Chart: Global Wealth Distribution

Since I have been on a bit of an infographic kick lately, here is yet another interesting chart courtesy of The Economist, which measures an issue dear to my heart: wealth inequality. The contrasts inherent in it are quite sobering:

To recap, there are around 35 million millionaires in the world, constituting just 0.7 percent of the adult population — yet together, they hold 44 percent of the world’s total wealth of $262 trillion (up from $117 trillion in 2000). This is an increasingly common arrangement in most parts of the world, so it is little surprise that the same plays out on the international stage, especially as globalization proliferates the systems and trends that contribute to this top-heavy concentration of wealth.

Here are some additional details from the article:

Today 94.5% of the world’s household wealth is held by 20% of the adult population, according to new data from Credit Suisse. Wealth is so unevenly distributed, that you need just $3,650 (less debts) to count yourself among the richest half of the world’s population. A mere $77,000 brings you among the wealthiest 10%. And just $798,000 puts you into the ranks of the 1%—within the reach of many white-collar urban professionals in the West. Hence, more than 35m people carry such a plump purse. Among the three billion adults at the bottom with less than $10,000 in wealth, 90% reside in developing countries. Yet 15% of millionaires live in developing countries too.

Such a stark contrast in fortunes, especially with so much of the world remaining poor despite all the growth in wealth, does not bode well for the economic and sociopolitical stability of this planet (much less of many individual nations, where circumstances are even more dire). What are your thoughts and reactions?

Graph: The U.S. Leads the Way in Low-Wage Work and Pay

As has sadly been the case all too often these days, one of the latest reports from the Economic Policy Institute, an American think-tank, is grim: low-wage workers (the 10th percentile of wage earners) have seen their real pay decline by five percent over the 1979-2013 period, despite concurrent productivity gains of 64.9 percent.

Consequently, American low-wage workers fare the worst in the developed world: according to the OECD, as of 2012, they earned just 46.7 percent of what a median worker worker does, far below the OECD average of 59.9 percent; to catch up to that average, U.S. low wage workers would need a 28 percent raise in their wages.

The graph below highlights this issue rather starkly:

Note that over a quarter of America’s labor force — 25.3 percent to be exact — is low wage, which is defined as earning less than two-thirds of the median wage. On this metric, too, the United States ranks the highest among the 26 countries surveyed, and far higher than the OECD average of 16.3 percent.

Thus, the U.S. has the largest number of low-paid workers in the developed world, and they in turn are the lowest paid in the developed world. And while several countries, such as the U.K., Ireland, and Canada, come close, most of them at the very least have more developed social safety nets to offset the shortfall among low-wage workers (universal healthcare alone is a major mitigating factor, given that medical bills account for many cases of bankruptcies among the American poor).

Setting aside the considerable amount of misery that comes with low paying and often menial labor, the broader impact on the long-term prosperity of the nation cannot be understated: with one out of four workers (and their dependents) having so little income, consumer demand — the lifeblood of the economy — stagnates. Fewer people are able to afford an education or vocational training, leading to a lot of untapped and desperately needed potential.

All this despite the nation’s economic elites — its executives, shareholders, and investors — broadly doing better than ever. Is it really so untenable for companies to spare some of their record, post-recession profits to improve the plight of their beleaguered workers — i.e. the consumers and patrons they all so badly need?

 

In any case, this is a point I have made too many times before, so instead of retreading it once more, I will leave you with this illuminating report by  Elise Gould (also from EPI) on Why America’s Workers Need Faster Wage Growth—And What We Can Do About It. As always, feel free to share your thoughts and feedback.

No Representation Without Taxation

Well, that is not quite the argument that Amy B. Dean made in her opinion piece for Al-Jazeera America, titled Not Enough Taxation and Too Much RepresentationBut she does point out the discrepancy between how little modern corporations invest in their community — whether through paying taxes or through offering decent employment — and how much they nonetheless continue to exercise disproportionate political influence.

