Rich get richer and richer and richer in the worst inequality crisis since 1930s

Emmanuel Saez has updated his famous work: “Striking it Richer: The Evolution of Top Incomes in the United States”, Pathways Magazine, Stanford Center for the Study of Poverty and Inequality, Winter 2008, 6-7

Saez is a professor at the University of California, Department of Economics, 549 Evans Hall #3880, Berkeley, CA 94720. Much of his discussion in this report is based on previous work joint with Thomas Piketty. All the charts described here are available in excel format at http://elsa.berkeley.edu/~saez/TabFig2007.xls

From 2006 to 2007, average real income per family grew by a solid 3.7 percent. Average real income for the top percentile grew faster (6.8 percent growth), further increasing the top percentile income share from 22.8 to 23.5 percent (Figure 2). Year 2007 is therefore the second highest year on record since 1913 almost equalling 1928, the record year when the top percentile share reached 23.9 percent (Figure 2). Even within the top percentile, the gains from 2006 to 2007 are extremely concentrated. The top .01% (top 14,988 US families, making at least $11.5m in 2007) share increased from 5.46% in 2006 to 6.04% in 2007 leaving well behind the 1928 peak of 5.04 percent (Figure 3). This shows that 2007 was an incredibly good year for the super rich.

Year 2007 was actually also quite good for the bottom 99 percent of US families as their average income grew by 2.8 percent. This is the best annual increase since 1998. Real income growth for the bottom 99 percent had been very meagre during the Bush expansion starting in 2002. Even including 2007—a good year for ordinary US families-the top percentile captured 65 percent of total real income growth per family from 2002 to 2007 (Table 1 – see Excel download link above).

Saez said the recent dramatic rise in income inequality in the United States is well documented, but we need to know which groups are winners and which are losers, or how this may have changed over time.

His tables show the top ten percent includes all families with market income above $109,600. After decades of stability in the post-war period, the top decile share has increased dramatically over the last 25 years and has regained its pre-war level. Indeed, the top 10% share in 2007 is equal to 49.7 percent, a level higher than any other year since 1917 and even surpasses 1928, the peak of stock market bubble in the “roaring” 1920s,” he said.

The top one percent was families with income above $398,900 in 2007, the next four percent was income between $155,400 and $398,900 in 2006, and the bottom half of the top 10% was income between $109,600 and $155,400 in 2006.

The top one percent incomes captured half of the overall economic growth over the period 1993-2007. Estimates based purely on wages and salaries show that the share of total wages and salaries earned by the top 1 percent wage income earners has jumped from 5.1 percent in 1970 to 12.4 percent in 2007.

Saez explains the inequality of incomes this way:

The labor market has been creating much more inequality over the last thirty years, with the very top earners capturing a large fraction of macroeconomic productivity gains. A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II – such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality. We need to decide as a society whether institutional reforms should be developed to counter it…

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