­ico has a stronger mid­dle class than the United States.  The Mid­dle Sixty in Amer­ica take home just 46.3% of America’s income.[18]  This is by far the low­est fig­ure of any major devel­oped coun­try.  The fig­ure below shows Mid­dle Sixty income lev­els for the United States, Mex­ico, and four other coun­tries.[19]  The United States scores at the rock bot­tom of the league for the eco­nomic strength of its mid­dle class.

It might be even worse than this.  The data used to cal­cu­late the offi­cial US Cen­sus Bureau income sta­tis­tics don’t accu­rately mea­sure incomes over about $100,000.  As a result, they don’t ade­quately cap­ture the recent rise in the incomes of the super-wealthy.  To address this gap, the Fed­eral Reserve con­ducts a sur­vey every three years that is specif­i­cally designed to mea­sure the incomes of peo­ple earn­ing over $100,000 a year.[20]

The lat­est data avail­able from that Fed­eral Reserve study are for 2007.  The results sug­gest that the income share of the Mid­dle Sixty is actu­ally just 35.8%.[21]  To put that num­ber in con­text, a 35.8% income share is lit­er­ally “off the chart” of the fig­ure above.  Using that same Fed­eral Reserve data, the Mid­dle Sixty income share was 44.6% in 1982, the first year that the sur­vey was con­ducted.[22]

For those who don’t remem­ber 1982, it was a tough year for the mid­dle class.  Since then, though, the income share of the Mid­dle Sixty has dropped to nearly 11 points below Mex­i­can lev­els.  And that was in 2007, which was a good year for most Amer­i­cans.  The lat­est Fed­eral Reserve sur­vey was con­ducted in 2010, but the data have not yet been released.  Con­sid­er­ing the state of the econ­omy in 2010, it’s likely to be a blood­bath for the Mid­dle Sixty.

The United States didn’t always have the world’s weak­est mid­dle class.  Back in 1968 the US Mid­dle Sixty took home 52.3% of all the nation’s income (based on the offi­cial sta­tis­tics).[23]  That implies that in 1968 the US mid­dle class was stronger than any mid­dle class in the world is today.  The US Mid­dle Sixty might have been even stronger in the 1950s, but unfor­tu­nately data are not avail­able to tell.  The data start in 1968, and it’s been all down­hill from there.

 

THE REASONS BEHIND THE TRENDS

Total US national income per per­son rose by 99.3% over the 30 years from 1969 to 2009.[24]  Why then have incomes for most Amer­i­cans been stag­nant or falling?  Why do Amer­i­can fam­i­lies now need two incomes to have the stan­dard of liv­ing they used to have with just one?  Why aren’t today’s young adults mak­ing twice as much as their par­ents did were when they first entered the labor mar­ket thirty years before?

The answer is that all of the growth in the Amer­i­can econ­omy over the past forty years has gone to the top half of Amer­i­cans.  Most of it has gone to the Top Twenty.  If the US income dis­tri­b­u­tion today had remained unchanged from 1969, by 2009 the aver­age Amer­i­can house­hold would have had an income of $86,479 instead of $49,777.[25]  If the US income dis­tri­b­u­tion had become more equal in the four decades after 1969 — as it did in the four decades before 1969 — the aver­age Amer­i­can house­hold would be doing even bet­ter.

The fact that the aver­age Amer­i­can house­hold today has an income of $50,000 instead of $100,000 can be attrib­uted entirely to ris­ing instead of declin­ing inequal­ity over the past four decades.  Amer­ica has far greater income than ever before in its his­tory, but that income is con­cen­trated in fewer and fewer hands.  Ris­ing inequal­ity is killing mid­dle Amer­ica.

Soci­ol­o­gists and econ­o­mists have been con­duct­ing detailed quan­ti­ta­tive analy­ses of ris­ing inequal­ity for more than a quar­ter cen­tury now.  It’s no mys­tery why inequal­ity has been ris­ing in Amer­ica.  As a recent 11-coun­try com­par­a­tive study con­cluded, the main fac­tors that deter­mine whether a coun­try is equal or unequal in its income dis­tri­b­u­tion are “union den­sity, the strict­ness of employ­ment pro­tec­tion law, unem­ploy­ment ben­e­fit dura­tion, unem­ploy­ment ben­e­fit gen­eros­ity, and the size of the min­i­mum wage.“[26]

By far the most impor­tant of these is union den­sity: the per­cent­age of work­ers who are cov­ered by a union con­tract or col­lec­tive bar­gain­ing agree­ment.[27]  Around the world, wher­ever work­ers have unions, they get bet­ter pay.[28]  The most recent esti­mates sug­gest that union­iza­tion increases an indi­vid­ual worker’s pay by about 17%,[29] but some argue that the effect on total pay (includ­ing ben­e­fits) could be as high as 43%.[30]  Though researchers argue over the exact fig­ure, research con­sis­tently shows that unions increase work­ers’ wages.

