Income Inequality Bonanza

In the New York Times, columnist Paul Krugman deflates the notion that widening income gaps are the result of education and specialized skills:

...a college degree has hardly been a ticket to big income gains. The 2006 Economic Report of the President tells us that the real earnings of college graduates actually fell more than 5 percent between 2000 and 2004. Over the longer stretch from 1975 to 2004 the average earnings of college graduates rose, but by less than 1 percent per year.

The Economic Policy Institute makes the same point on their website: "Since 2000, the real earnings of college-educated workers (those with bachelor's degrees) have fallen quite steeply..." So having a degree doesn't guarantee that you'll grab a big slice of income pie. But who is capturing all the wealth?

As Krugman points out, big income gains have lately been restricted to a very tiny slice of Americans:

Between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn't a ticket to big income gains. But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. [Emphasis added.]

In other words, not only are the ultra-rich getting richer, but they're getting richer much, much faster than the plain old rich. And even if you count yourself among the fortunate few who earn more than 90 percent of American households, your gains (as a class) have been very slow.

And the picture looks even bleaker for young workers.

Against that backdrop, the Christian Science Monitor reports that incomes for younger Americans are actually falling. Among the findings:

• Income fell 8 percent, adjusted for inflation, for those under 35 and 9 percent for those aged 35 to 44.
• The median income for men under age 44 was significantly lower in 1997 than in 1970, after adjusting for inflation, according to a long-term analysis by the Census Bureau in the late 1990s. For those over 45, incomes barely held their own during that period.
• The entry of women into the workforce in those decades has helped push median family incomes up over time. But even when men and women are included together, younger workers (age 25-34) are earning well below what they did in 1970. And at all ages, evidence suggests that families are putting in more hours of work to make their household incomes rise.

Add to these financial stresses the skyrocketing cost of healthcare, education, and housing (no, it's not really cheaper today) and you have a recipe for a rather unhealthy looking economy. What's most astonishing to me, however, is how little play these stories get in the media.

Business page-dominating stats like GDP and the Dow simply don't tell us very much about the economy--or at least about how the economy actually affects people. It will be interesting to see which gets more media attention: the increasingly fragile income dynamics for ordinary Americans or the 2005 GDP numbers that the feds are just about to release. I'll go out on a limb and guess it's gonna be GDP.