A Washington Post article reporting the decision by the Trump administration to not press employers to use E-Verify to prevent undocumented workers from getting jobs repeatedly tells readers there is a labor shortage, especially in farming, restaurants, and construction. The data indicate otherwise.
If there were a shortage of workers in these industries, we should see rapidly rising wages. We don’t.
The Bureau of Labor Statistics establishment survey does not include farms, but we don’t see especially rapid wage growth in either construction or restaurants. Here is the picture for the average hourly wage of production and non-supervisory workers in construction.
Construction: Average Hourly Wage, Production and Non-Supervisory Workers
Source: Bureau of Labor Statistics.
Wage growth has been somewhat higher in the last two years than earlier in the recovery, but they still are rising less than 4.0 percent a year. And, the rate of increase is considerably less than at the peak of the last cycle.
There is even less of a case of a labor shortage in restaurants.
Restaurants: Average Hourly Wage, Production and Non-Supervisory Workers
Source: Bureau of Labor Statistics.
The pace of wage growth has slackened some in recent months. It is more than a percentage point lower than peaks hit in 2017 and well below the pre-recession pace.
It undoubtedly is true that some employers cannot afford to pay higher wages. In this case, they will go out of business. This is what happens in capitalism. It is the reason we don’t still have half of our workforce employed in agriculture. Workers had better-paying opportunities in cities that small farmers could not match.
Apparently, the Post thinks we should interfere with markets to protect low-wage employers and keep wages down. Those of us who like markets don’t share the political views expressed in this article.
A Washington Post article reporting the decision by the Trump administration to not press employers to use E-Verify to prevent undocumented workers from getting jobs repeatedly tells readers there is a labor shortage, especially in farming, restaurants, and construction. The data indicate otherwise.
If there were a shortage of workers in these industries, we should see rapidly rising wages. We don’t.
The Bureau of Labor Statistics establishment survey does not include farms, but we don’t see especially rapid wage growth in either construction or restaurants. Here is the picture for the average hourly wage of production and non-supervisory workers in construction.
Construction: Average Hourly Wage, Production and Non-Supervisory Workers
Source: Bureau of Labor Statistics.
Wage growth has been somewhat higher in the last two years than earlier in the recovery, but they still are rising less than 4.0 percent a year. And, the rate of increase is considerably less than at the peak of the last cycle.
There is even less of a case of a labor shortage in restaurants.
Restaurants: Average Hourly Wage, Production and Non-Supervisory Workers
Source: Bureau of Labor Statistics.
The pace of wage growth has slackened some in recent months. It is more than a percentage point lower than peaks hit in 2017 and well below the pre-recession pace.
It undoubtedly is true that some employers cannot afford to pay higher wages. In this case, they will go out of business. This is what happens in capitalism. It is the reason we don’t still have half of our workforce employed in agriculture. Workers had better-paying opportunities in cities that small farmers could not match.
Apparently, the Post thinks we should interfere with markets to protect low-wage employers and keep wages down. Those of us who like markets don’t share the political views expressed in this article.
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Neil Irwin had an interesting Upshot piece in the NYT that takes advantage of new data on the median worker’s pay at major corporations. The piece calculates the “Marx ratio” which is the ratio of profits per worker to the median worker’s pay. It shows this number for each of the companies who have released data on their ratio of CEO pay to median worker’s pay, as required by a provision of the Dodd-Frank financial reform act.
It’s not clear exactly what this ratio is giving us. Suppose that a major manufacturer has subsidiaries in China and other low-wage countries that do most of its work. In this case, the median worker could be someone in one of these countries, giving it a low, median wage. However, it also has lots of workers (it’s likely they employ more workers per unit of output in low wage Bangladesh than in the United States) so it may have low profits per worker.
Now suppose the company contracts out its manufacturing work in low-wage countries so that the people who work in these countries are no longer on the companies payroll. This will raise the median wage by getting rid of many of the company’s lowest-paid workers. It will also raise per worker profits since it has fewer workers, but its profits will be pretty much unchanged.