In the end the key issue is bar­gain­ing power.  Obvi­ously, work­ers who bar­gain as part of a union are in a bet­ter bar­gain­ing posi­tion than work­ers who don’t have a union.  But it’s not just a mat­ter of unions.  Where unem­ploy­ment ben­e­fits are gen­er­ous, work­ers can bar­gain harder, since it’s not cat­a­strophic if they lose their jobs.  And hav­ing a good min­i­mum wage means that when unem­ployed work­ers run out of insur­ance pay­ments they can be sure of earn­ing at least a liv­ing wage when they do go back to work.

So how does Amer­ica com­pare on union cov­er­age?  As the fig­ure below makes clear, the United States has just about the low­est level of union cov­er­age in the world.[31]  This fig­ure com­pares the pro­por­tion of work­ers who are cov­ered by union-type col­lec­tive bar­gain­ing con­tracts across the United States and 11 west­ern Euro­pean coun­tries.  Union cov­er­age in the United States is now lower (by far) than any­where in west­ern Europe.  Even at its height in 1953, US union cov­er­age was low by Euro­pean stan­dards.  Today it is absolutely in the base­ment.

At the union peak in 1953 well over 40% of Amer­i­can work­ers were cov­ered by col­lec­tive bar­gain­ing agree­ments.  Con­sid­er­ing that union work­ers were never very poor and never very rich, that 40% accounts for the major­ity of the Mid­dle Sixty.  In other words, it used to be nor­mal for Amer­i­cans to be in a union.  Ralph Kram­den, Archie Bunker, and Fred Flint­stone were all union mem­bers.  Ronald Rea­gan was a six-term union pres­i­dent before he became a politi­cian.  In 1960 he even called his union out on strike!

Of course, the decline of unions isn’t the only rea­son why inequal­ity is ris­ing in Amer­ica.  There is some evi­dence that Amer­ica is pulling apart along regional lines, with New York and Los Ange­les pulling away from the rest of the coun­try.[32]  There’s also some evi­dence that tech­no­log­i­cal change is cre­at­ing sit­u­a­tions in which the top-ranked peo­ple in any indus­try (like sports and movie stars) end up tak­ing home more and more of the avail­able pay.[33]  After-tax inequal­ity is also affected by changes in the tax sys­tem.

To some degree the decline in union mem­ber­ship is also just a symp­tom of a much broader trend: the decline of soci­ety and the rise of indi­vid­u­al­ism.  This trend is asso­ci­ated with increased con­sumerism and free mar­ket eco­nom­ics.  Peo­ple place their own inter­ests above the com­mon good.  In par­tic­u­lar, Amer­i­can busi­ness­peo­ple increas­ingly ask not what’s good for their employ­ees, their cus­tomers, or their cowork­ers, but what’s good for them­selves.  Nowhere is this bet­ter illus­trated than when look­ing at exec­u­tive pay.

The chief Exec­u­tive Offi­cer (CEO) is the top employee, the com­man­der-in-chief, of any pub­lic com­pany.  In the United States, CEOs run their com­pa­nies with very few con­straints.  Tech­ni­cally they are super­vised by boards of direc­tors, but most Amer­i­can CEOs serve as chair­men of their own boards of direc­tors — and even select their own board mem­bers.  Share­hold­ers are the legal own­ers of a pub­lic com­pany, but if share­hold­ers are unhappy it’s much eas­ier for them to sell their shares than to fire their CEOs.

It’s been widely reported that CEOs now receive enor­mous salaries, hun­dreds of times as much as their own work­ers.  The aver­age annual pay of a For­tune 500 CEO was over $8,000,000 in 2009.[34]  That’s about 200 times the earn­ings of the aver­age Amer­i­can adult who works full-time.[35]

Much less widely reported has been the grow­ing gap between how much com­pa­nies pay their CEOs and how much they pay the small num­ber of top exec­u­tives who work directly under the CEO.  Between 1993 and 2006 CEOs at America’s top 1500 pub­lic com­pa­nies received aver­age annual raises of 8.8% per year.[36]  Cor­po­rate sec­onds-in-com­mand received annual raises aver­ag­ing 5.4%, thirds-in-com­mand 5.2%, fourths-in-com­mand 5.0%, and fifths-in-com­mand 4.6%.[37]

In other words, inequal­ity is ris­ing even within the board­room.  It is ris­ing every­where we look.  The ris­ing pay gap between cor­po­rate fourths- and fifths-in-com­mand has noth­ing to do with union cov­er­age, unem­ploy­ment insur­ance, tech­no­log­i­cal change, or the pre­mi­u­miza­tion of life in New York and Los Ange­les.  It can only be traced to chang­ing norms of what’s con­sid­ered accept­able behav­ior in set­ting pay.  Forty years ago, exec­u­tives might have felt some pres­sure to take care of their employ­ees before tak­ing care of them­selves.  They cer­tainly don’t any­more.

