Setting the Stage

1. Setting the Stage Kristin J. Kleinjans Assistant Professor of Economics Mihaylo College of Business and Economics California State University, Fullerton President’s Symposium Confronting Inequality: Political, Educational, and Social Consequences & Remedies May 11, 2012

2. Setting the Stage • Inequality • How it is measured • Current levels & trends • Mobility • How it is measured • Current levels & trends • How do we compare to other countries? Cal State Fullerton

3. Setting the Stage This will also answer …. • Why there are different estimates • Why “the 99%” Cal State Fullerton

4. Between 1979 and 2007 (Before the Great Recession) • Income inequality has risen dramatically. • Average incomes have increased for all quintiles but more so at the top. • A major contribution was the increase in income of the top 1% from labor and business income (+ changes in taxes and transfers).  How much exactly? That depends on whom you ask. Cal State Fullerton

5. Income Inequality • Measured as relative income shares • Depends on definition of income • after tax? • after government transfers? • including fringe benefits? • adjusted for household size? • which year(s)? Cal State Fullerton

6. Income Inequality 1979 and 2007(Before the Great Recession) Cal State Fullerton

7. We know much less about changes in income inequality since 2007 Share of Market Income of Top 1% in 2010: 19.8% Source: Piketty & Saez (2012) Cal State Fullerton

8. Mobility Cal State Fullerton

9. Inequality is of Greater Concern if Mobility is limited “Next, how important is it that the federal government (…) enacts policies that attempt to do each of the following (…)” Source: Gallup (Poll: Nov. 28 – Dec 1., 2011), 2011 Cal State Fullerton

10. Intergenerational Economic Mobility • Moving up in relative income • Note: Measures are backward-looking • Estimations fraught with difficulties • when to measure • what to measure: income, education, social class • comparison over time • … Cal State Fullerton

11. What we know about intergenerational income mobility in the U.S. • Declined sharply in the 1980’s • Relatively constant since then • Strongly related to academic achievement & test scores • Lower than previously thought • Lower than in many other industrialized countries Source: Mazumder (2008 & 2012) Cal State Fullerton

12. Stickiness at the Top and Bottom Source: Mazumder (2008) Cal State Fullerton

13. How do we compare to other countries? • Growing income inequality in OECD countries since the 1980’s • Income inequality is higher in the US than in all but 3 OECD countries. • Taxes and benefits redistribute income less in the US than in all but 3 OECD countries. • Mobility is higher in Europe – even the UKDifference the greatest at the tails Sources: Black & Devereux (2011), OECD (2011) Cal State Fullerton

14. Take away • Income inequality has increased since 1979, no matter what the definition of income is • Intergenerational mobility has not increased • Inequality is greater than in other developed countries Cal State Fullerton

15. Sources and Further Readings • Black, S. E. & P. J. Devereux (2011). Recent Developments in Intergenerational Mobility. In: Handbook of Labor Economics, Ashenfelter, O. & D. Card (eds.), Vol. 4b, Elsevier: North Holland: 1487-1541. • Congressional Budget Office (CBO) (2011). Trends in the Distribution of Household Income Between 1979 and 2007. Pub. No. 4031. The Congress of the United States. http://cbo.gov/sites/default/files/cbofiles/attachments/10-25-HouseholdIncome.pdf • Gallup Poll: Americans Prioritize Economy Over Reducing Wealth Gap. (2011) http://www.gallup.com/poll/151568/americans-prioritize-growing-economy-reducing-wealth-gap.aspx • Kopczuk, W., E. Saez & J. Song (2010). Earnings Inequality and Mobility in the United States: Evidence from Social Security Data Since 1937. Quarterly Journal of Economics 125(1): 91-128. • Mazumder, B. (2008). Upward Intergenerational Mobility in the United States. Pre Charitable Trust, Economic Mobility Project. http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Economic_Mobility/PEW_Upward%20EM%2014.pdf • Mazumder, B. (2012). Is intergenerational mobility lower now than in the past? Chicago Fed Letter 297. • OECD (2011). Divided we stand: Why inequality keeps rising. www.oecd.org/els/social/inequality also see Country Note: United States) • Piketty, T. & E. Saez (2003). Income Inequality in the United States, 1913-1998. Quarterly Journal of Economics 118(1) 1- 39. • Saez, E. (2012). Striking it Richer: The Evolution of Top Incomes in the United States. http://elsa.berkeley.edu/~saez/saez-UStopincomes-2010.pdf .