the growth of inequality may have as much to do with power relations as it does with market forces - more education is not too useful if you want a much larger than average income - you need the right - and rich - parents. Fed Reserve Chairman Bernanke's response to Representative Barney Frank's question about income inequality,where he declared that “the most important factor” in rising inequality “is the rising skill premium, the increased return to education.” IS PURE BULLSHIT!
AND OUR MEDIA SAYS NOTHING!
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A new research paper by Ian Dew-Becker and Robert Gordon of Northwestern University, “Where Did the Productivity Growth Go?,”
http://www.nber.org/papers/w11842 (You can obtain a free download if you are a subscriber, a corporate associate of the NBER, or a resident of nearly any developing country or transition economy - or you can get details at
http://64.233.179.104/search?q=cache:YLmPgfpgskoJ:www.brookings.edu/es/commentary/journals/bpea_macro/forum/200509bpea_gordon.pdf+Ian+Dew-Becker&hl=en&gl=us&ct=clnk&cd=8 )
NBER Working Paper No. 11842
Issued in December 2005
NBER Program(s): EFG LS
---- Abstract -----
A basic tenet of economic science is that productivity growth is the source of growth in real income per capita. But our results raise doubts by creating a direct link between macro productivity growth and the micro evolution of the income distribution. We show that over the entire period 1966-2001, as well as over 1997-2001, only the top 10 percent of the income distribution enjoyed a growth rate of real wage and salary income equal to or above the average rate of economy-wide productivity growth. Growth in median real wage and salary income barely grew at all while average wage and salary income kept pace with productivity growth, because half of the income gains went to the top 10 percent of the income distribution, leaving little left over for the bottom 90 percent. Half of this inequality effect is attributable to gains of the 90th percentile over the 10th percentile; the other half is due to increased skewness within the top 10 percent. In addition to its micro analysis, this paper also asks whether faster productivity growth reduces inflation, raises nominal wage growth, or raises profits. We find that an acceleration or deceleration of the productivity growth trend alters the inflation rate by at least one-for-one in the opposite direction. This paper revives research on wage adjustment and produces a dynamic interactive model of price and wage adjustment that explains movements of labor's share of income. What caused rising income inequality? Economists have placed too much emphasis on "skill-biased technical change" and too little attention to the sources of increased skewness at the very top, within the top 1 percent of the income distribution. We distinguish two complementary explanations, the "economics of superstars," i.e., the pure rents earned by sports and entertainment stars, and the escalating compensation premia of CEOs and other top corporate officers. These sources of divergence at the top, combined with the role of deunionization, immigration, and free trade in pushing down incomes at the bottom, have led to the wide divergence between the growth rates of productivity, average compensation, and median compensation.
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http://www.nevadathunder.com/Graduates Versus Oligarchs
February 27th, 2006
By PAUL KRUGMAN
The New York Times
<snip>The truth is quite different. Highly educated workers have done better than those with less education, but 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.<snip>
A new research paper by Ian Dew-Becker and Robert Gordon of Northwestern University, “Where Did the Productivity Growth Go?,” gives the details. 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. No, that’s not a misprint. Just to give you a sense of who we’re talking about: the nonpartisan Tax Policy Center estimates that this year the 99th percentile will correspond to an income of $402,306, and the 99.9th percentile to an income of $1,672,726. The center doesn’t give a number for the 99.99th percentile, but it’s probably well over $6 million a year.<snip>
Should we be worried about the increasingly oligarchic nature of American society? Yes, and not just because a rising economic tide has failed to lift most boats. Both history and modern experience tell us that highly unequal societies also tend to be highly corrupt. There’s an arrow of causation that runs from diverging income trends to Jack Abramoff and the K Street project.<snip>
It’s time to face up to the fact that rising inequality is driven by the giant income gains of a tiny elite, not the modest gains of college graduates.
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