 

CLOSING THOUGHTS

Ronald Rea­gan, the con­quer­ing hero of Amer­i­can con­ser­v­a­tive mythol­ogy, was born in 1911.  He came of age dur­ing the Great Depres­sion.  Peo­ple of his gen­er­a­tion had it tough.  They worked hard to make ends meet, but their hard work was rewarded with ever-increas­ing stan­dards of liv­ing.  For Amer­i­cans of their gen­er­a­tion, things started out hard but got bet­ter and bet­ter as time went on.  They were per­pet­ual opti­mists, because liv­ing in Amer­ica they could always be sure of one thing: life would be bet­ter for their chil­dren than it was for them.

That’s sim­ply not true any­more.

Today, Amer­i­can con­fi­dence in the future has reached an all-time low.  Amer­i­cans are opti­mists by nature, and opti­mists still out­num­ber pes­simists by 54% to 42%, but the gap is nar­rower than ever before.[38]  By a small mar­gin of 38% to 37%, more Amer­i­cans actu­ally think life was bet­ter in the 1960s than it is today.[39]  Among those who are old enough to actu­ally remem­ber adult life in the 1960s, the ratio is 49% to 30% in favor of the six­ties.[40]

That’s not just nos­tal­gia.  Life really was bet­ter in the late 1960s for many Amer­i­cans, and cer­tainly for most white Amer­i­cans.  Per­haps more impor­tantly, the United States of forty years ago had much more of an ethic that they were all in it together.  In the 1960s and 1970s, Amer­i­can CEOs paid them­selves roughly 40 times as much as an ordi­nary worker.[41]  That’s not exactly slum­ming it, but it seems pos­i­tively fru­gal by today’s stan­dards.

What’s incred­i­ble is not that so many peo­ple are no bet­ter off than their par­ents were forty years ago.  What’s incred­i­ble is that so many peo­ple are no bet­ter off than their par­ents were forty years ago despite the fact that Amer­i­can eco­nomic out­put per per­son has dou­bled in that period.  The prob­lem isn’t that the econ­omy is stag­nant.  It’s not stag­nant.  It’s grow­ing.  The prob­lem is that the rewards of that growth are all going to a very small num­ber of peo­ple — iron­i­cally, to the peo­ple who need them least.

There’s both good news and bad news to be read in this bench­mark­ing of the great Amer­i­can mid­dle.  The good news is that there are plenty of resources in Amer­ica for every­one to live a very good life.  There’s so much income gen­er­ated every year in Amer­ica that if we dis­trib­uted it evenly the aver­age house­hold could be liv­ing on $100,000 a year.  Even allow­ing for the kinds of inequal­ity found in Amer­ica in the 1960s and 1970s — CEOs mak­ing 40 times their work­ers’ salaries instead of 200 times — the aver­age house­hold could be bring­ing in $80,000 a year.  That’s not too bad.

The bad news is that there’s no sign that Amer­i­cans are pre­pared to take it into their own hands to reduce inequal­ity.  Fewer than half of Amer­i­cans have a favor­able view of unions; even after a major reces­sion, slightly more Amer­i­cans have a pos­i­tive view of busi­nesses than of unions.[42]  Amer­i­cans are not going to the polls to demand that their polit­i­cal lead­ers imple­ment poli­cies that are known to reduce inequal­ity.  Per­haps most impor­tantly, Amer­i­cans are not mov­ing away form the divi­sive beg­gar-thy-neigh­bor indi­vid­u­al­ism that caused inequal­ity to rise in the first place.  Instead, they seem to be embrac­ing it.

 

NOTES


[1] Based on fig­ures from the 2010 National Income and Prod­uct Accounts from the US Bureau of Eco­nomic Analy­sis, Table 7–1.

[2] Based on real national income per capita esti­mates from Angus Mad­di­son (2010), Sta­tis­tics on World Pop­u­la­tion, GDP and Per Capita GDP, 1–2008 AD, Table 3.

[3] Based on 2010 US GDP esti­mates from US Bureau of Eco­nomic Analy­sis release BEA 11–02, Table 3, divided by 2010 US pop­u­la­tion esti­mates from US Cen­sus Bureau release NST-PEST2010-01, Table 1.

