Being poor sucks.   I remember walking miles at midnight in rainy New York because I didn’t have enough for the subway ride home.  Let alone for a meal.  I would not wish financial insecurity on anyone.

But I’ve been struck by recent studies on how poverty today is different from poverty in the past.   Over the last few decades, the price of many things has fallen, while their quality has increased.   97% of US households have a TV, and > 90% of adults in the US have a cell phone.    More choice has emerged, allowing for less costly substitutes.  Clothing, cars, communication, even housing, are less expensive than they have been.  A nice chart of this appeared in the New York Times recently:

Changed Life of the Poor: Better Off, but Far Behind By Annie Lowrey.   New York Times, April 30, 2014

Economists, being fellow geeks, try to account for this increased quality and choice.  The Consumer Price Index, long used to adjust for changes in cost, has expanded into a variety of flavors that attempt to capture changes in quality and choice, as well as price.    Traditional CPI shows that the incomes of the bottom 10% are flat over the last forty or so years.    But measures of CPI that try to account for the changing nature and choice show that incomes for the bottom 10% have increased.   By some measures significantly:

The Role of Prices in Measuring the Poor’s Living Standards.  By Christian Broda, Ephraim Leibtag, and David E. Weinstein  Journal of Economic Perspectives, Spring 2009.

A simplistic reading of this chart shows that wages of the bottom 10%, when adjusted by the traditional CPI (CPI-U above), are the same as they were back in 1979.   But if you attempt to adjust for both increased quality and increased choice along with price, (C-CPI-U-BW above), then wages for the bottom incomes are 30% higher than in 1979.

I am not at all trying to say that being poor is not terrible.   Just trying to learn how poverty is different today than it was five, ten, and forty years ago.   Many “luxuries” are affordable to even the very poor.   And “Indexing” on the changing nature of goods as well as price, paints a picture of rising incomes for the very poor.

While many goods and services are less expensive, the goods and services that are true pathways out of poverty are ever more expensive.    College.   Child Care.   Health Insurance.  As commentator said “In American luxuries are cheap, but true needs are expensive.”

Me?  I’m not so keen on helping poor with items that are inexpensive and within their reach.   But investing in true needs – pathways out of poverty – sure strikes me as reasonable goals for public policy.

 

 

Relevant Publications

2014.  “Changed Life of the Poor: Better Off, but Far Behind” in the New York Times, April 30, 2014.  By Annie Lowrey.

2009.  “The Role of Prices in Measuring the Poor’s Living Standards” in the Journal of Economic Perspectives, Volume 23, Number 2, Spring 2009.  By Christian Broda, Ephraim Leibtag, and David E. Weinstein

My mother, a spry 95, is full of pithy sayings.   “Climbing the greasy ladder”, as a euphemism for career struggles, has always seemed particularly apt.   And also turns out to be accurate.

A bunch of smart folks have compiled longitudinal tax records from many countries, including the US.   (The “World Top Incomes Database” or WTID.)    This data paints a picture for incomes over time.  For the US, the best metaphoric picture I’ve seen is that of a ladder, with each rung representing an income group.   Over time, the income ladder has become stretched.   The bottom rungs are actually a bit farther off the ground.   Not much, but some.   The top rungs?   Much farther off the ground, and much farther away from all of the other rungs.

While the ladder has stretched, movement up and down the ladder has remained constant.   The rungs may be farther apart and the ladder might be taller, but the chances of moving up, or down, are still about the same.   The ladder is still greasy.  Just taller.

Executive Summary of NBER Working Paper 19844, January 2014, Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner

I do worry about the rising spread of incomes.   Something about having the top incomes increasingly far from the bottom ones does’t feel right.   But I worry most about maintaining movement on the ladder.   Creating and increasing chances for betterment.   Helping people at the bottom rungs continue to have the opportunity to climb up a taller greasy ladder.

 

General Overview

The Equality of Opportunity Project

Relevant Papers

2014.  “Inequality in the long run” in Science 23, May 2014 by Thomas Piketty and Emmanual Saez

2014.   “Is the United States Still a Land of Opportunity?   Recent Trends in Intergenerational Mobility” in the National Bureau of Economic Research by Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner

As a wise man said, if losing a donut makes you unhappy, don’t bet donuts.   But I’ll double down for a Boston Cream on this one:   Income inequality in the US is increasing.

• Since 1970, incomes for the top 1% have soared.   After-tax, before-tax, what-tax.

• The top 1% captures as much of the total US income as they did back in the Roaring 20’s.

• Between 1979 and 2007, the top 10% has captured 63.1% of all growth in income.   The top 1%?  A measly 38.3%.

See handy dandy charts below.   And see references farther below.

The geek in me notes that many things have changed since the Roaring 20’s.   Marginal tax rates have fallen from rates in the 80%.   Social services are much greater.   And life is, well, just different.   But in any event, it sure seems that the top 10%, and the top 1%, are farther away than ever.