There is a similar problem domestically. A company that contracts out its custodial staff, cafeteria workers, and other lower-paid workers will have higher median pay than an otherwise identical company that has many of these workers on the company’s payroll. A better measure of the profits the company makes on its workers would not be sensitive to this sort of maneuver.
Of course, the main point of the new requirement was to call attention to how high CEO pay is relative to the pay of ordinary workers. This is arguably justified if the CEO is extremely innovative and able to produce large returns to shareholders. However, there is good evidence that CEO pay bears little relationship to their value to shareholders.
In that case, the tens of millions earned by CEOs is not reflecting their contribution to the company or the economy, but rather their insider contacts that allow them to secure and hold positions. This has a corrupting impact on incomes throughout the economy since it raises the pay for both the second- and third-tier executives, as well as setting a higher benchmark for pay in the non-profit sector and government.
And, as economists and fans of arithmetic everywhere know, more money for those at the top means less money for everyone else.
Neil Irwin had an interesting Upshot piece in the NYT that takes advantage of new data on the median worker’s pay at major corporations. The piece calculates the “Marx ratio” which is the ratio of profits per worker to the median worker’s pay. It shows this number for each of the companies who have released data on their ratio of CEO pay to median worker’s pay, as required by a provision of the Dodd-Frank financial reform act.
It’s not clear exactly what this ratio is giving us. Suppose that a major manufacturer has subsidiaries in China and other low-wage countries that do most of its work. In this case, the median worker could be someone in one of these countries, giving it a low, median wage. However, it also has lots of workers (it’s likely they employ more workers per unit of output in low wage Bangladesh than in the United States) so it may have low profits per worker.
Now suppose the company contracts out its manufacturing work in low-wage countries so that the people who work in these countries are no longer on the companies payroll. This will raise the median wage by getting rid of many of the company’s lowest-paid workers. It will also raise per worker profits since it has fewer workers, but its profits will be pretty much unchanged.
There is a similar problem domestically. A company that contracts out its custodial staff, cafeteria workers, and other lower-paid workers will have higher median pay than an otherwise identical company that has many of these workers on the company’s payroll. A better measure of the profits the company makes on its workers would not be sensitive to this sort of maneuver.
Of course, the main point of the new requirement was to call attention to how high CEO pay is relative to the pay of ordinary workers. This is arguably justified if the CEO is extremely innovative and able to produce large returns to shareholders. However, there is good evidence that CEO pay bears little relationship to their value to shareholders.
In that case, the tens of millions earned by CEOs is not reflecting their contribution to the company or the economy, but rather their insider contacts that allow them to secure and hold positions. This has a corrupting impact on incomes throughout the economy since it raises the pay for both the second- and third-tier executives, as well as setting a higher benchmark for pay in the non-profit sector and government.
And, as economists and fans of arithmetic everywhere know, more money for those at the top means less money for everyone else.
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It’s rare that you get a more explicitly classist piece in a major newspaper than Catherine Rampell’s column on Donald Trump’s trade war with China. While its assessment of the Trump administration’s blustery rhetoric and confused actions seems very much on the money, its assertions about the country’s actual interests is not.
It tells readers:
“So rather than taking the time to learn about our actual complaints regarding China’s trade policy (primarily, intellectual property theft), or how we could deal with them (through multilateral pressure, such as the Trans-Pacific Partnership that Trump killed), Trump fixated on deficits. The part of the story that sold with the public.”
Okay, so Rampell tells us that we should not be concerned about a trade deficit that costs in the neighborhood of 2 million manufacturing jobs. Instead, we should be concerned that China is not as protectionist as she wants it to be when it comes to intellectual property claims of our software and pharmaceutical companies.
And why exactly should those of us who don’t own lots of stock in Microsoft and Pfizer care if China doesn’t pay them licensing fees and royalties? If we think through the economics here, this means that other things equal, lower payments to these companies mean a lower valued dollar, which would improve our trade balance on manufactured goods. What’s the problem here?