[4] Based on 2011 and 2012 US growth pro­jec­tions from the Inter­na­tional Mon­e­tary Fund’s World Eco­nomic Out­look Update, Jan­u­ary 2011.

[5] Based on 2010 US per­sonal income esti­mates from US Bureau of Eco­nomic Analy­sis release BEA 11–02, Table 10, divided by 2010 US pop­u­la­tion esti­mates from US Cen­sus Bureau release NST-PEST2010, Table 1.

[6] Based on the age struc­ture of the US pop­u­la­tion in 2009 from US Cen­sus Bureau release NC-EST2009, Table 2.

[7] Based on 2009 fig­ures from US Cen­sus Bureau release PINC-01, Part 1.

[8] Based on an analy­sis of 2009 fig­ures from US Cen­sus Bureau Income Inequal­ity His­tor­i­cal Table H-2.

[9] Data for 1865–1946 based on E.H. Phelps Brown and Mar­garet H. Phelps Brown (1968), A Cen­tury of Pay: The Course of Pay and Pro­duc­tion in France, Ger­many, Swe­den, the United King­dom, and the United States of Amer­ica, 1860–1960, Appen­dix 3.  Data for 1947–2009 are based on fig­ures from US Cen­sus Bureau His­tor­i­cal Income Sta­tis­tics Table P-8.  The three sep­a­rate infla­tion-adjusted Phelps Brown and Phelps Brown indices have been spliced together at their over­lap points, then spliced to the Cen­sus Bureau 2009 dol­lar series using the aver­age con­ver­sion rate between the two sources for the years 1947–1960 ($72.87 in 2009 dol­lars per Phelps Brown and Phelps Brown index point).  Lin­ear inter­po­la­tions have been used to fill the gaps in the series due to World War I (1914–1919) and World War II (1942–1944).

[10] Based on fig­ures from US Cen­sus Bureau His­tor­i­cal Income Sta­tis­tics Table P-8.

[11] Based on fig­ures from US Cen­sus Bureau His­tor­i­cal Income Sta­tis­tics Table P-8.

[12] Anthony B. Atkin­son, Thomas Piketty, and Emmanuel Saez.  2009.  “Top Incomes in the Long Run of His­tory,” NBER Work­ing Paper 15408; the authors include sin­gle-per­son house­holds as “fam­i­lies,” mak­ing their def­i­n­i­tion of a fam­ily near-iden­ti­cal to the US Cen­sus Bureau def­i­n­i­tion of a house­hold.

[13] Based on Atkin­son et al’s fig­ures for the top 1% extrap­o­lated using top 5% income growth rates since 2007 from US Cen­sus Bureau His­tor­i­cal Income Sta­tis­tics Table H-1.

[14] Based on fig­ures from US Cen­sus Bureau His­tor­i­cal Income Sta­tis­tics Table P-8.

[15] Based on the appli­ca­tion of income ratios from US Cen­sus Bureau His­tor­i­cal Income Sta­tis­tics Table IE-2 to data from US Cen­sus Bureau His­tor­i­cal Income Sta­tis­tics Table P-8.

[16] Pew Research Cen­ter (2008), Inside the Mid­dle Class: Bad Times Hit the Good Life.

[17] Based on 2002 fig­ures (the most recent avail­able) from Matthew Ham­mill (2005), Income Inequal­ity in Cen­tral Amer­ica, Domini­can Repub­lic and Mex­ico: Assess­ing the Impor­tance of Indi­vid­ual and House­hold Char­ac­ter­is­tics, Table 3.

[18] Based on 2009 fig­ures from US Cen­sus Bureau His­tor­i­cal Income Sta­tis­tics Table H-2.

[19] All fig­ures are the most recent avail­able.  Cana­dian fig­ures are for 2008 and come from Sta­tis­tics Canada CANSIM Table 202‑0405.  United King­dom fig­ures are for 2008–2009 and come from UK Office for National Sta­tis­tics report on Effects of Taxes and Ben­e­fits on House­hold Income Table 2.  French fig­ures are for 2008 and come from INSEE Revenus et Niveaux de Vie Mass des Niveaux de Vie Détenue par les x% les Plus Riches.  Aus­tralian fig­ures are for 2007–2008 and come from Aus­tralian Bureau of Sta­tis­tics Doc­u­ment 6523.0 Table S1.

[20] The Sur­vey of Con­sumer Finances, which con­tains a sup­ple­men­tal sam­ple tar­get­ing high-income indi­vid­u­als.

