Rich Are Getting Richer, Poor Are Getting Richer
Let's Permanently Dismiss the "Stagnant Wage Myth": ALL income groups have gotten richer in a generation:
2 of Every 3 Americans Are Better Off Today Than Their Parents, and More Than 80% of the Bottom Fifth Are Richer Than Their Parents
The charts above are from the study "Economic Mobility of Families Across Generations" from the Economic Mobility Project, based on a sample of 2,367 individuals who were between the ages of 0 and 18 in 1968 and have been tracked into adulthood. Here is what the study shows:1. Adults who were children in 1968—those who were in their 30s and 40s at the end of the century—have more income than did their parents’ generation.
Median family income rose by 29% between the two generations, from $55,600 in inflation-adjusted dollars to $71,900. Average family incomes, grew even more rapidly, from $61,600 to $88,000 (a 43% increase). Income growth occurred throughout the income distribution for all five quintiles, as shown in the top chart above (click to enlarge), although family income in the top quintile grew by 52%, compared to 18% for the bottom fifth.
2. The average number of individuals per family shrank from 3.1 to 2.3 individuals between 1969 and 1998. Taking into account the smaller family size as well as the growth in family income, families are generally better off economically today.
3. More than 2 out of every 3 Americans who were children in 1968 had higher levels of real family income in 1995–2002 than their parents had in 1967–1971 (see bottom chart above, click to enlarge). Children born to parents in the bottom fifth were MORE likely to surpass their parents’ income than children from any other background. More than four out of five children (82%) born to parents in the bottom quintile have greater family income than their parents. In contrast, less than half (43%) of those whose parents are in the top fifth of income surpass their parents.
4. Economic mobility is measured in this study by tracking only changes in cash income. Income mobility would be higher at the top income quintiles with the inclusion of the value of fringe benefits, since employer contributions to retirement and health insurance totaled 7% of wages in 1967–1971 (parents' generation) and 13% in 1995–2002 (children's generation).
In other words, contrary to the picture portrayed by the media:
1. Real incomes are NOT stagnant - real median family income has increased by 29% over the last quarter century, and real incomes have increased for ALL income groups over the last generation.
2. The middle class has not disappeared, it's gotten richer! Real income of the middle quintile (middle class) has increased by 29%.
3. Although it's true that income inequality has increased, it doesn't really matter because the poor have gotten richer AND the rich have gotten richer. The rich have NOT gotten richer at the expense of the poor, all groups have gotten richer together.
4. There is significant upward income mobility, especially for the lowest income group. Children born to parents in the bottom quintile are more likely to surpass their parents’ income (82%) than are children from any other background.
Bottom Line: It's truly remarkable and extraordinary that more than 2 of every 3 Americans born a generation ago have already surpassed their parents' income, and more than 4 of every 5 Americans born to parents in the bottom fifth during the late 1960s and early 1970s are better off than their parents. Do you think that was ever the case at any other time in history like the 5th Century, 10th Century or 15th Century? Not likely. It's probably true that just being alive in the 21st Century, especially being alive in the U.S., you've "won first prize in the lottery of life."
39 Comments:
Reality is so much more interesting than populist rhetoric. With the rise of globalization, a child born today will likely have more opportunity than at any other time in history.
Thats a beautiful post by the academic. No doubt Kudlow will have him on the show again to reinforce the so called Goldilocks Fantasyland economy.
Real wages are up only 1% since 2001 (thats using the so called gubmint inflation numbers which no one in their right mind believes unless your an academic or republican). This so called Goldilocks economy helped the rich get richer and the poor get poorer.
"real median family income has increased by 29% over the last quarter century"
In 1980 the median price for a home was $93,400 in 2000 dollars.
In 2005 the median price for a home was $219,600 in 2005 dollars.
Couldn't the increase in female employmnent account for much of this difference in the increase in family income from table 1 ??
I would think it could and you will convince no one but the faithful until you control for this.
"I would think it could and you will convince no one but the faithful until you control for this."
In other words, "I'm too lazy to check on my own hypothesis."
Mark wrote:
"Bottom Line: It's truly remarkable and extraordinary that more 2 out 3 Americans born a generation ago have already surpassed their parents' income, and more than 4 out every 5 Americans born to parents in the bottom fifth during the late 1960s and early 1970s are better off than their parents."
Whats more truly remarkable is how 2 out of 3 posters on this thread are socialist retards. And 4 out of 5 Americans are leaning towards protectionism and communism.
To anonymous (1:11 AM): In this "academic" world we live in on this blog, you need evidence to back up your assertions. Evidence that you apparently don't have.
