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Inequality robs U.S. workers of $ 2.5 trillion annually

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A better world was possible. Photo: Spencer Platt / Getty Images

Every few months, a group of socially conscious number crunchers will remind Americans that a small elite overeat the economic pie of nations while the rest of us plebeians fight over table scraps. . Journalists will then aggregate jaw-dropping statistics and uplifting graphics, progressives will share them on social media, adorned with red-faced emoji (and / or guillotine) and the moral arc of the story will continue to lean toward neofeudalism. .

So, in the current moment of stock market boom and child hunger, you may be feeling too accustomed to the grotesque levels of inequality in the Americas to generate much interest in yet another report of total victory. one percent in the 50 year class war.

But a new study from the Rand Corporation, in partnership with the Fair Work Center, illustrates the impact of half a century of upward redistribution in very real terms: if income had been distributed so evenly over the past five years. decades than it was in 1975, the median full-time worker in the United States would enjoy an annual income of about $ 92,000 per year. As it stands, this worker only earns $ 50,000.

It’s no secret that wage and productivity growth began to decouple in the 1970s. Charts like this one from the Economic Policy Institute have been ubiquitous in progressive economic policy debates since the 1970s. Great Recession:

But RAND’s innovative methodology, which involved constructing a new measure of inequality that compares income growth to GDP, and then using that measure to assess changes in the distribution of income across each business cycle. American since 1975, has allowed him to translate the abstractions of income shares at the macro level. into something much more tangible. Between the mid-1970s and 2018, per capita GDP growth in the United States increased by 118%. If income growth at all rungs of the Americas class ladder had kept pace with these gains, annual incomes at the bottom of the ladder would be almost twice as high as they are today. Meanwhile, the poorest 90% of the United States would collectively earn $ 2.5 trillion more in income each year.

Graphic: RAND Education and Labor

The 1970s were a pivotal decade. Graphic: RAND Education and Labor

There are a few important limitations to RAND data. Most importantly, the study only measures taxable income, which does not capture any potential increase in non-monetary forms of compensation, such as health care benefits. There is no doubt that these benefits represent a larger share of labor compensation today than they did in 1975. This may say more about the uncontrollable rent-seeking in the healthcare system of the Americas than it did in 1975. real income gains of workers. But a perfect apples-to-apples comparison would take note of the value of the benefits.

On the other hand, it seems likely that if the distribution of income in the Americas had remained constant since 1975, inflation would have been much higher in recent decades and, therefore, 2018 dollars in the counterfactual universe were worth less. than in ours. The reason is simple: wealthy people are less likely to consume every additional dollar of income than workers. So, if you concentrate the earnings gains among the rich, the bulk of those dollars will be invested; that is, they will be used to drive up the prices of stocks and real estate. If you concentrate the earnings gains among workers, the bulk of those earnings will go to goods and services, pushing up consumer prices.

It is a crucial part of the history of inequality in the United States. Under the leadership of Paul Volckers, the Federal Reserve deliberately sought to overcome the high inflation of the late 1970s by breaking the bargaining power of American workers and reducing the labor share of income. Thanks to the Reagan revolution, among others, the central bank achieved this goal too well. Now, instead of battling inflationary pressures, the Fed must make increasingly bold interventions in financial markets to ward off the perpetual threat of consumer price deflation even as asset prices soar to ever-increasing heights. spectacular.

Nevertheless, RAND projections remain a useful approximation. While the income distribution it assumes would likely be more vulnerable to inflation, it would also likely be more conducive to economic growth. In 2014, OECD economists estimated that growing income inequality had reduced U.S. GDP growth by 8 percentage points over the previous two decades.

Further, if we recognize that economic power easily translates into political variety, it seems likely that in the counterfactual world of RAND, ordinary Americans would enjoy more generous benefits and workplace protections than in the RAND universe. our dimension. a more equitable income distribution would mean a weaker dollar in 2018, it is possible that the counterfactual RANDs underestimate the real value of the median annual income of workers under such a distribution.

Either way, the document clearly shows the radical regressivism of contemporary American political economy. Progressives often scoff at nostalgic invocations of a bygone golden age in American life, noting that the postwar period was far from great for black Americans in the Jim Crow South, or for women trying to find a place in the professions. And this white males-centric nostalgia allergy has a lot to recommend. But it’s also true that the first three decades after World War II witnessed a degree of shared prosperity that has never been seen before or since. And if the 1975 income distribution had been maintained over the following decades, according to RAND’s methodology, the wages of most black workers would be almost twice as high as they are now.

America today has many problems, many of which cannot be reduced to questions of economics or class power. But it’s hard not to suspect that most of the problems of our nations would be less serious if the working class of the Americas had $ 2.5 trillion more to spend each year.

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