[21] Based on fig­ures from Edward N. Wolff (2010), Levy Eco­nom­ics Insti­tute Work­ing Paper 589: Recent Trends in House­hold Wealth in the United States: Ris­ing Debt and the Mid­dle-Class Squeeze — An Update to 2007, Table 2.  In this paper Wolff does not dis­ag­gre­gate fig­ures for the low­est two quin­tiles.  To con­struct the Mid­dle Sixty per­cent­ages, Wolff’s “bot­tom 40%” fig­ures have been split out using the ratio between the bot­tom two quin­tiles observed for the rel­e­vant year in US Cen­sus Bureau His­tor­i­cal Income Sta­tis­tics Table H-2 to arrive at a sec­ond quin­tile impu­ta­tion, which was then added to Wolff’s third and fourth quin­tile fig­ures.

[22] Again based on Wolff’s fig­ures with an impu­ta­tion for the sec­ond-to-bot­tom quin­tile.

[23] Based on 1968 fig­ures from US Cen­sus Bureau His­tor­i­cal Income Sta­tis­tics Table H-2.

[24] Based fig­ures from the 2010 National Income and Prod­uct Accounts from the US Bureau of Eco­nomic Analy­sis, Table 7–1.

[25] Arrived at by apply­ing US GDP growth between 1969 and 2009 to the US median house­hold income level in 1969.

[26] Win­fried Koeniger, Marco Leonardi, and Luca Nun­zi­ata (2007), “Labor Mar­ket Insti­tu­tions and Wage Inequal­ity, Indus­trial and Labor Rela­tions Review, Vol. 60, pp. 340–356 (quote from p. 340).

[27] Koeniger et al (2007), Table 2.

[28] Alex Bryson (2007), “The Effect of Trade Unions on Wages,” Reflets et Per­spec­tives de la Vie Économique, Vol. 46, pp. 33–45.

[29] David G. Blanch­flower and Alex Bryson (2004), “What Effect Do Unions Have on Wages Now and Would Free­man and Med­off Be Sur­prised?” Jour­nal of Labor Research, Vol. 25, pp. 383–414, Table 2.

[30] Lawrence Mishel, Jared Bern­stein, and Sylvia Alle­gretto (2007), The State of Work­ing Amer­ica 2006/2007, Table 3.32.

[31] Based on fig­ures from Barry Hirsch and David Macpher­son, U.S. His­tor­i­cal Tables, accessed through the unionstats.com web­site.  The 1953 US fig­ure is imputed from the 1953 pri­vate sec­tor work­ers’ mem­ber­ship fig­ure from Barry Hirsch (2008), “Slug­gish Insti­tu­tions in a Dynamic World: Can Unions and Indus­trial Com­pe­ti­tion Coex­ist?” Jour­nal of Eco­nomic Per­spec­tives, Vol. 22, pp. 153–176, adjusted upward by the his­tor­i­cal aver­age of 25% to account for gov­ern­ment work­ers and work­ers who were cov­ered by union con­tracts but who were not union mem­bers.  Fig­ures for Euro­pean coun­tries are drawn from L. Ful­ton (2009), Worker Rep­re­sen­ta­tion in Europe, Labour Research Depart­ment (Lon­don) and Euro­pean Trade Union Insti­tute, accessed through the worker-participation.eu web­site.

[32] Robert J. Gor­don and Ian Dew-Becker (2008), Con­tro­ver­sies about the Rise of Amer­i­can Inequal­ity: A Sur­vey, NBER Work­ing Paper 13982.

[33] Robert H. Frank and Philip J. Cook (1995), The Win­ner-Take-All Soci­ety.

[34] Scott DeCarlo (2010), “What the Boss Makes,” For­tune Mag­a­zine online April 28, 2010.

[35] Based on data from US Cen­sus Bureau His­tor­i­cal Income Sta­tis­tics Table P-38.

[36] Based on data from Chang­min Lee and Woonam Seok (2009), “The Struc­ture and Pay Dis­tri­b­u­tion in the Exec­u­tive Team,” work­ing paper, Sam­sung Research Insti­tute of Finance, Table 6.

[37] Again based on Lee and Seok (2009), Table 6.

[38] Based on data from the Pew Research Cen­ter for the Peo­ple and the Press (2011), “Econ­omy Dom­i­nates Public’s Agenda, Dims Hopes for the Future,” p. 2.

[39] Again based on Pew (2011), p.13.

[40] Again based on Pew (2011), p.14.

[41] Based on fig­ures from G. William Domhoff (2011), “Power in Amer­ica: Wealth, Income, and Power,” Who Rules Amer­ica? web­site, Uni­ver­sity of Cal­i­for­nia at Santa Cruz, Fig­ure 8.