Actually, the story gets even better. Suppose that China doesn’t honor the patents of Pfizer and other drug companies so that it produces generic version of new drugs that sell for hundreds of dollars for a course of treatment instead of the hundreds of thousands of dollars that these companies demand for the patent-protected product (equivalent to tariffs of tens of thousands of percent). Suppose it sells these generic versions to people in the United States or just lets them come to China for their treatment.
This would save patients in the United States enormous amounts of money, and possibly save lives. This is what free trade is all about.
Sure, it means that Microsoft and Pfizer will not be as profitable and their shareholders will be less rich. It probably also means that some of the highly skilled workers whose pay depends largely on these forms of protectionism will get smaller paychecks. But as I recall, we are all supposed to be concerned about income inequality, so why should the country be pursuing a trade policy intended to give us more of it?
Yes, we do need a mechanism for financing innovation and research. But we can do better than extending a relics of the feudal guild system, even if most of the folks in policy debates are too lazy to bother thinking about the issue. (See Rigged, chapter 5. It’s free.)
It’s rare that you get a more explicitly classist piece in a major newspaper than Catherine Rampell’s column on Donald Trump’s trade war with China. While its assessment of the Trump administration’s blustery rhetoric and confused actions seems very much on the money, its assertions about the country’s actual interests is not.
It tells readers:
“So rather than taking the time to learn about our actual complaints regarding China’s trade policy (primarily, intellectual property theft), or how we could deal with them (through multilateral pressure, such as the Trans-Pacific Partnership that Trump killed), Trump fixated on deficits. The part of the story that sold with the public.”
Okay, so Rampell tells us that we should not be concerned about a trade deficit that costs in the neighborhood of 2 million manufacturing jobs. Instead, we should be concerned that China is not as protectionist as she wants it to be when it comes to intellectual property claims of our software and pharmaceutical companies.
And why exactly should those of us who don’t own lots of stock in Microsoft and Pfizer care if China doesn’t pay them licensing fees and royalties? If we think through the economics here, this means that other things equal, lower payments to these companies mean a lower valued dollar, which would improve our trade balance on manufactured goods. What’s the problem here?
Actually, the story gets even better. Suppose that China doesn’t honor the patents of Pfizer and other drug companies so that it produces generic version of new drugs that sell for hundreds of dollars for a course of treatment instead of the hundreds of thousands of dollars that these companies demand for the patent-protected product (equivalent to tariffs of tens of thousands of percent). Suppose it sells these generic versions to people in the United States or just lets them come to China for their treatment.
This would save patients in the United States enormous amounts of money, and possibly save lives. This is what free trade is all about.
Sure, it means that Microsoft and Pfizer will not be as profitable and their shareholders will be less rich. It probably also means that some of the highly skilled workers whose pay depends largely on these forms of protectionism will get smaller paychecks. But as I recall, we are all supposed to be concerned about income inequality, so why should the country be pursuing a trade policy intended to give us more of it?
Yes, we do need a mechanism for financing innovation and research. But we can do better than extending a relics of the feudal guild system, even if most of the folks in policy debates are too lazy to bother thinking about the issue. (See Rigged, chapter 5. It’s free.)
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The United States has really awful policies on child care and parental leave. This makes it very hard for parents, and especially mothers, since they invariably get stuck with most of the responsibilities, to raise kids.
This is an outrage as Amy Westervelt points out in her Guardian column. But a declining birth rate, as the supposed downside for those of us not raising kids or thinking about it, doesn’t pass the laugh test.
The prospect of less traffic congestion, less crowded parks and beaches, and lower house prices doesn’t have me quaking in my boots. It’s not clear what the point is here. In a good society, people should be able to have kids if they want to and not have to worry about a life of stress and poverty, but if we have fewer kids because people’s priorities are elsewhere, so what?
The United States has really awful policies on child care and parental leave. This makes it very hard for parents, and especially mothers, since they invariably get stuck with most of the responsibilities, to raise kids.
This is an outrage as Amy Westervelt points out in her Guardian column. But a declining birth rate, as the supposed downside for those of us not raising kids or thinking about it, doesn’t pass the laugh test.
