The Distribution of Income and Wealth
Economic inequality has been a prominent and perennial concern in economics and public policy. The rise in inequality that occurred during the 1970s and early 1980s stimulated interest in the study of its causes and consequences. Experience from the 1990s suggests that economic growth and prosperity no longer dramatically reduce economic inequality. The persistent inequalities within nations and across nations raise several key issues that demand scholarship and innovative policies to aid in their resolution.
Recognizing this, the Levy Institute has maintained, since its inception, an active research program on the distribution of earnings, income, and wealth. Research in this area includes studies on the economic well-being of the elderly, public and private pensions, well-being over the life course, the role of assets in economic well-being, and the determinants of the accumulation of wealth.
It is widely recognized that existing official measures of economic well-being need to be improved in order to generate accurate cross-sectional and intertemporal comparisons. The picture of economic well-being can vary significantly depending on the measure used. Alternative measures are also crucially important for the formulation and evaluation of a wide variety of social and economic policies. The Levy Institute Measure of Economic Well-Being and related research is aimed at bridging this gap.
Policy Note 2014/4 | June 2014In the late 1990s low unemployment rates, increases in the minimum wage, and improvements in labor productivity contributed to a boost in wages, which translated into 12.4 percent cumulative growth in real wages from the late ‘90s until 2002. Real wages then stagnated despite continued growth in labor productivity. This period between 2002 and 2013 has become known as the decade of flat wages. However, over the same period there were significant changes in the composition of the labor market. In particular, the labor force has aged and become more educated. Increases in age, experience, and education could in fact be propping up observed real wages—meaning that wages of workers with a specific age and education profile may have actually declined over the decade. This is exactly what we uncover in this policy note: what appears to have been a decade of flat real wages was actually a decade of declining real wages within age/education worker profiles.Download:Associated Program:Author(s):Fernando Rios-Avila Julie L. HotchkissRelated Topic(s):
Press Releases | May 2014
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In the Media | May 2014
By Martin SosnoffForbes, May 19, 2014. All Rights Reserved.
At the Sotheby’s May evening auction, Steve Wynn was the successful bidder for Jeff Koons’s life-sized Popeye sculpture, knocked down at a disappointing $28,115,000, and destined for one of Steve’s casino properties. Within this lot is some cautionary metaphor about conspicuous consumption reigning, again. The Koons piece is an immaculate, but exaggerated life sized presence in colorful, shiny sheet steel.
When Wynn took control of the Golden Nugget Casino in Las Vegas some 40 years ago, I sold him my block of stock, a reportable position. He deserved all his successes, a great operator who made Vegas a family destination resort while competition still ran grind joints.
I accept that there are hundreds of art buyers who easily qualify for spending $50 million or more on “name brand” work. Whether this is driven by connoisseurship, emotionality or trading savvy is another story. These big hitters are equivalent to whales at gaming casinos: Alice Walton (the Warhol Coca-Cola), Elaine Wynn (the Bacon) and corporate types like Russian oligarchs and Malaysian honchos, dealers – investors like the Mugrabi family, the jewelry purveyor Graff, even a handful of hedge fund operators.
The economics of taste suggests, long term, elevated art prices don’t hold up, excepting masterpieces. More critical, overindulgence ultimately is divisive for the country by calling attention to how the top 0.1% conduct themselves. Eventually, a public outcry congeals. Congressmen begin to speak out on income inequality. Unions get their raucous voice back.
Our middle-class holds minimal free capital for equity investment. A market rising 32% makes Buffett and his ilk billions richer, year-over-year. For the family with $50,000 in stocks, if that, we are talking chump change. Individual pension fund assets carry a discounted value based upon when they can be withdrawn.
Republicans and major multinational corporations call for tax breaks on the repatriation of offshore earnings, but the facts suggest just the opposite is called for. Corporate income tax rates rest much lower than during the sixties and seventies. Wage earners gain no leverage when the unemployment rate is elevated. Take home pay rises at a measly 2% rate, unless you work for Twitter or other dot com operators and are richly vested in zero cost equity.