To anonymous (2:18 AM): A house is not a consumer product, its an asset. Its a good thing that it has grown in value. In fact, one of the main criticizms of this economy is that housing prices are FALLING. Thats what most people on this site keep bringing up. So are falling housing prices a good thing or a bad thing? The contradictions and hypocricy of the left is astounding.
heretic38501,
What does it matter if he does not take into account the female employment. Its not total family income he is comparing, its individual income. So, if a woman's father made 30,000 dollars a year and she makes 50,000 dollars thats a 67% improvement. Thats has nothing to do with the fact that her mother was a stay at home mom.
heretic38501,
What does it matter if he does not take into account the female employment. Its not total family income he is comparing, its individual income. So, if a woman's father made 30,000 dollars a year and she makes 50,000 dollars thats a 67% improvement. Thats has nothing to do with the fact that her mother was a stay at home mom.
"Whats more truly remarkable is how 2 out of 3 posters on this thread are socialist retards. And 4 out of 5 Americans are leaning towards protectionism and communism."
That's what happens when a country loses it soul. Rich in term of assett and bankrupt in everything else.
"(3) Much of the growth in family income is because more women have gone to work. Moreover, average earnings have increased for those women who do work. In contrast, earnings of men in their 30s have remained surprisingly flat over the past four decades."
heretic38501 is correct. The quote above is from the article on page 7.
Personally, I think we are much better off now. We can purchase items that make life much convenient that were not even available a few years ago, so income is only part of a more complex quality of life issue. Professor Perry posted about this on November 21, 2007, “Good Old Days Are Now; It Keeps Getting Better.”
I’ve lived through the 1950s through the 2000s. Despite the nostalgia of the “good ole days,” I would not want to go back.
"In 1980 the median price for a home was $93,400 in 2000 dollars.
In 2005 the median price for a home was $219,600 in 2005 dollars."
Houses in 2005 are both bigger and better equipped than those in 1980. This is not an apples to apples comparison.
Cars also cost more, but they last longer, are safer, and have more comfort features.
Think about it.
Mr Perry, you should blog about this. Bad lending regulations were probably a cause of the subprime crisis.
Saludos,
Carlos
colin said...
Houses in 2005 are both bigger and better equipped than those in 1980. This is not an apples to apples comparison.
colin that is almost a good point except that if you track a home that existed in 1980 to 2005 you will see that its market value increased 100% to 500% plus except in very limited instances.
Post all the fancy numbers and facts you want. "The rich get richer and the poor get poorer" is a lot easier to remember and say, so it must be true.
Machiavelli999 said...
A house is not a consumer product, its an asset.
Hahahahaha spoken like someone steeped in the culture of real estate finance or sales.
A house, is a house kiddo. It is meant to be lived in and provide shelter. Some price increases are expected but the boom era price increases were not sustainable. The collapse of the housing market was inevitable.
Look dude I'm no harbinger of doom. Before the boom even started I was talking up the benefit of medium term investment in residential real estate in specific areas and people like you looked at me like I was from another planet.
I was also one of the lone voices in the wilderness to suggest that the boom was coming to an end and it was time to get out of the market.
The family house is no longer an ATM and many people are learning that the hard way as they beg others to "take over payments" on the crap they bought by refinancing their "asset."
Me? I have cash and will be picking up other peoples losses for a profit when the time is right. I call it "stealing" but I don't hold a gun to anyone's head and they have the choice to sell to me or not but I'm a businessman and must make a profit.
That, Sir does not sound like a socialist retard or a communist to me.
carlos, at the heart of the subprime crisis is actual fraud.
When loans are made with no verification of income, assets or down payment fraud will be present. It is human nature.
I'm just popping some pop corn and am going to watch the show for the next couple of years.
anonymous,
I don't get you. You talk about the money you have made off of essentialy trading real estate and you don't agree with me that a house is an asset. I applaud you for timing the market well, but what does that have to do with the economy being bad.
I guess you are trying to imply that inflation is higher than it seems, but housing prices are not an indicator of inflation.
Saying that housing prices is an indicator of inflation is like saying that since you could have bought a share of MSFT at 10 bucks a share 20 years ago and now its 100 bucks a share, its evidence that we have had a 1000% inflation over the past 20 years.
Socialist Retard #2 - the point of your original post seems to be that housing has gone up faster than income, so that means things are tougher than they were.
If that were true, why are home ownership rates way up over the same period? (even without the recent run up caused by banks giving easy credit).
marko: "why are home ownership rates way up over the same period? "
again, because there are now two incomes in many families.
this whole article is useless if it does not adjust every comparison for that fact.
Marko said...
Socialist Retard #2 - the point of your original post seems to be that housing has gone up faster than income, so that means things are tougher than they were.
If that were true, why are home ownership rates way up over the same period?
The Census Bureau reports that home ownership plunged to 67.8% in the largest year-over-year drop recorded.