“Average After-Tax Household Income”, from the Congressional Budget Office, June 2010        

 

“Income Inequality in the United States, 1913 – 1998” in the Quarterly Journal of Economics, 118, 2003 by Thomas Piketty and Emmanuel Saez.   Updated 2008.

 

Share of the total household income growth attributable to various income groups, 1979 – 2007

“Sources of Income for All Households, by Household Income Category, 1979 – 2007” from the Congressional Budget Office Average Federal Taxes by Income Group as complied in The State of Working America, 12^th Edition from the Economic Policy Institute

 

General Overview

The State of Working America

Economics Policy Institute

Historical Income Tables: Income Inequality, United States Census Bureau

Relevant Papers

2014: “A Guide to Statistics on Historical Trends in Income Inequality”, Center on Budget and Policy Priorities, by Chad Stone, Danilo Trisi, Arloc Sherman, and William Chen

2013: “Income Inequality: Evidence and Policy Implications” Arrow Lecture, Stanford, by Emmanuel Saez, UC Berkeley

2008:  “Income Inequality in the United States, 1913 – 1998” in the Quarterly Journal of Economics, 118, 2003 by Thomas Piketty and Emmanuel Saez.   Updated 2008.

I hate losing an argument.

In my liberal soul, I was sure that the middle class had lost ground over the past 30 years.   And that the bottom 20% had lost even more.  In more precise terms, I was sure that real incomes from the bottom 20% had fallen during the last 30 years.   I was so sure that I bet my currency of choice, a donut, on the outcome.

Turns out I was wrong.

We agreed to look at after tax and transfer dollars, adjusted for inflation.   We found pretty compelling evidence across multiple sources.  Here, as an example, is a 2012 graph from the CBO.    Yes, it shows that things have gone well for those at the top.   But it also shows that incomes for the bottom 20% have gotten better over time.   Not a lot better.   Not as much of an increase as the top.   But better.

And so I had to watch someone eat my donut.

Finally, our argument surfaced a bunch of other areas to examine.    How has real wealth changed over this same period?   What has happened to real incomes since 2007?  (Incomplete evidence seems to say flat at the bottom levels.)  How do income changes filter through changes in underlying prices?   (Some items, like education and health have become more expensive, while others, like communications and technology have become less expensive.)    All good questions.   But I’m going to research them first, before betting another donut.

 

 

 

General Overview:

Trends in the Distribution of Household Income, 1979 – 2007, Central Budget Office

A Guide to Statistics on Historical Trends in Income Inequality, Center on Budget and Policy Priorities

Relevant Papers:

2012: Comparing Real Wage Rates, by Orley Ashenfelter.  (This is more international in focus.)

2004: Income, Poverty, and Health Insurance Coverage in the United States: 2003, by Carmen DeNavas-Walt,
Bernadette D. Proctor, and Robert J. Mills.

Over the course of my life, I have made different amounts of money.   As a low-level non-profit employee, I was, well, starving.   Two bagels with butter was a once-a-week dinner splurge.   Now?   As a capitalist?   Not so much.

In the eyes of economists, I have been “economically mobile”.

Economic mobility, it turns out, is tricky to measure.   Do you look at income?  Or wealth?    Whatever you look at, how do you associate it with a person, and their partner/kids over time?    When measuring income, do you count governmental transfers?   Or not?   Is self-reported income or wealth data, drawn from a statistically valid population, a better measure than more accurate tax data, which by its very nature excludes non-filers?  I dunno.  Smarter people than I have made a profession of looking at this information.   And they have come one very suprising conclusions.

Income mobility in the US is relatively unchanged over long periods of time.   It is just as easy, or hard, to change your income now as it was back in the day.

 

The American Dream is still alive and well.

 

 

 

General Overview:

Equality of Opportunity Project, Faculty of Arts and Sciences, Harvard University

Economic Mobility Project, The Pew Charitable Trust

 

Relevant Papers:

2014: Is the United States still a land of opportunity? Recent trends in intergenerational mobility.  By Raj Chetty,  Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner

2014: Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States.  By Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez.

2014: A Guide to Statistics on Historical Trends in Income Inequality. By Chad Stone, Danilo Trisi, Arloc Sherman, and William Chen.

2012: Pursuing the American Dream: Economic Mobility Across Generations.  By The Pew Charitable Trust, team members Susan K. Urahn, Erin Currier, Diana Elliott, Lauren Wechsler, Denise Wilson, and Daniel Colbert

2011: Trends in U.S. Family Income Mobility, 1969–2006.  By Katharine Bradbury

2010: Earnings Inequality and Mobility in the United States: Evidence from Social Security Data since 1937.   By Wojciech Kopczuk, Emmanuel Saez, and Jae Song