Twitter’s insiders disgorged hundreds of millions of shares once their lockup ended. Employees drove Twitter down 17%, overnight. Such action is indicative of a middle class as yet capital starved. Not just machinists, even young computer code writers.
If I were Dan Loeb, instead of coveting Sotheby’s, an overpriced piece of paper that just broke below $40, I’d be driving a Buick and seeking naming opportunities at hospitals and graduate business schools. Buffett and Bill Gates are great role models here, and as far as I know disinterested in $100 million Bacon canvases.
The problem with conspicuous consumption is it can take decades, even centuries before it ends. Never happily. The French Revolution was preceded by bread riots but their political system for centuries exempted the nobility from taxation.
When I compare our present Gilded Age with the past, I see major differentiation. End of 19th century, Robber Barons mainly were industrialists with controlling positions in oil (Rockefeller), steel (Carnegie), railroads (Vanderbilt), the Guggenheims (minerals), Rosenwalds and Hartfords (retailing). Yes – there was J.P. Morgan and Jules Bache and a few Russians, but no Chinese, Japanese and Malaysians throwing their money around in the art world.
Land based wealth existed but yielded minimal returns in rents and farm income. There’s no material book value in Twitter and Facebook excepting cash and intellectual property. We have come a long way from when wealth rested in hard assets – minerals and chemicals, now in serious oversupply.
Art world players mainly are linked to stock market wealth. They include a couple of dozen hedge fund operators. Likewise, private capital operators at KKR, Blackstone, Carlyle and Leon Black. Throw in a dozen VC’s and Internet founders. Although establishment corporate management has learned how to milk their income statements, only a handful walk away billionaires. Unconventionally designed yachts belong to Russians and headman owners like Larry Ellison at Oracle.
If our S&P 500 Index puts together another year like 2013 in the next couple of years, the art market, surely goes through the roof. Deal proliferation would break out all over, too. Analysts would disremember how to punish tech houses with big disparity between GAAP and non-GAAP earnings.
The stock market is capitalized currently at 16 times earnings, not 10 or 11, vulnerable to any sign of a decelerating economy. I don’t know where hedge fund capital comes out in a bearish setting. After all, most of them weren’t bullish enough last year and badly trailed the market.
Obama doesn’t even have an inclination or the power to tax the carried interest of private capital operators at standard rates. Don’t expect any substantive tax reform that redistributes income downward to the poor and lower middle class categories. It could take decades. Infrastructure spending, what the country needs desperately to create jobs, is a stalled initiative for years to come.
The Levy Economics Institute at Bard College rightly underscores that rising income inequality weighs down the economic setting. GDP momentum, absent positive numbers on exports, must depend on rising private borrowing. But, a high debt to income ratio is unsustainable unless the stock market shows late foot.
The distribution of income over three decades flows to the top 1%. They control most of the assets in equities but are themselves vulnerable to a stock market bubble as denouement.
In the sixties and seventies, from my ski chalet in Franconia, New Hampshire I’d zip out in zero degrees early mornings with my band of brown baggers. We sharpened our own skis at home, and ate tons of spaghetti together. My next door neighbor, a dermatologist who was coining money, even in New Hampshire, asked me if it was okay with the group if he bought a new Caddy.