For decades now, U.S. corporations have been cutting ties with the communities that enabled their success in the first place. The trend began in manufacturing, a sector that has slashed nearly 8 million jobs since 1979. It has since spread as companies have outsourced and offshored an expanding array of jobs. A good example comes from the semiconductor industry. According to the Government Accountability Office, beginning in the 1960s, semiconductor manufacturers began to move assembly plants to Asia. In the 1980s they followed these with wafer foundries and, beginning in the 2000s, design and engineering jobs as well. A survey of over 500 companies by the consulting firm Booz Allen Hamilton affirms this trend, finding “a salient shift toward locating more sophisticated and mission-critical work in countries such as India, China, Hungary, Brazil and the Philippines.”

From 2010 to 2012, three-quarters of the jobs created by the 35 largest U.S. companies from were outside the country, according to The Wall Street Journal. And for the 2000s, the newspaper reports, “U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers, have been hiring abroad while cutting back at home” — with domestic payrolls reduced by 2.9 million while 2.4 million jobs were established overseas.

As it is, the complaint about high statutory corporate tax rates is a red herring. As the Economic Policy Institute reports, the effective corporate tax rate has stayed at a relatively low 27.7 percent, on par with those of other economically advanced countries. In fact, the effective rate has remained well below the statutory rate since the early 1980s, making corporations’ complaints about their tax rate here seem hyperbolic. The fact remains that almost all the benefits of higher productivity have gone to corporations, and their profits are at an all-time high.

One could argue that this trend could be tolerated, were it not for companies nevertheless wanting to play an ever bigger role in domestic issues and local governance:

As corporate culture has grown more and more disconnected from American communities, it has demanded a greater and greater say in the country’s elections. Since 2000, independent expenditures in electoral campaigns have increased over 60-fold, from under $3 million to $186 million today. And an increasing amount of this money has come from avenues opened by the 2010 Supreme Court decision Citizens United, in which it upheld the idea that corporate money should be regarded as speech and thus be covered by First Amendment protections.

Given the long-term shift in corporate loyalties away from being invested in American communities, we should be moving in the opposite direction, taking action against corporations that have such a dominant role in our democracy. The ability to participate in democratic deliberations should be predicated on embracing the responsibilities of citizenship and being invested in the well-being of our communities.

Personally, I agree with this sentiment. Although I see myself as a citizen of the world, and think we have an obligation towards bettering the lives of others beyond the borders we happen to be born within, what is going on here is different: companies are decoupling from any sense of social responsibility towards their communities while still feeling entitled to disproportionately influence the policies of the very areas they have essentially abandoned.

Moreover, the fact that record profits have not translated to better pay or treatment for workers — in or out of the country — makes this practice all the more reprehensible. Many of these companies have the resources at their disposal, and can in fact continue making good profits while looking after communities both here and abroad; but alas, the demand for ever-higher payouts to shareholders and executives eats a bigger chunk of the profit that could be reinvested through better pay, benefits, and the like.

In short, what we see is part of a wider trend in which economic elites feel little social obligation towards the rest of society. They have the resources to isolate themselves geographically from the non-wealthy, or indeed to leave their communities altogether (whether local, state, or national). Globalization has only amplified this disconnection, as the wealthiest citizens can simply move themselves and their great resources wherever suits them.

But in a world where overall wealth is higher than ever — yet concentrated so that 85 individuals have more than 3.5 billion people — is this sort of decoupling morally justifiable? Cannot these prosperous companies and their investors spare even a fraction of what they have towards bettering the lives of the workers worldwide who contributed to that prosperity, rather than try to dominate them further by supporting even more onerous policies? It would appear that our business culture and economic system do not allow it.

What do you think? Do companies have an obligation to their communities? Should they refrain from exercising influence if they are going to be leaving their localities or even countries behind?

Work and Worth

What someone is paid has little or no relationship to what their work is worth to society.

Does anyone seriously believe hedge-fund mogul Steven A. Cohen is worth the $2.3 billion he raked in last year, despite being slapped with a $1.8 billion fine after his firm pleaded guilty to insider trading?

On the other hand, what’s the worth to society of social workers who put in long and difficult hours dealing with patients suffering from mental illness or substance abuse? Probably higher than their average pay of $18.14 an hour, which translates into less than $38,000 a year.

How much does society gain from personal-care aides who assist the elderly, convalescents, and persons with disabilities? Likely more than their average pay of $9.67 an hour, or just over $20,000 a year.