"We're back to where we were in 2002, which is before the subprime nuttiness and run-up in prices. And it's not clear how much farther we're going to fall."
So "Marko" who is the socialist retard now? :D
Um, you are? :) Year over year does not address the issue. Ownership rates in 2002 were still much higher than in 1980, I believe. Just because things went overboard the last few years and have now gone back to normal doesn't mean they are bad, and certainly not worse than in 1980!
As for Bobble's much better point about household income, I believe I have heard it argued that the introduction of women into the workforce tended to supress men's wages since it (nearly) doubled the available pool of labor. Did you consider that in your analysis?
Machiavelli999 said...
anonymous,
I don't get you. You talk about the money you have made off of essentialy trading real estate and you don't agree with me that a house is an asset.
Something else you don't get is that buying and selling houses is no different than buying and selling a loaf of bread. You buy at wholesale or better and resell at retail just like your friendly neighborhood grocer. There is way more to making a buck off real estate than "timing the market." People that time the market hoping to make a buck are nothing but gamblers aka speculators and deserve to lose their shirts.
I can agree that a house is an asset in the sense that a car or a fishing rod is an asset but it is not a guarantee of future profits.
How many people in Detroit or Flint consider their house an asset or an investment? Some houses do not rise in value but begin dropping in value as soon as they are built because of the area they are in.
Any rise in the value of most houses is due to government meddling in land use policies or interest rates. There is a ton of land that could be built on but government policies restrict it. More people could be put into the same land areas in many locations but government policies restrict that. Etc.
Tell me what would happen to the value of the asset called the house if interest rates went to 9% and a 20% downpayment was required?
What would happen to the value of housing if permitted densities were suddenly doubled and additional land became available to build upon?
I guess you are trying to imply that inflation is higher than it seems, but housing prices are not an indicator of inflation.
Yes, you are correct that house prices are not an indication of inflation by definition. But, (there's always a "but" isnt' there?) is it not true that if house prices go up that a new home owner will not have as much income to spend on other things? So when house prices go up it is like getting a reduction in pay. The goods that are used to measure inflation may not rise appreciably but you have less income to spend on them so the net effect is the same as inflation.
marko, you said, "why are homeownership rates up over the same period" and now you want to introduce 1980 as your baseline? Sheesh!
Ok, lets do it. Home Ownership rates in 1980 was 64.4%, in 1990 was 64.2%, in 2000 was 66.2% and now 67.1% and falling.
Why the difference? It is real simple and has to do with the fact that interest rates and lending standards were high in 1980. As interest rates fell more people could afford to buy a house. As lending standards and interest rates fell even more starting in the mid 1990s the rush began. Those irresponsible individuals who had no business buying a house in the first place bought homes that they had no chance of keeping and now we are seeing the natural outcome of an artificial stimulus to the housing market. Once the stimulus is removed the benefits cease and the market returns to its former level.
When the fall in home ownership rates stabilizes I think we will be in the 65% range again but we really won't know where it will be until the home ownership rate stops falling.
marko, I made an error current home ownership rates are 67.8% not 67.1% as written in the above post.
it's not a true "asset" if it is securing a loan.
it's not "home ownership" until the lender releases the lien.
there would be no housing "crisis" were it not for the bad debt.
AKA, paying for the present by borrowing from the future.
just saying.
This is all totally true if you compare to 30 years ago. However, if you look at the last 5-10, the rich have gotten richer and the poor have gotten poorer (of course, you need to account for inflation, I hope that you're doing that in these charts, because it doesn't really look like it)
Individual wages are stagnating.
You cite family wages which is misleading if not dishonest.
You should be held to a higher standard. Or perhaps not.
Ahhh, more than a few socialists without shame or a clue on this posting...
"This so called Goldilocks economy helped the rich get richer and the poor get poorer"...
Oh dear! So some people are either to lazy or to stupid to take advantage of this economy..
So the rich get richer, so what? When's the last time a poor person put someone to work and gave that person a paycheck for the work?
"Whats more truly remarkable is how 2 out of 3 posters on this thread are socialist retards. And 4 out of 5 Americans are leaning towards protectionism and communism"...
No doubt... I can't help but wonder if three generations of public school pollution has something to do with it...
"Sir does not sound like a socialist retard or a communist to me...
Which part doesn't sound like a retard or a communist to you? You taking advantage of other peoples' inability to handle their part of the homeowner's contract with the bank or people buying more than they can handle?
juados said...
Which part doesn't sound like a retard or a communist to you? You taking advantage of other peoples' inability to handle their part of the homeowner's contract with the bank or people buying more than they can handle?
No need to foam at the mouth and stomp around now juandos.
I thought you liked the free market and were against "floating parasites." You should be getting very excited as you read about my exploits in stealing the houses of families across America for 20 to 40 cents on the dollar.