I told him to drop down one price point. The group might frown on such conspicuous consumption. Les did just that. Those days are gone but not forgotten.Associated Program:
Public Policy Brief No. 132 | May 2014Gauging the severity of poverty in a given country requires a reasonably comprehensive measurement of whether individuals and households are surpassing some basic threshold of material well-being. This would seem to be an obvious point, and yet, in most cases, our official poverty metrics fail that test, often due to a crucial omission. In this policy brief, Senior Scholar Ajit Zacharias, Research Scholar Thomas Masterson, and Research Associate Emel Memiş present an alternative measure of poverty for Turkey and lay out the policy lessons that follow. Their research reveals that the number of people living in poverty and the severity of their deprivation have been significantly underestimated. This report is part of an ongoing Levy Institute project on time poverty (the Levy Institute Measure of Time and Income Poverty), which has produced research on Latin America, Korea, and now Turkey, with the aim of extending this approach to other countries.Download:Associated Program(s):Author(s):Related Topic(s):
Research Project Reports | May 2014
The Levy Institute Measure of Time and Consumption Poverty for Turkey
Official poverty lines in Turkey and other countries often ignore the fact that unpaid household production activities that contribute to the fulfillment of material needs and wants are essential for the household to reproduce itself as a unit. This omission has consequences. Taking household production for granted when measuring poverty yields an unacceptably incomplete picture, and therefore estimates based on such an omission provide inadequate guidance to policymakers.
Standard measurements of poverty assume that all households and individuals have enough time to adequately attend to the needs of household members—including, for example, children. These tasks are absolutely necessary for attaining a minimum standard of living. But this assumption is false. For numerous reasons, some households may not have sufficient time, and they thus experience what are referred to as “time deficits.” If a household officially classified as nonpoor has a time deficit and cannot afford to cover it by buying market substitutes (e.g., hire a care provider), that household will encounter hardships not reflected in the official poverty measure. To get a more accurate calculus of poverty, we have developed the Levy Institute Measure of Time and Consumption Poverty (LIMTCP), a two-dimensional measure that takes into account both the necessary consumption expenditures and household production time needed to achieve a minimum living standard.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 798 | May 2014
This paper describes the quality of the statistical matching between the March 2011 supplement to the Current Population Survey and the 2010 American Time Use Survey and Survey of Consumer Finances, which are used as the basis for the 2010 LIMEW estimates for the United States. In the first part of the paper, the alignment of the datasets is examined. In the second, various aspects of the match quality are described. The results indicate that the matches are of high quality, with some indication of bias in specific cases.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 793 | March 2014
The quality of match of the statistical match used in the LIMTIP estimates for South Korea in 2009 is described. The match combines the 2009 Korean Time Use Survey (KTUS 2009) with the 2009 Korean Welfare Panel Study (KWPS 2009). The alignment of the two datasets is examined, after which various aspects of the match quality are described. The match is of high quality, given the nature of the source datasets. The method used to simulate employment response to availability of jobs in the situation in which child-care subsidies are available is described. Comparisons of the donor and recipient groups for each of three stages of hot-deck statistical matching are presented. The resulting distribution of jobs, earnings, usual hours of paid employment, household production hours, and use of child-care services are compared to the distribution in the donor pools. The results do not appear to be anomalous, which is the best that can be said of the results of such a procedure.Download:Associated Program(s):The Distribution of Income and Wealth Gender Equality and the Economy The Levy Institute Measure of Time and Income PovertyAuthor(s):Related Topic(s):
One-Pager No. 46 | February 2014The Levy Institute Measure of Time and Consumption Poverty (LIMTCP) is a two-dimensional measure that takes into account both the necessary consumption expenditures and the household production time needed to achieve a minimum standard of living—factors often ignored in official poverty measures. In the case of Turkey, application of the LIMTCP reveals an additional 7.6 million people living in poverty, resulting in a poverty rate that is a full 10 percentage points higher than the official rate of 30 percent.Download:Associated Program(s):Author(s):Related Topic(s):
Press Releases | February 2014
Download:Associated Program(s):The Levy Institute Measure of Time and Income Poverty The Distribution of Income and Wealth Gender Equality and the EconomyAuthor(s):Mark Primoff
One-Pager No. 45 | January 2014Official poverty lines in Korea and other countries ignore the fact that unpaid household production contributes to the fulfillment of material needs and wants that are essential to attaining a minimum standard of living. By taking household work for granted, these official estimates provide an inaccurate accounting of the breadth and depth of poverty—and can lead policymakers astray.Download:Associated Program(s):The Levy Institute Measure of Time and Income Poverty The Distribution of Income and Wealth Gender Equality and the EconomyAuthor(s):Related Topic(s):