[42] Based on data from the Pew Research Cen­ter for the Peo­ple and the Press (2011), ” Labor Unions Seen as Good for Work­ers, Not U.S. Com­pet­i­tive­ness,” p. 2.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • Life always gets harder. The eco­nomic and social phe­nom­ena cur­rently unfold­ing is that a high stan­dard of health liv­ing is slip­ping away faster than ever. The solu­tion is rather sim­ple.
    1. Recog­nise that you must be smarter and work harder than the rest.
    2. Put aside for a rainy day & prac­tise delayed grat­i­fi­ca­tion.
    3. Make the biggest pur­chase of your life at the worst eco­nomic time. For exam­ple, a house.

  • Aleshores

    Is this a ren­tier econ­omy: no phys­i­cal pro­duc­tion, no work­ers, no mid­dle class, only income from rents (inter­ests, cap­i­tal gains, patents, pro­porty rights?

  • clive

    A lit­tle off topic. This arti­cle from Busi­ness Week appears to val­i­date that Steve’s debt for­give­ness ideas work. Ice­land seems to be on the up and up.

    http://www.businessweek.com/news/2012–02-24/icelandic-anger-brings-debt-forgiveness-in-best-recovery-story.html

  • bold­promise

    inter­est­ing piece steve espe­cially on the cor­re­la­tion between work­ers and
    unions,unemployment ben­e­fits and min­i­mum wage.

    So is all this talk of amer­i­can cor­po­rates sell­ing out to china an exag­ger­a­tion?

    Also ive long won­dered about the role technology(machines doing tasks that 6
    peo­ple used to do)has had on the world­wide job-market.Ive spo­ken to blokes
    in their 60s now who all tell the same story-they could of left their jobs and
    found 2 new ones the same day!

    Ive heard you talk of the de-indus­tri­al­i­sa­tion of australia.I think an arti­cle on
    this from your­self would make inter­est­ing read­ing.

  • Paul

    Hello Steve, really enjoy­ing your book Debunk­ing Eco­nom­ics.

    Sal­va­tore Babones appears to have done some selec­tive read­ings. I take issue when Sal­va­tore says that times were much bet­ter in the U.S in the past.

    On the isse about wealth dis­tri­b­u­tion. United States has always had mas­sive wealth inequal­ity and been unde­mo­c­ra­tic which is why it is so dif­fi­cult for peo­ple in the U.S to get heard. United States has bru­tally oppressed it’s own peo­ple to ensure the sta­tus quo. Just look at the polit­i­cal assas­i­na­tions of the six­ties and then demo­niza­tion of these peo­ple by the U.S gov­ern­ment.

    I also have a chuckle when U.S points a fin­ger at coun­tries such as IRAN, Syria, Iraq attack­ing these coun­tries as being unde­mo­c­ra­tic. It is bit like the pot cal­lk­ing the ket­tle black.

    cheers

  • RickW

    In Aus­tralia the cor­re­la­tion between union mem­ber­ship and wages is inverse. That is to say as union mem­ber­ship has declined wages have increased.

    Over the last 15 years real wages for adult males has increased 34%. Over the same period the per­cent­age of unionised male work­force has decreased from 38% to 18%.

    So draw­ing any con­clu­sions about unions and wage growth is non­sense. Unions sti­fle pro­duc­tiv­ity growth. Time is wasted work­ing on how to cut the cake rather than make more cakes for less effort. 

    Inequal­ity is more about sense of priv­i­lege and cor­rup­tion. These ele­ments are creep­ing into Aus­tralia but not so bad as some other coun­tries. Does QANTAS deserve to sur­vive when they pay Alan Joyce $5Mpa?

    The prime rea­son Australia’s min­ing indus­try is highly prof­itable has been its abil­ity to dis­man­tle the union shack­les it bore up to the 1990s. Bro­ken Hill min­ers won the 35 hour week in 1917. On the other hand all mine employ­ees in Bro­ken Hill received the same bonus based on equal profit shar­ing. For the Gen­eral Man­ager the bonus pro­vided some nice bot­tles of wine for evening meals while for the admin­is­tra­tion assis­tant of the 1970s the bonus tripled her take home pay each month. This is a good exam­ple of how a bonus within pub­lic com­pa­nies should be shared. 

    The UK/US sys­tem is roy­ally screwed given exam­ples like Joseph Cas­sano — paid USD285M in salary and bonuses over a decade or so to send one of the largest com­pa­nies in the world into insol­vency — still liv­ing in lux­ury. Australia’s cor­po­rate scoundrels Bond, Skase, Elliot, Con­nell et al have been brought to account by some degree.

  • Derek R

    Paul,

    Sal­va­tore didn’t say that times were bet­ter in the US in the past. He said that times con­tin­u­ally improved for the ordi­nary per­son in the US in the past. What is wor­ry­ing is that since 1970 times have got worse. They may still be bet­ter than they were at any time before 1970 but the trend is head­ing the wrong way. Inequal­ity in the US may have been bad but it wasn’t get­ting worse for most of the 20th cen­tury. Now it is.

