Income, Wages, And Poverty

It seems to me….

Inequality causes problems by creating fissures in societies, leaving those at the bottom feeling marginalized or disenfranchised.” ~ Nicholas Kristof[1].

Even with the economy continuing to expand and unemployment at its lowest point in ten years, an increasing number of U.S. workers are losing their jobs every year as a result of automation, outsourcing, and skill set changes. Over a two-year period, half of all households with a 401(K)-plan experienced some job loss or other form of economic shock. This led to a 24 percent increase in 2015 of employees purchasing private wage insurance policies.

The good news, wages, long stagnant, finally appear to be growing again. In September 2015, when the Fed considered raising interest rates, average hourly pay had just grown by 2 percent, on an annualized basis, over the prior three months[2]. In 2016, that had risen to 2.8 percent. By one measure, wages grew by fully 4 percent in the third quarter of 2015. Accelerating pay suggests that slack in the labor market was almost gone. The pick-up in wages, however, might not be sustained. Many workers left the labor force following the 2007 recession: labor-force participation among 25- to 54-year-olds in the third quarter of 2015 was lower than at any time since 1984. If some can be tempted back to work, growth in wages will be again slow.

The bad news is that income inequality continues to increase. While productivity and total income have grown in the overall economy, the increase is now going to a smaller percentage of recipients. Real wages of unskilled workers in the U.S. and elsewhere have declined nearly 1 percent since 1999 and in 2012 for the first time since prior to 1929 half of all income went to just the top 10 percent of Americans, almost a quarter of all income to the top 1 percent, and almost 6 percent went to the top 0.01 percent.

In the past, new income was spread more evenly across the economic ladder than it is today, when a disproportionate share of the country’s gains is going to the very richest Americans. Inflation-adjusted wages have only inched up for most workers since the 1980s but the country’s highest earners have seen their pay balloon by 35 percent according to a 2015 report by President Obama’s Council of Economic Advisors.

On average, about 80 percent of people in their early 30s would earn more than their parents today if income growth were distributed as evenly as it was in 1940. Making growth more equal would help middle-class people the most but it would also deeply affect wealthy Americans. People whose parents are among the top earners in this country would see their likelihood of making that much money increase by more than 30 percentage points if growth were more balanced.

This inequality has many associated negative social effects; things are not working for a significant percentage of Americans. While life expectancy in general continues to rise, it has fallen for those not having completed high school. It is likely that falling real earnings for male high school graduates has even contributed to their declining rates of marriage and family formation. In 1970, a child living with a high school graduate mother and a child living with a college graduate mother had the same chance—nine-in ten—of living with two parents. In 2008, a child with a college graduate mother still had a nine-in-ten chance of living with two parents. But the chance for a child with a high school graduate mother had fallen to seven-in-ten. One consequence of more female-headed families was an increase from 15 percent in 1980 to 20 percent in 2009 of children living in poverty. The spread of computerized work is increasing the importance of education even as it is undermining many children’s opportunity to acquire foundational skills needed for post-secondary education.

Since the 1940s, it has become less and less likely that children will grow up to earn more than their parents[3]. Research shows children born in 1940 have a 92 percent chance of taking home more income than their parents. By contrast, someone born in 1984, who is 32 years old today, has just a 50 percent likelihood of making more than his or her parents.

This loss of absolute mobility is shared among all economic classes as incomes are stagnating for everyone, not just the poor. Upper-middle-class Americans saw their chances of earning more than their parents decline the most of any group born from 1940 to 1980.

Part of the reason for the stagnation is that the country’s economy isn’t expanding as fast as it previously was. U.S. gross domestic product (GDP) often grew at more than 5 percent in the postwar years and hit 7.3 percent in 1984. Annual growth hasn’t reached 5 percent since then; it was 2.6 percent in 2015. Slower growth means there’s less new wealth to divide among the people who live and work here.

Unfortunately, one-third of Americans have not saved anything towards retirement; 56 percent have saved less than $10,000. About 27 percent of Americans, or 66 million people, do not even have an emergency fund; just 28 percent of Americans have saved for six months of expenses[4]. Those aged 71 or older had the greatest likelihood, at 47 percent, of having saved for at least six months’ worth of anticipated expenses. More than a quarter of younger people, so-called “millennials”, between the ages of 20 to 30 are unable to cover a $3,000 emergency either through personal savings or even by borrowing from friends. They live from day-to-day knowing that just one mistake or accident could mean financial ruin.

Even among American households that earned $100,000 a year or more, 27 percent lacked a rainy-day fund able to meet three months’ worth of expenses. Additionally, a 2015 study found that about a third of Americans who earn $75,000 or more a year at times live from paycheck to paycheck.

That’s what I think, what about you?

[1] Nicholas Donabet Kristof is an American journalist, author, liberal/progressive op-ed columnist, and a winner of two Pulitzer Prizes.

[2] Buckle Up: Interest Rates In America, The Economist,, 12 December 2015.

[3] Hendren, Nathaniel. A working paper authored by researchers from Stanford and Harvard universities and the University of California, Berkeley, 8 December 2016.

[4] Bell, Claes. Financial Security Index, Bankrate,, 21 June 2016.

About lewbornmann

Lewis J. Bornmann has his doctorate in Computer Science. He became a volunteer for the American Red Cross following his retirement from teaching Computer Science, Mathematics, and Information Systems, at Mesa State College in Grand Junction, CO. He previously was on the staff at the University of Wisconsin-Madison campus, Stanford University, and several other universities. Dr. Bornmann has provided emergency assistance in areas devastated by hurricanes, floods, and wildfires. He has responded to emergencies on local Disaster Action Teams (DAT), assisted with Services to Armed Forces (SAF), and taught Disaster Services classes and Health & Safety classes. He and his wife, Barb, are certified operators of the American Red Cross Emergency Communications Response Vehicle (ECRV), a self-contained unit capable of providing satellite-based communications and technology-related assistance at disaster sites. He served on the governing board of a large international professional organization (ACM), was chair of a committee overseeing several hundred worldwide volunteer chapters, helped organize large international conferences, served on numerous technical committees, and presented technical papers at numerous symposiums and conferences. He has numerous Who’s Who citations for his technical and professional contributions and many years of management experience with major corporations including General Electric, Boeing, and as an independent contractor. He was a principal contributor on numerous large technology-related development projects, including having written the Systems Concepts for NASA’s largest supercomputing system at the Ames Research Center in Silicon Valley. With over 40 years of experience in scientific and commercial computer systems management and development, he worked on a wide variety of computer-related systems from small single embedded microprocessor based applications to some of the largest distributed heterogeneous supercomputing systems ever planned.
This entry was posted in Automation, College, Debt, Economy, Education, Education, Employment, Employment, employment, Finance, Financial, GDP, High School, Income, Inequality, Inequality, Inequality, Inflation, Jobs, Jobs, Life Expectancy, Life Expectancy, Marriage, Middle-Income, Poverty, Recession, Recovery, Savings, Savings, Unemployment, Upper-Income, Wages, Wealth and tagged , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

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