2009-08-05 The Evolution of Top Incomes in the United States

2009-08-05 Emmanuel Saez Pathways Magazine \economic disparity\Economic disparity/US\PDFs http://www.econ.berkeley.edu/~saez/saez-UStopincomes-2007.pdf Striking it Richer: The Evolution of Top Incomes in the United States (Update with 2007 estimates) The Evolution of Top Incomes in the United States Link source: Emmanuel Saez (official Berkeley home page)

This is apparently an updated version of an eponymous article published in Pathways Magazine, which was itself a lay summary of a 2003 paper co-authored by Saez. The recent dramatic rise in income inequality in the United States is well documented. But we know less about which groups are winners and which are losers, or how this may have changed over time. Is most of the income growth being captured by an extremely small income elite? Or is a broader upper middle class profiting? And are capitalists or salaried managers and professionals the main winners? I explore these questions with a uniquely long-term historical view that allows me to place current developments in deeper context than is typically the case.

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The labor market has been creating much more inequality over the last thirty years, with the very top earners capturing a large fraction of macroeconomic productivity gains. A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II - such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality. We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional reforms should be developed to counter it. Numbers, as of 2007, based on income tax records:
 * The top .01% (14,588 families) have annual incomes above $11,477,000.
 * The top 1% (1st percentile, ~3.1 million families) have annual incomes above $398,900.
 * The next 4% (5th-2nd percentiles, ~12.2 million families) have annual incomes between $155,400 and $398,900.
 * i.e. 5% of the population (~15.3 million families) have annual incomes of $155k or more
 * The next 5% (10th-6th percentiles, ~15.3 million families) have annual incomes between $109,600 and $155,400.
 * i.e. 10% of the population (~31 million families) have annual incomes above $109k.

Commentary:
 * 2009-11-10 Statistics: Wealth in America (and in Congress) summarizes Saez's findings as:
 * Income inequality is worse than it has been since at least 1917
 * "The top 1 percent incomes captured half of the overall economic growth over the period 1993-2007"
 * "In the economic expansion of 2002-2007, the top 1 percent captured two thirds of income growth."

It should be noted that the year 1917 is only significant because it was the earliest year studied; the worst year prior to 2007 would appear to be 1929. In 1917, economic disparity was no worse than in the early 1990s, though considerably worse than the relatively equitable period from approximately the end of WWII to the beginning of the Reagan-Bush era.

&ldquo;The labor market has been creating much more inequality over the last thirty years, with the very top earners capturing a large fraction of macroeconomic productivity gains.&rdquo;   