Look at this graph, from the (now virulently anti-French, and thus not suspect of bias here) Economist:
France and Britain, when inequality is taken into account, are actually richer than the USA. And the FT, also not suspect of bias, explains why:
it was not a rise of profits or other non-labour income that squeezed the middle-ranking US citizen but an increase in the share of the top 10 per cent of wage and salary earners who have captured almost half the total income gains in the past four decades. Within that, there has been a vast increase of the share of the top 1 per cent, who gained more than all of the bottom 50 per cent.
Let’s go into more detail.
First, a little bit more from the FT article:
Superstars snap up American growth (Samuel Brittain, the FT’s well respected senior economics columnist, Feb. 10)
US left-of-centre journals are full of calculations showing how a middle-income earner would have to work more hours today than five, 10 or even 25 years ago to obtain basic modern necessities.
The stock Republican reply has been to point to the increase in productivity and average real income in which the US has outpaced most other leading western countries. But what is true of the average is not necessarily true of the median – the person in the middle. One of the American economists whom I most trust in this dense jungle, Robert J. Gordon, estimates that real median earnings per hour have hardly increased at all in the US – not merely under the wicked George W. Bush administration but over the preceding period, 1966-2001.*
The question is: who has benefited from the trend annual increase of around 2 per cent in US output per hour? Prof Gordon shows that there has been little long-term change in labour’s share in US income in the past half century.
What, then, was the source of the increased skewness of the income distribution? Prof Gordon is rightly suspicious of the conventional explanation that it has been mostly due to the pressure of skill-based technical change on the least skilled workers – the ratio of median earnings to those in the bottom 10th has hardly changed.
He concludes that it was not a rise of profits or other non-labour income that squeezed the middle-ranking US citizen but an increase in the share of the top 10 per cent of wage and salary earners who have captured almost half the total income gains in the past four decades. Within that, there has been a vast increase of the share of the top 1 per cent, who gained more than all of the bottom 50 per cent.
I went to the original sources mentioned in this article (The Polarisation of the US Labor Market, pdf) , and found some spectacular graphs, which simply have to be shown here…
In the past 30 years, there has been a steady increase in the gap between the rich (the “90”) and the median (the “50”), whereas the gap between the median and the poorest (the “10”), which also increased in the 70s, has now stabilised. (you could even argue that it imporved under Clinton and got worse the rest of the time)
This graph shows that everybody did better in the last 15 years than in the 15 years before that; in both cases the rich did better, but in the last 15 years, the poor did as well as the middle classes. The problem is this:
The middle is getting thinner. Jobs have been created at both ends of the spectrum, instead of throughout. So having a poorly paying job that sees its salary increase as much as that of the middle classes is a pretty small consolation from falling from the middle classes into the lower classes.
Which brings us back to our original graph, with a more detailed version below, from the OECD original study (this page allows you to explore the study, the actual graph is here (pdf)):
I have not been able to find the exact methodology for this graph, but the OECD is a pretty serious institution, and from what I can see, it looks like they have simply taken out of the calculation of the GDP the highest x% (with various values for x depending on “inequality aversion”).
What this says is that America is richer because America’s rich are richer than Europe’s rich. Take the very rich out, and America and Europe have pretty much the same standards of living (according to GDP numbers anyway).
As the FT’s columnist points out:
In any case, we can no longer say with as much confidence as before that redistribution will achieve very little. Tony Blair, prime minister, once said that reducing the earnings of football star David Beckham was not a priority. But if Beckham’s corporate equivalents now account for a substantial proportion of the national income, the matter looks different.
Does that mean another “soak the rich” campaign? One is indeed likely in the US. Republicans will not be able for ever to divert attention to religious and “moral” issues.
Thus, the conservative economics columnist of Europe’s foremost business newspaper expects a “soak the rich” campaign, and indeed seems to think that it would be pretty justified. What are you guys waiting for??
You are already poorer than the French, with no free healthcare, no permanent holidays, and no pains au chocolat. What more do you need to act?!