The prospect of less traffic congestion, less crowded parks and beaches, and lower house prices doesn’t have me quaking in my boots. It’s not clear what the point is here. In a good society, people should be able to have kids if they want to and not have to worry about a life of stress and poverty, but if we have fewer kids because people’s priorities are elsewhere, so what?
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With Donald Trump declaring a truce in his “trade war” with China, it might be a good time to check the charts. According to data from the Commerce Department, the US trade deficit with China was $91.9 billion in the first three months of 2018. That’s up from $78.8 billion in 2017 and $77.9 billion in 2016.
There are problems with this figure, as many people have noted. First, it is overstated due to the fact that we count the full value of a product exported from China, even though it may have just been assembled there, with most of the value originating elsewhere. The classic example is an iPhone, where the phone is assembled in China, but the bulk of the value is from items and intellectual property that are imported to China.
This is a real problem with the Commerce Department data, but there is also an analogous issue on the other side. Many of the goods we import from the European Union, Japan, and other countries have components that were made in China. My guess is that the net would still imply a reduction in our trade deficit with China, but probably not a huge one.
The other big issue is that many intellectual products never appear in our exports at all. When Apple contracts with Foxconn to produce its phones with China, the value of its software is not counted as an export. Some of this is due to inherent difficulties in measurement. (If Apple licensed Foxconn to produce the phones, the license would show up as export.) Some of the problem is due to tax avoidance, where companies attribute the value of the intellectual work to tax havens like Ireland, even if it was actually performed in the United States.
In any case, these problems in measurement are longstanding and almost certainly do not affect the direction of change. So as it stands now, Trump has taken us $13.1 billion deeper in the hole in terms of our trade deficit with China ($52.4 billion on an annual basis) compared to where things sat when he took office. We’ll see how things change following the truce.
With Donald Trump declaring a truce in his “trade war” with China, it might be a good time to check the charts. According to data from the Commerce Department, the US trade deficit with China was $91.9 billion in the first three months of 2018. That’s up from $78.8 billion in 2017 and $77.9 billion in 2016.
There are problems with this figure, as many people have noted. First, it is overstated due to the fact that we count the full value of a product exported from China, even though it may have just been assembled there, with most of the value originating elsewhere. The classic example is an iPhone, where the phone is assembled in China, but the bulk of the value is from items and intellectual property that are imported to China.
This is a real problem with the Commerce Department data, but there is also an analogous issue on the other side. Many of the goods we import from the European Union, Japan, and other countries have components that were made in China. My guess is that the net would still imply a reduction in our trade deficit with China, but probably not a huge one.
The other big issue is that many intellectual products never appear in our exports at all. When Apple contracts with Foxconn to produce its phones with China, the value of its software is not counted as an export. Some of this is due to inherent difficulties in measurement. (If Apple licensed Foxconn to produce the phones, the license would show up as export.) Some of the problem is due to tax avoidance, where companies attribute the value of the intellectual work to tax havens like Ireland, even if it was actually performed in the United States.
In any case, these problems in measurement are longstanding and almost certainly do not affect the direction of change. So as it stands now, Trump has taken us $13.1 billion deeper in the hole in terms of our trade deficit with China ($52.4 billion on an annual basis) compared to where things sat when he took office. We’ll see how things change following the truce.
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That’s what a story in the Financial Times tells readers. I don’t think they have much of a case.
The argument is attributed to Hal Varian, Google’s chief economist and a former professor of mine when I was in grad school at Michigan. According to Varian, if we accurately counted the value of software in smartphones it would add $200 billion to US exports, cutting our trade deficit in half.
The first item to point out is that our trade deficit is currently running at an annual rate of $640 billion, not the $400 billion claimed by Varian. A $200 billion reduction is still large, but it would imply cutting the deficit by a bit more than 30 percent, not half.
But the more important issue is the logic of the argument. Varian points out that, while Apple has proprietary software, for which it charges for its use, Google makes its software available for free, but demands ad placement in exchange for its use. This means that Apple’s software should be accounted for in our exports, but Google’s would not. This is indeed a problem, but perhaps not as much of one as Varian implies. (It is worth noting that the value of the software is in principle already counted in our National Accounts, so the Varian critique would imply no change in GDP, but that exports are understated and domestic investment is overstated.)