  • koonyeow

    Title: Mod­el­ling Income Dis­tri­b­u­tion

    I won­der if the pro­gram Min­sky will be able to sim­u­late income dis­tri­b­u­tion with the said fac­tors as input.

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  • Steve Hum­mel

    What’s really incred­i­ble is that the myth still per­sists that cap­i­tal­ism is in any way a sys­tem which actu­ally will ever, in fact CAN ever dis­trib­ute income in a rel­a­tively equi­table fash­ion. This is not to toot some horn for social­ism, they are both inher­ently cen­tral­iz­ing of wealth and power. The Amer­i­can mid­dle class is/was an anom­aly brought about by the fact that Amer­ica was the only major mod­ern west­ern nation with its pro­duc­tive capac­ity still intact, plus the fact that the other nations’ capac­i­ties WERE in tat­ters. Other than the 1950-the early 1970’s period.….a mid­dle class any­where under cap­i­tal­ism vir­tu­ally does not exist, at least in any wide­spread way. 

    If you want to have a mid­dle class you’re going to have to base the eco­nomic, finan­cial and mon­e­tary sys­tems on ideas and poli­cies that will actu­ally pro­duce rel­a­tive equi­tabil­ity. A mod­ern tech­no­log­i­cal Dis­trib­utist econ­omy will fit that dis­crip­tion, cap­i­tal­ism or social­ism won’t. Its as sim­ple and straigh­for­ward as that.

  • Greg Wood

    Regard­ing trends in national equity con­sider that growth requires energy and that the avail­able (oil) energy sup­ply was rapidly expand­ing across the first 7 decades of the 20th cen­tury. The need (desire) by resource own­ers to con­vert this rapidly expand­ing energy into pro­duc­tion gave labor — as pro­vided by both the ‘work­ing’ and ‘mid­dle’ classes — a lot of lever­age in the mar­ket-place.

    From the early sev­en­ties on there has been both a steady dimin­ish­ment in the energy sup­ply (global energy/capita) and an expo­nen­tial increase in tech­nolo­gies that dis­place, or at least dis­ori­en­tate, labor within the pro­duc­tion process. 

    Within each of these cat­e­gor­i­cal sce­nar­ios the own­ers of cap­i­tal have sim­ply and ruth­lessly done as and what­ever they can to max­imise their returns. 

    In the first instance they realised a ben­e­fit from pro­mot­ing, and to some extent deliv­er­ing upon, a social ideal of com­mon pro­duc­tive endeav­our. In the lat­ter, the social nar­ra­tive of indi­vid­ual aspi­ra­tion serves to iso­late work­ers and ves­ti­gial social enti­ties, and to even turn them upon each other. This enables ‘the most of us’ to be more eas­ily dis-enfran­schised from the eco­nomic process, as tech­nol­ogy allows and as resource deple­tion dic­tates, such that the own­ers of cap­i­tal can con­tinue to best max­imise their largely point­less accu­mu­la­tion of appar­ent wealth. 

    This trend can be expected to con­tinue to deepen, and to do so with­out regard to tra­di­tional 1st/3rd world bound­aries. The arch-cap­i­tal­ists, and the civil­i­sa­tion they spon­sor, have no care for equity or for social qual­ity out­side of their own rar­i­fied com­mu­ni­ties of inter­est.

    Sub­mis­sion for change to them, or their highly paid polit­i­cal man­agers, would seem futile. GFC ‘restruc­tur­ing’ to date has made that quite clear. Com­mon agi­ta­tion about the debt struc­ture and, where rea­son­ably pos­si­ble, the com­mon seizure of local resource assets appears to offer the most acces­si­ble exit from inex­orable decline into gross uni­ver­sal inequity.

  • Greg Wood

    Quot­ing Rick W:
    “Over the last 15 years real wages for adult males has increased 34%. Over the same period the per­cent­age of unionised male work­force has decreased from 38% to 18%.”

    Is the for­mer fig­ure cal­cu­lated only upon wages earned by lower to mid­dle order work­force par­tic­i­pants, or is it a prod­uct drawn from total work­force income?

    Accord­ingly, what is the trend fig­ure for the wages of the ‘unionised male work­force’ and their non-unionised equiv­a­lent?

  • cyrusp

    US oil pro­duc­tion peaked in 1971.

    Coin­ci­dence?