What’s the social worth of hospital orderlies who feed, bathe, dress, and move patients, and empty their ben pans? Surely higher than their median wage of$11.63 an hour, or $24,190 a year.

Or of child care workers, who get $10.33 an hour, $21.490 a year? And preschool teachers, who earn $13.26 an hour, $27,570 a year?

Yet what would the rest of us do without these dedicated people?

Or consider kindergarten teachers, who make an average of $53,590 a year.

Before you conclude that’s generous, consider that a good kindergarten teacher is worth his or her weight in gold, almost.

One study found that children with outstanding kindergarten teachers are more likely to go to college and less likely to become single parents than a random set of children similar to them in every way other than being assigned a superb teacher.

And what of writers, actors, painters, and poets? Only a tiny fraction ever become rich and famous. Most barely make enough to live on (many don’t, and are forced to take paying jobs to pursue their art). But society is surely all the richer for their efforts.

At the other extreme are hedge-fund and private-equity managers, investment bankers, corporate lawyers, management consultants, high-frequency traders, and top Washington lobbyists.

They’re getting paid vast sums for their labors. Yet it seems doubtful that society is really that much better off because of what they do.

I don’t mean to sound unduly harsh, but I’ve never heard of a hedge-fund manager whose jobs entails attending to basic human needs (unless you consider having more money as basic human need) or enriching our culture (except through the myriad novels, exposes, and movies made about greedy hedge-fund managers and investment bankers).

They don’t even build the economy.

Most financiers, corporate lawyers, lobbyists, and management consultants are competing with other financiers, lawyers, lobbyists, and management consultants in zero-sum games that take money out of one set of pockets and put it into another.

They’re paid gigantic amounts because winning these games can generate far bigger sums, while losing them can be extremely costly.

It’s said that by moving money to where it can make more money, these games make the economy more efficient.

In fact, the games amount to a mammoth waste of societal resources.

They demand ever more cunning innovations but they create no social value. High-frequency traders who win by a thousandth of a second can reap a fortune, but society as a whole is no better off.

Meanwhile, the games consume the energies of loads of talented people who might otherwise be making real contributions to society — if not by tending to human needs or enriching our culture then by curing diseases or devising new technological breakthroughs, or helping solve some of our most intractable social problems.

Graduates of Ivy League universities are more likely to enter finance and consulting than any other career.

For example, in 2010 (the most recent date for which we have data) close to 36 percent of Princeton graduates went into finance (down from the pre-financial crisis high of 46 percent in 2006). Add in management consulting, and it was close to 60 percent.

The hefty endowments of such elite institutions are swollen with tax-subsidized donations from wealthy alumni, many of whom are seeking to guarantee their own kids’ admissions so they too can become enormously rich financiers and management consultants.

But I can think of a better way for taxpayers to subsidize occupations with more social merit: Forgive the student debts of graduates who choose social work, child care, elder care, nursing, and teaching.

Robert Reich

A Quick Guide to the Guaranteed Basic Income

Although not a new idea, the concept of a guaranteed basic income — also known as a guaranteed minimum income or universal basic income — seems to be gaining a lot more traction lately. Amid concerns about rising poverty and inequality, as well as greater scrutiny on the failings and inefficiencies of current welfare programs, the allure of a more streamlined and equitable income for all seems obvious; hence why thinkers and activists across the political spectrum — from Martin Luther King, Jr. to Milton Friedman — have advocated one form of it or another.

If you would like a great breakdown on what this idea entails and how it would be implemented, check out this article on Vox.com. It does a pretty good job of introducing the subject in a balanced and holistic way, including analyzing the various arguments for and against a basic income by conservatives, liberals, and libertarians. What do you think?

 

 

The Plight of Restaurants Workers

Throughout the recession and subsequent recovery, one of the few job opportunities that have remained largely unaffected, if not growing, has been food service. From eateries to fast-food chains, this broad industry has gained an impressive 30 percent in employment since 1990, accounting for nearly one out of ten private-sector jobs in the U.S.