Those darned parasites should have read the fine print and known that they couldn't have possibly afforded the houses they "bought" for no money down and interest only loans.
Do I feel bad about doing what I do? Not at all. Does it make me angry that the government is so corrupt that it would allow the subprime mess and credit crisis to arise? You betcha!
But someone is going to take advantage of the situation juandos mah boy and it might as well be me.
Bwahahahaha! [/evil_laugh]
This sounds pretty good...
Children born to parents in the bottom quintile are more likely to surpass their parents’ income (82%) than are children from any other background.
Earnings for people in the bottom fifth start at zero.
more than 4 of every 5 Americans born to parents in the bottom fifth during the late 1960s and early 1970s are better off than their parents.
For someone coming from the highest earning part of the bottom fifth they would have to earn more than $4.63/hour to $9.25/hour to do better than their parents.
Mark, is that because their parents are dead?
"...and more than 4 of every 5 Americans born to parents in the bottom fifth during the late 1960s and early 1970s are better off than their parents."
What exactly is being compared to what in your "analysis."
Given how Clintonesque some of the analysis are here I wouldn't be surprised to learn that the comparisson does not include owning a houuse and uses a lot of substitution.
EG. Mom and Dad had a vacation house but sonny boy has a tent trailer so we'll call that better because it permits sonny boy to establish a residence in many locations (including Walmart parking lots) at will.
"Do I feel bad about doing what I do? Not at all. Does it make me angry that the government is so corrupt that it would allow the subprime mess and credit crisis to arise? You betcha!"...
Oh dear! The government isn't doing its nanny state duty according to anon...
So its up to the government to make sure people are honest, can read, and comprehend the written word?...LOL!
Thanks anon for reenforcing Micheal Hodges' report of the erosion of education in our country...
Thanks for playing...
juandos said...
Oh dear! The government isn't doing its nanny state duty according to anon...
juandos, (*smile*) you only have to show me one other western nation on this planet where a subprime crisis could have evolved because the rule of law permitted it.
It is that "nanny state" that you refer to that deters a good amount of potential harmful activity from occuring. Would you prefer that murder, rape and robbery not be subject to control by the "nanny state?"
So its up to the government to make sure people are honest, can read, and comprehend the written word?...LOL!
No. Don't be stoopid. It is up to the government, if they are going to govern at all, to put in place and enforce laws that prevent unscrupulous players from misrepresenting the reality of documents that might be signed so that people are not signing things that require them to perform impossible tasks to avoid losing real and/or personal property.
The level of protection afforded by the "nanny state" should be sufficient to provide people with the degree of comfort necessary for them to freely, openly and regularly participate in the economy.
Show me how the conditions that permitted the subprime crisis to evolve have been a net benefit for this country?
juandos said...
Thanks anon for reenforcing Micheal Hodges' report of the erosion of education in our country...
The jokes on you bubba.
First, I didn't go to a public school.
Second, while I might be a tad eccentric my creativity and intelligence has resulted in my being able to earn vast sums of money in royalties, licenses, fees, honorariums and salaries. All at the same time. I.E. concurrently.
So while I am sitting on my butt keyboarding away to you I am paying more in taxes each quarter than you earn in years of whatever you do that passes for a job.
Besides I have the luxury of having a track record of being right.
"Second, while I might be a tad eccentric my creativity and intelligence has resulted in my being able to earn vast sums of money in royalties, licenses, fees, honorariums and salaries. All at the same time. I.E. concurrently"...
Was that before or after the onset of western sunrises?
juandos said...
Was that before or after the onset of western sunrises?
juandos, you rigidly defend positions based on op-ed pieces that cannot be substantiated with reliable data. As a result, I am not surprised that your responses are personal attacks instead of dialogue that seeking understanding based on the best and most reliable data.
I really don't care what you think about me or what you say you think about issues.
Your reactions amuse me and that is why I have kept this back and forth banter up with you.
I enjoy playing you like a fish because you are so predictable and maybe that is wrong but it isn't like I'm forcing you to do anything. I also like talking back and forth with you because it gives me insight into the mindset of people like you.
Thank you, juandos, for the entertainment and education.
THis professor along with Walter E. Williams both sound like right wing nut cases. That first chart seems so flawed. The number of people who are becoming poorer is far less then those becoming rich. And lets remember something called inflation. Products, cars, houses, edcuation all cost more now then they did in the past. Hey colin, try buying a house for 93,000 in a community where someone isn't getting shot or killed everyday.
Number of people becoming poorer is far MORE then the number becoming rich***
Even if one assumes your numbers are accurate, you have merely established that while the rich are getting sinfully richer, the poor can hope to drown in 18% less water than there parents - how absolutely Hooverific of you.
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