  • bar­ry­thomp­son

    There is a strik­ing cor­re­la­tion between the pri­vate debt:GDP ratio for the US and the Gini index for the US

    All that credit/debt going into spec­u­la­tion in asset mar­kets, instead of going into phys­i­cal invest­ment that cre­ates jobs and incomes for ordi­nary work­ers, has raised the incomes of the top — the few peo­ple who earn profit from asset mar­kets (FIRE sec­tor).

  • bar­ry­thomp­son

    @ CyrusP

    The big 1971 inci­dent was more likely the end of the gold stan­dard, which enabled unlim­ited credit cre­ation by banks. This was a good thing. Unfor­tu­nately, much of that new credit didn’t go into real invest­ment, it went into spec­u­la­tion.

  • Derek R

    Peak US Oil and the end of the gold stan­dard were very closely con­nected. Basi­cally the Saudis were paid in dol­lars and expected to be able to con­vert them to gold. Nixon took the dol­lar off the gold stan­dard because if he hadn’t the Saudis would have ended up own­ing all of the US gold in a fairly short time.

  • Kim

    This arti­cle starts out as fact-based analy­sis then delves into a place where the author uses select tid­bits to make a more spe­cific analy­sis (ie blam­ing rugged indi­vid­u­al­ism and lack of unions). I call bull­hon­key and poor attempt at sci­en­tific analy­sis when it comes to his dis­cus­sion of the cause.
    Just as one exam­ple, if you look at dif­fer­ent states within the US, union­ized states are now expe­ri­enc­ing much higher unem­ploy­ment and declin­ing incomes. 

    Income inequal­ity itself isn’t a prob­lem, IMO, if every­one is gain­ing. Thus we should focus on the income losses PLUS the INCREASE in income inequal­ity, mean­while accept­ing the fact that the best sys­tems might include a sta­ble income inequal­ity. I think Steve’s work and that of oth­ers who pre­dicted the cri­sis, points largely to the pri­vate debt and its asso­ci­a­tion with the FIRE econ­omy as caus­ing the income inequal­ity and declin­ing mid­dle-class incomes.

    If I were to bully my way through a sim­i­lar arti­cle, as this author did, I would asso­ciate the drop in the mid­dle class with our cen­tral bank­ing sys­tem that encour­aged the excess lend­ing. I would not blame indi­vid­u­al­ism or the entice­ment of per­sonal gain. But in any case, it’s tough to prove any­thing eco­nom­i­cally. Noth­ing can be repro­duced in a con­trolled envi­ron­ment as it can with real sci­ence.

    Most of all, what the author fails to men­tion is that when equal­iz­ing income is a goal, the over­all income of the soci­ety typ­i­cally falls.

  • glu­bilee

    There is some­thing major miss­ing from the death of Amer­i­can Mid­dle Claas, this arti­cle just talks about income.…what about wealth or lack there of. Steve has made a car­rer now of not ignor­ing debt…well lets look at it…if you look at sav­ings and debts and net worth of Am mid­dle class in 60s com­pared to now, it’s bru­tal. Prof Eliz­a­beth War­ren (and now Sen­ate can­di­date) in her 2006 speech on the com­ing col­lapse of the Am mid­dle class (mind you this law pro­fes­sor research­ing bank­ruptcy, made this pre­dic­tion long before any most econ­o­mists, present blog­ger com­pany ignored) noted how the fixed, unavoid­able costs of mid­dle class are so huge com­pared to before, the things that must be paid to be in mid­dle class, and to get your kids in mid­dle class like health care, hous­ing and edu­ca­tion while the dis­cre­tionary things, like gad­gets, stuff, clothes, some food, prices have gone down. She says if you look at mid­dle class peo­ple in early to mid 2000s com­pared 1970, as I’d they we’re busi­nesses, the 2000 mid­dle class are highly lever­aged with debt to cover costs of needed hous­ing, while the 1970 mid­dle class had more sav­ings, and was spend­ing less on big fixed costs like hous­ing and more on dis­cre­tionary things like appli­ances, con­sumer goods etc…so the 2000 mid­dle class is in a much riskier, lever­age busi­ness sit­u­a­tion than the 1970 mid­dle class.

    Mean­while, one of the biggest sources of mid­dle class wealth, hous­ing has been wiped out. So while once, a house could be paid of eas­ily in less than 30 years since at high interst rates incen­tivized early pay off, now many US “mid­dle class” are under­wa­ter on their mort­gage, so rather than a house con­tribut­ing to their wealth, it is wip­ing out their wealth and leav­ing them with fur­ther debts with neg­a­tive equity.

    The hous­ing down­turn has wiped out mas­sive wealth of mid­dle class, so sav­ings are down, wealth down, and incomes down…the com­bined effect is a bru­tal loss of qual­ity of life while, as this author notes, the gen­eral Amer­i­can GDP is doing just fine and still is among the rich­est in the world.

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