Unfortunately, a recent report by the Economic Policy Institute exposes some very disquieting things about one of America’s fastest-growing employers. Here are some of the highlights courtesy of Mother Jones:

The industry’s wages have stagnated at an extremely low level. Restaurant workers’ median wage stands at $10 per hour, tips included—and hasn’t budged, in inflation-adjusted terms, since 2000. For nonrestaurant US workers, the median hourly wage is $18. That means the median restaurant worker makes 44 percent less than other workers. Benefits are also rare—just 14.4 percent of restaurant workers have employer-sponsored health insurance and 8.4 percent have pensions, vs. 48.7 percent and 41.8 percent, respectively, for other workers.

 

Unionization rates are minuscule. Presumably, it would be more difficult to keep wages throttled at such a low level if restaurant workers could bargain collectively. But just 1.8 percent of restaurant workers belong to unions, about one-seventh of the rate for nonrestaurant workers. Restaurant workers who do belong to unions are much more likely to have benefits than their nonunion peers.

 

As a result, the people who prepare and serve you food are pretty likely to live in poverty. The overall poverty rate stands at 6.3 percent. For restaurant workers, the rate is 16.7 percent. For families, researchers often look at twice the poverty threshold as proxy for what it takes to make ends meet, EPI reports. More than 40 percent of restaurant workers live below twice the poverty line—that’s double the rate of non-restaurant workers.

 

Opportunity for advancement is pretty limited. I was surprised to learn that for every single occupation with restaurants—from dishwashers to chefs to managers—the median hourly wage is much less than the national average of $18. The highest paid occupation is manager, with a median hourly wage of $15.42. The lowest is “cashiers and counter attendants” (median wage: $8.23), while the most prevalent of restaurant workers, waiters and waitresses, who make up nearly a quarter of the industry’s workforce, make a median wage of just $10.15. The one that has gained the most glory in recent years, “chefs and head cooks,” offers a median wage of just $12.34.

 

Industry occupations are highly skewed along gender and race lines. Higher-paid occupations are more likely to be held by men—chefs, cooks, and managers, for example, are 86 percent, 73 percent, and 53 percent male, respectively. Lower-paid positions tend to be dominated by women: for example, host and hostess (84.9 percent female), cashiers and counter attendants (75.1 percent), and waiters and waitresses (70.8 percent). I took up this topic in a piece on the vexed gender politics of culinary prestige last year. Meanwhile, “blacks are disproportionately likely to be cashiers/counter attendants, the lowest-paid occupation in the industry,” while “Hispanics are disproportionately likely to be dishwashers, dining room attendants, or cooks, also relatively low-paid occupations,” the report found.

 

Restaurants lean heavily on the most disempowered workers of all—undocumented immigrants. Overall, 15.7 percent of US restaurant workers are undocumented, nearly twice the rate for non-restaurant sectors. Fully a third of dishwashers, nearly 30 percent of non-chef cooks, and more than a quarter of bussers are undocumented, the report found. So a huge swath of the people who feed you pay payroll taxes and sales taxes yet don’t receive the rights of citizenship.

All of this reflects a rather disturbing overall trend in the U.S. economy: the loss of stable, well-paying jobs to less secure, low-wage ones. Not only has job growth not kept pace with the needs of the labor force, but the relatively few options that remain share largely the same characteristics: meager pay, little to no benefits, no paid sick leave, poor upward mobility, and so on. And since this has become standard across the industry — baring only a few examples — most companies have little incentive to offer anything better to their workers — in essence, it is a race to the bottom, one that desperate workers of all ages have no choice but to take up.

Needless to say, this is not a sustainable model for prosperity. Not only do individual employees suffer, but so do their families and communities (the poorest of which often have few options beyond food service and equally low-paying retail). The national economy as a whole cannot thrive when such a large chunk of its consumer base is too poor to afford goods and services, or too unhealthy and demoralized to work at optimal productivity. These highly profitable employers have as much an interest in investing more in their labor force as the workers themselves.

For its part, the EPI report suggests legislative solutions, including a  higher minimum wage, mandated paid sick leave, and a path to legal status for undocumented workers. I would add unionization or some sort of labor collective as a big step, too. For its part, MoJo recommends that those wishing to learn more about the working conditions in America’s food industry read the 2013 book Behind the Kitchen Door by Saru Jayaraman.

As fast-food, retail, and other service work continues to take the place of increasingly obsolete but better-paying positions, we need to start adjusting the way we value such labor; otherwise, unpleasant, beggaring jobs will be the new normal, and that cannot last.

