Income inequality is increasingly “permanent”

March 21, 2013

We’ve heard about rising income inequality for years — it’s become a post-recession rallying cry. Even Jamie Dimon seems to think inequality is bad.  

The hope, however, was that this was a cyclical problem — when the economy got cranking again, those of us hit hard by the downturn would start earning more and income inequality would fall.  

A new paper, however, looking at male and household earnings, finds that income inequality is increasingly permanent. (The study didn’t break out women’s income.) “Rising Inequality: Transitory or Permanent?,” which was submitted as part of the Brookings Papers on Economic Activity, looks at pre- and after-tax incomes from 1987 to 2009 and finds some disturbing trends.

Take a look at the chart below, which shows that men’s earnings have become increasingly volatile over two year periods. This has big implications for the economy: It’s one thing to lose your job, get a new one, and get by on a slightly lower income. It’s an entirely other thing for your income to swing wildly from year to year.

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The study’s authors find that the effects of this variance are increasingly lasting. They differentiate between “transitory inequality” and “permanent inequality.” The former might come from getting laid off in a bad economy or from people moving up the economic ladder by pulling in higher salaries. Permanent inequality, the authors find, is the key driver of the growth in income inequality for men.  Worse, “for household income, both before and after taxes, the increase in inequality over this period was predominantly, although not entirely, permanent,” the study’s authors find.

What does this mean? It could lend credence to the idea that American men simply don’t have the skills that economy needs right now. “Our data would imply stories such as skill-biased technical change or globalisation that has increased the inequality of lifetime incomes,” one of the study’s authors told the FT.  

It could also mean that a key component of the the way we think about the U.S. economy could be broken. We tend to think that America is a pull-yourself-up-by-the-bootstraps economy. Lose your job? Just work harder, move or get new skills. This study — and the 4.8 million Americans who are officially considered among the long-term unemployed — suggest that it’s much harder to get back on our feet economically than we think. As University of Michigan economist Justin Wolfers said: “The rich are getting richer and staying richer. The poor are getting poorer and staying poorer.”

26 comments

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Middle income jobs – those paying $13+ per hour – have decreased by 60%. Lower-income jobs have increased by 58%. Way back when (I am 76) people worked in companies for their entire working lives, the SAME companies. Now it is increasingly common for someone to work for a number of companies before retirement.

Insecurity = fear. Fear can = desperation. Grab any job available for fear of not being able to pay your bills, support your family.

Posted by AZreb | Report as abusive

Regarding 4ngry4merican’s “But with the worst socioeconomic mobility amongst all developed nations in the world that opportunity no longer exists”, Please note that trevorh explained already in the beginning the root cause of the decreased socioeconomic mobility:
“… the rich are marrying people with better genes and are making better off springs and the poor are marrying people with worse genes and making worse offspring.
The economic inequality is simply the symptom.”
The 20th century created a society stratified by (heritable) cognitive skills. Desperate attempts to fix this with additional education efforts fail. Can’t fix the genes yet. Sorry.

Posted by ddccc | Report as abusive

Many relevant points have been made in this discussion.

Though many of us feel fear and worry about our future, and keep on working harder and harder within the system, few of us realize the extent to which the people have been enslaved. Getting on in life has consisted of adopting beliefs about society, taking a position in that society and accepting the ‘rules’ for advancement, without questioning who made those rules. This behaviour has progressively distracted us from understanding who we really are.

Perhaps some of us have wondered why humans are the only creatures on this earth that have to work to stay alive. Perhaps you have spent some of your ‘free time’ investigating our true life’s purpose. Perhaps some of us have started to wake up to what is actually happening, through watching films such as Thrive: What on Earth will it take? http://www.thrivemovement.com

We may have wondered why we feel so powerless against so many actions taken by authorities. For those of you in this space, I would like to bring to your attention the status quo with regards to the system:

We are better off taking full personal accountability for ourselves and for our actions.

Please take a look at The Peoples Trust 1776 http://peoplestrust1776.org
and the One Peoples Public Trust http://oppt-in.com

Review the information posted there and check in with your true self.

In love and light.

Posted by BEandDO | Report as abusive

As usual with you putzes, nothing is ever the government’s fault. Nothing more needs to be said, because you fools are hopeless.

Posted by KyleBecker | Report as abusive

KyleBecker’s attack on the Government can be improved with a circular blame game. Non of these parties: Government, the press/media and the public is willing to even articulate the root cause of the growing difference in cognitive skills between the top and bottom 50%: the
system’s century long unconditional generosity to help survival of the un-fittest. No doubt you must have recoiled in disgust when you read the previous sentence.

Posted by ddccc | Report as abusive

‘“The rich are getting richer and staying richer. The poor are getting poorer and staying poorer.” this prof should walk to the near building where there are biology profs as well.

Those profs will tell him, the rich are marrying people with better genes and are making better offsprings and the poor are marrying people with worse genes and making worse offspring.’

These Biology Phd’s must have some of the worst genes then as they have been among the hardest hit by recent economic trends. Tenured jobs are very hard to find for recent PhD’s, and many that do find jobs are working as associate professors for under 30k per year.

Posted by MarkRittman | Report as abusive