On September 3, 2013, UC Berkeley’s Emmanuel Saez published a report updated with preliminary estimates:
What’s new for recent years?
2009-2012: Uneven recovery from the Great Recession
From 2009 to 2012, average real income per family grew modestly by
6.0% (Table 1). Most of the gains happened in the last year when average incomes grew by 4.6% from 2011 to 2012. However, the gains were very uneven. Top 1% incomes grew by 31.4% while bottom 99% incomes grew only by 0.4% from 2009 to 2012. Hence, the top 1% captured 95% of the income gains in the first three years of the recovery. From 2009 to 2010, top 1% grew fast and then stagnated
from 2010 to 2011. Bottom 99% stagnated both from 2009 to 2010 and from 2010 to 2011. In 2012, top 1% incomes increased sharply by 19.6% while bottom 99% incomes grew only by 1.0%. In sum, top 1% incomes are close to full recovery while bottom 99% incomes have hardly started to recover.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?We define income as the sum of all income components reported on
tax returns (wages and salaries, pensions received, profits from businesses, capital income such as dividends, interest, or rents, and realized capital gains) before individual income taxes. We exclude government transfers such as Social Security retirement benefits or unemployment compensation benefits from our income definition. Non-taxable fringe benefits such as employer provided health insurance is also excluded from our income definition. Therefore, our income measure is defined as cash market income before individual income taxes.Interestingly, the income composition pattern at the very top has
changed considerably over the century. The share of wage and salary income has increased sharply from the 1920s to the present, and especially since the 1970s. Therefore, a significant fraction of the surge in top incomes since 1970 is due to an explosion of top wages and salaries. Indeed, estimates based purely on wages and salaries show that the share of total wages and salaries earned by the top 1 percent wage income earners has jumped from 5.1 percent in 1970 to 12.4 percent in 2007.Evidence based on the wealth distribution is consistent with those
facts. Estimates of wealth concentration, measured by the share of total
wealth accruing to top 1 percent wealth holders, constructed by Wojciech Kopczuk and myself from estate tax returns for the 1916-2000 period in the United States show a precipitous decline in the first part of the century with only fairly modest increases in recent decades. The evidence suggests that top incomes earners today are not “rentiers” deriving their incomes from past wealth but rather are “working rich,” highly paid employees or new entrepreneurs who have not yet accumulated fortunes comparable to those accumulated during the Gilded Age. Such a pattern might not last for very long. The drastic cuts of the federal tax on large estates could certainly accelerate the path toward the reconstitution of the great wealth concentration that existed in the U.S. economy before the Great Depression.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 and tax reforms should be developed to counter it.
Emmanuel Saez builds a case that wages and salaries of the very top earners are capturing a large fraction of macroeconomic productivity gains, without acknowledging that the productivity gains are the result of the non-human factor becoming more productive. Tying productivity gains to labor is a narrow one-factor labor ONLY viewpoint. What needs to be studied and addressed is the reality that the economy is shifting whereby the non-human factor, which can be categorized under the umbrella of technology and “machines,” is replacing the need for labor and devaluing the worth of labor, except for the highest job positions (often benefiting from ownership and stock options in the companies who employ them), with no hope for job opportunities for the 96 to 99 percent unless there can be significant economic growth.
Long term private sector job creation in numbers that match the pool of people willing and able to work will continually be eroded by physical productive capital’s ever increasing role as will result in a widening income gap. This means that the prospects for the creation of jobs to employ EVERY American seeking employment will become increasingly dimmer.
The reality is that tectonic shifts in the technologies of production will over the long term continue to destroy jobs and devalue the worth of labor for the 99 percent, while the 1 to 5 percent will continue to benefit from top wages and salaries. The threats to job security are increasing at an exponential rate and positions that are now considered secure will not be in the future. Yet our political leadership and academia remains oblivious to the necessity to broaden personal OWNERSHIP of wealth-creating, income-producing productive capital simultaneously with the growth of the economy as a necessary source of income for EVERY citizen. This would empower EVERY citizen to increasing earn income from the same source that the wealthy ownership class now earns from––productive capital. As a result, not only will we experience double-digit GDP growth but real jobs will flourish as EVERY American contributes to building a future economy that can support general affluence for ALL.
As long as working people are limited by earning income solely through their labor worker wages and salaries, they will be left behind by the continued gravitation of economic bounty toward the top 1 to 5 percent of the people that the system is rigged to benefit––the top income earners who are the capitalists owners and salaried managers and professionals. Working people and the middle class will continue to stagnate, resulting in a stagnated consumer economy. More troubling is that this continued stagnation will further dim the economic hopes of America’s youth, no matter what their education level. The result will have profound long-term consequences for the nation’s economic health and further limit equal earning opportunity and spread income inequality. As the need for labor decreases and the power and leverage of productive capital increases, the gap between labor workers and capital owners will increase, which will result in turmoil and upheaval, if not revolution.
There are solutions, which are spelled out in the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797 and the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm. See the full Act at http://cesj.org/homestead/strategies/national/cha-full.pdf.