 
 

Inequality in a Global Context

When it comes to wealth and income inequality — a subject I have discussed at length here –  the news is rarely positive. As the following graph makes succinctly clear, the issue has worsened dramatic over the last few decades.

Income includes household wages and government transfers. Source: Census / Colin Gordon. Credit: Quoctrung Bui / NPR

While the most recent data in these sorts of graphs are around seven years old, newer evidence suggests the problem is still prevalent, if not worsening — at least in the United States.

According to an interesting new paper on global income distribution conducted by economists Branko Milanovic and Christoph Lakner, the global pictures regarding income inequality is far more nuanced, if not positive. As NPR reports, the study found that globalization — the same mechanism that plays a large, though hardly solitary, role in rising inequality — has had the opposite effect, broadly speaking.

Essentially, they look at inequality at a global scale, accounting for the world’s population as a whole rather than breaking it down country-to-country (as is usually the case).  S what happens if you look at the change in income over the past few decades for everyone on Earth? Here’s what the graph of the data shows:

Income is defined as per-capita income. Source: Milanovic and Lakner (2014). Credit: Quoctrung Bui/NPR

So what does this mean? Basically, people in the middle of the global income distribution — mostly concentrated in China and India, as as well as a few other developing Asian countries — have had the biggest gains in come by percentage. In fact, the average American, like most others in the developed world, would fall at the far right of this graph, at the top of the global income distribution.

So in a global context, the typical developed-world individual is capturing the lion’s share of income growth. Assuming this is truly the case (I await for more research and scrutiny to be certain one way or the other) that does not make inequality any less worrisome, now and especially in the long-term. Worldwide, we are still finding far too much wealth concentrated at the top amid austere policies, insufficient investment in the public good, and the persistent absolute poverty of hundreds of millions of people.

An increasingly transient global elite is still capturing the lion’s share of investment — as made depressingly clear by the revelation that 85 individuals hold more wealth than 3.5 billion people. Too many countries are mired in the same old problems despite the ever-growing generation of wealth that never seems to be reflected in higher wages, incomes, or public investments. Even if some people in this arrangement have it worse than others, the fact that many have it worse than they should given the capital potential is a problem, for most individual countries and the world at large.

Those are just my brief thoughts. What are your opinions?

The Economic Sensibility of Housing the Homeless

It goes without saying that addressing the problem of homeless on all levels is a moral imperative. The ethical merit of keeping people off the streets, and helping uplift those already there, requires no argument (at least I should hope).

But unfortunately, in our world, morality is apparently not a good enough incentive. Even with all the capital that is available — whether it is wasted on the military industrial complex, sitting in offshore banks, or poured into pork-barrel projects — policies and solutions need to be cost-effective to gain any sort of political currency and public support.

Thankfully, there is a solution to alleviating homelessness that can bring together both moralists and cynics, providing the cost-efficiency that is so imperative to policymakers while legitimately helping those in need. 

Vox.com reported on a study by the Central Florida Commission that compared several approaches to addressing homeless in that region of the state (Florida has one of the highest rates of homeleness, not to mention poverty, in the country). 

[The study indicated] that the region spends $31,000 a year per homeless person on “the salaries of law-enforcement officers to arrest and transport homeless individuals — largely for nonviolent offenses such as trespassing, public intoxication or sleeping in parks — as well as the cost of jail stays, emergency-room visits and hospitalization for medical and psychiatric issues.”

Unsurprisingly, just dealing with the problem ad hoc or in a superficial sense is both costly and ineffective. But by contrast…

[Getting] each homeless person a house and a caseworker to supervise their needs would cost about $10,000 per person.

This particular study looked at the situations in Orange, Seminole, and Osceola Counties in Florida and of course conditions vary from place to place. But as Scott Keyes points out, there are similar studies showing large financial savings in Charlotte and Southeastern Colorado from focusing on simply housing the homeless.

The general line of thinking behind these programs is one of the happier legacies of the George W Bush administration. His homelessness czar Philip Mangano was a major proponent of a “housing first” approach to homelessness. And by and large it’s worked. Between 2005 and 2012, the rate of homelessness in America declined 17 percent. Figures released this month from the National Alliance to End Homeless showed another 3.7 percent decline. That’s a remarkable amount of progress to make during a period when the overall economic situation has been generally dire.

