Poverty & Inequality

THE COMPOSITE AMERICAN CLASS STRUCTURETHE COMPOSITE AMERICAN CLASS STRUCTURE

1.1. An extremely rich An extremely rich capitalist/corporate managerial classcapitalist/corporate managerial class

2.2. Historically a large and stable Historically a large and stable middle class middle class anchored in anchored in possession of educational credentials, with an possession of educational credentials, with an uncertain future.uncertain future.

3.3. A A working class working class that was once supported by a strong that was once supported by a strong labor movement with living standards overlapping the labor movement with living standards overlapping the middle class, but now quite vulnerable.middle class, but now quite vulnerable.

4.4. A A poor segment of the working classpoor segment of the working class, with low wages, , with low wages, unconstrained competition, high vulnerability.unconstrained competition, high vulnerability.

5.5. A A marginalized populationmarginalized population living in desperate poverty. living in desperate poverty.

An Empirical Profile of An Empirical Profile of Inequality in AmericaInequality in America

Richest 1% of households

Next richest 9% of households

Bottom 90% of households

Household income Household net Financial Assets

Distribution of Household Income and Wealth, 2004

Ric

hest

1%

Bottom

90%

The Top Decile Income Share, 1917–1998The Top Decile Income Share, 1917–1998

Annual rate of growth of family income by income groupAnnual rate of growth of family income by income group1947-79 compared to 1979-20051947-79 compared to 1979-2005

Ratio of average household income of the richest 1% to the median household

Ratio of average household income of the next richest 4% to the median household

Ratio of household income of the median household to the bottom 20%

1979

1989

2000

Where in the distribution has inequality increased the most?

0%

100%

200%

300%

400%

500%

600%

top 10% top 1% top .1% top .01%

Earnings Growth at the Very Top of the Income Distribution

1972-2001

1965 1972 1978 1989 1997 2000 2005From Mishel, et. al. The State of working America, 2008-09, Figure 3AE

Ratio of Average CEO to Average Worker pay, 1965-2007

700 times the pay of average workers

500

600

400

300

200

100

Top 10% of executives

Median executiveBottom 10%

of executives

Executives = 3 highest paid officers in companies that were among the 50 largest in 1940, 1960, or 1990

1940 1950 1960 1970 1980 1990 2000

Source: New York Times 4/8/2006

Ratio of executive pay to Average worker pay Ratio of executive pay to Average worker pay 1940s-2000s1940s-2000s

Class Origins of People in the “Forbes 400” list of wealthiest people in the U.S.

An Empirical Profile of An Empirical Profile of Poverty in AmericaPoverty in America

Relative Poverty Rates (% with income < .5 national median)

5.3

6.8

7.1

7.3

7.7

8.1

8.3

10.6

11.0

12.0

12.4

17.1

Sweden

Norway

France

Finland

Netherlands

Luxembourg

United Kingdom

OECD Total

Germany

Canada

Australia

United States

Changes in Child Poverty Rate and National Income, 1959-2007Changes in Child Poverty Rate and National Income, 1959-2007

Growth of intense poverty:Growth of intense poverty:% of poor living below half of the poverty line% of poor living below half of the poverty line

Two broad explanations of persistent poverty:

1. Blame the victim

2. Blame society

Blame the victim

Simple reasoning:

1. Some people who are born poor become rich, others do not, sometimes even within a family.

2. There must be something different between those who stay poor and those who do not which explains the different outcomes.

3. Therefore the explanation of poverty must be this individual difference: there must be a personal deficit of some sort.

Blame SocietyBasic idea: Circumstances vary much more between the

poor and the nonpoor do than personalities, motivations or values.

SOCIAL STRUCTURAL EXPLANATIONS OF INEQUALITY AND POVERTY

1. Marginalization: Exclusion from labor markets

2. Inequality processes within labor markets

3. Processes which generate inequality in wealth

Social Structural causes of inequality and poverty: #1 Marginalization

Definition: the process of being excluded from stable participation in the labor force.

Three issues:

a) Simple observation: lack of adequate employment for people with low skills or with outmoded skills.

b) This is NOT just a problem of inadequate skill formation. It is equally a problem of inadequate job creation.

c) The consequences of marginalization are intensified because of lack of real safety-net.

Pre-transfer poverty ratePre-transfer poverty rate

Post-transfer poverty ratePost-transfer poverty rate

Poverty Rates before & after income transfersPoverty Rates before & after income transfers

Social Structural causes of inequality: #2. Inequalities within labor markets

a) Two possible ways of organizing the process of connecting wages to jobs: 1. Individualized competition

2. Labor market governed by rules which dampen competition

b) Why does intensification of competitiveness (deregulation) lead to increasing inequality?

c) Explanation for intensification of competition in the U.S.A.:• Decline of unions• Decline of government regulation• Increased global competition

d) Technological change

Social Structural causes of inequality:#3 Wealth inequality

1. Difficult for average person to accumulate much wealth through savings.

2. Stagnation of household income since the early 1970s means that discretionary income for most people has not grown much.

3. Fantastic rise in employment earnings at high end of market has allowed professionals and managers to turn surplus earnings into capitalist wealth (stocks, bonds, etc.)