Here is a visual picture of the state of homelessness in the U.S.

Screen_shot_2014-05-30_at_9.26.15_am

Source: National Alliance to End Homelessness / Vox.com.

Keep in mind that this statistical success has taken place during some of the toughest economic times in our country’s history (and Florida’s economy was especially hard hit). As the article notes, there is a good reason why housing the homeless is more tenable than many would think:

When it comes to the chronically homeless, you don’t need to fix everything to improve their lives. You don’t even really need new public money. What you need to do is target those resources at the core of the problem — a lack of housing — and deliver the housing, rather than spending twice as much on sporadic legal and medical interventions. And the striking thing is that despite the success of housing first initiatives, there are still lots of jurisdictions that haven’t yet switched to this approach. If Central Florida and other lagging regions get on board, we could take a big bite out of the remaining homelessness problem and free up lots of resources for other public services.

There you go: a win-win for everyone, especially (and most importantly) he hundreds of thousands of homeless people across the country whose plight needn’t be ignored for either ethical or practical reasons. 

Your thoughts?

Eighty-Five People Have More Wealth Than Half The World

It is undeniable that wealth and income inequality is growing in the U.S. and across the world. But the scale and extent of it is far more than previously imagined. Although about six months by the time of this post, the report by  Oxfam International — titled “Working for the Few” — is no less stark and relevant in its identification of a “growing tide of inequality” (to use the report’s own description).

You can read the report yourself, but Laura Shin of Forbes did a good job of breaking down the sobering statistics:

  • Almost half of the world’s wealth is now owned by just one percent of the population.
  • The wealth of the one percent richest people in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population [3.5 billion people].
  • The bottom half of the world’s population owns the same as the richest 85 people in the world.
  • Seven out of ten people live in countries where economic inequality has increased in the last 30 years.
  • The richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.
  • In the U.S., the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.

The following chart compiled from this data highlights just how much the problem has grown: while every country saw some growth in inequality, the U.S. by far saw the most dramatic increase:

Although the report makes clear that some economic inequality is necessary to foster growth (in line with mainstream economics) it also warns that wealth concentration at this severity “threaten[s] to exclude hundreds of millions of people from realizing the benefits of their talents and hard work” — also in line with what we’ve learned from both history and economic research.

In particular, the Oxfam report emphasizes the corrosive effect that such inequality can have on democratic governance and social mobility, due mostly to the fact that “when wealth captures government policymaking, the rules bend to favor the rich, often to the detriment of everyone else”

According to polls conduct by Oxfam in Spain, Brazil, India, South Africa, the U.K. and the U.S. — a mix of developed and developing economies — the majority of people in these countries believe that “laws are skewed in favor of the rich” in a variety of areas, including financial deregulation, tax laws favoring the wealthy, economic austerity, policies that disproportionately harm women and the poor, and the use of oil and mineral revenues.

Despite all the grim news, the report does point out that such trends aren’t irreversible: there are plenty of historical examples of countries minimizing inequality and creating broader prosperity (notably the U.S. and Europe following the Second World War). In fact, since the turn of the century, Latin America has made significant inroads in reducing its historically high rate of inequality and underdevelopment, although it still has a long way to go.

Is there enough political will in each country, not to mention on a global level, to resolve this problem before it worsens? Or is this issue overblown? What do you think?

Quote

New polling out from NBC and the Wall Street Journal shows a huge shift in attitudes towards poverty and the poor over the last 20 years. According to the survey, 46 percent Americans believe that poverty is caused by circumstances beyond people’s control, versus 44 percent who think it’s caused by impoverished people not doing enough to improve their station in life. The last time the survey asked that question, in 1995, a full 60 percent of Americans felt that the poor weren’t doing enough to lift themselves out of poverty, compared to just 30 percent who blamed extraneous factors. Hard times, it would seem, have made us more sympathetic to the plight of the poor. There’s nothing like a massive economic downturn to foster a little empathy.

And that makes sense. When the economy so rapidly and viciously turns on so many people, it’s hard to maintain the sense of idealism that leads one to believe that hard work and ambition are all that’s required to secure a comfortable, reasonably prosperous existenc

Simon Maloy, Salon

New polling out…