In effect, he is saying that Google is being compensated for its software by the ads that are subsequently sold on the phone. By contrast, Apple has been fully compensated at the point of sale. If we had proper accounting, then we would also count the value of Google’s software at the point of sale. But look at what happens in subsequent years.
Suppose the Android phone is sold in some third country. Google will be collecting ad revenue from these phones for their full working lives. This ad revenue would then, in principle, (there is an important accounting issue I will address in a moment) be attributed to Google and count as an exported service. By contrast, the Apple phone does not directly generate any further revenue for Apple. This means that we should effectively be picking up the value of Google’s software in Android phones through the ad revenue the phone generates in subsequent years. There is still an issue of timing, and also a definitional one (perhaps the original transfer of software should have been booked as an investment), but we are capturing the value of the software exported in the subsequent income flows from the advertising.
This would not be the case if the Android phone is imported back into the United States since the ad revenue is all domestic income. But there is no problem here because the imported phone costs less than it would have had the software been proprietary like Apple’s. In short, there is not really a major issue here.
Now, there is a very important secondary point. Let’s hypothesize that all of Google’s innovation for its Android phone comes out of its Mountain View campus in California. Suppose to minimize their taxes, Google attributes most of the value and subsequent profits to its subsidiary in low-tax Ireland.
In this case, we would be understating the value of US exports, since the subsequent flows of income would be showing up at Google’s Irish subsidiary, not its Mountain View campus. Clearly, there is much of this sort of gaming taking place, as most of the big tech companies seem to do a surprising share of their innovative work in low-tax countries, although it probably does not get you to $200 billion a year. (And here is my easy fix for this problem, if anyone is interested in a fix.)
That’s what a story in the Financial Times tells readers. I don’t think they have much of a case.
The argument is attributed to Hal Varian, Google’s chief economist and a former professor of mine when I was in grad school at Michigan. According to Varian, if we accurately counted the value of software in smartphones it would add $200 billion to US exports, cutting our trade deficit in half.
The first item to point out is that our trade deficit is currently running at an annual rate of $640 billion, not the $400 billion claimed by Varian. A $200 billion reduction is still large, but it would imply cutting the deficit by a bit more than 30 percent, not half.
But the more important issue is the logic of the argument. Varian points out that, while Apple has proprietary software, for which it charges for its use, Google makes its software available for free, but demands ad placement in exchange for its use. This means that Apple’s software should be accounted for in our exports, but Google’s would not. This is indeed a problem, but perhaps not as much of one as Varian implies. (It is worth noting that the value of the software is in principle already counted in our National Accounts, so the Varian critique would imply no change in GDP, but that exports are understated and domestic investment is overstated.)
In effect, he is saying that Google is being compensated for its software by the ads that are subsequently sold on the phone. By contrast, Apple has been fully compensated at the point of sale. If we had proper accounting, then we would also count the value of Google’s software at the point of sale. But look at what happens in subsequent years.
Suppose the Android phone is sold in some third country. Google will be collecting ad revenue from these phones for their full working lives. This ad revenue would then, in principle, (there is an important accounting issue I will address in a moment) be attributed to Google and count as an exported service. By contrast, the Apple phone does not directly generate any further revenue for Apple. This means that we should effectively be picking up the value of Google’s software in Android phones through the ad revenue the phone generates in subsequent years. There is still an issue of timing, and also a definitional one (perhaps the original transfer of software should have been booked as an investment), but we are capturing the value of the software exported in the subsequent income flows from the advertising.
This would not be the case if the Android phone is imported back into the United States since the ad revenue is all domestic income. But there is no problem here because the imported phone costs less than it would have had the software been proprietary like Apple’s. In short, there is not really a major issue here.
Now, there is a very important secondary point. Let’s hypothesize that all of Google’s innovation for its Android phone comes out of its Mountain View campus in California. Suppose to minimize their taxes, Google attributes most of the value and subsequent profits to its subsidiary in low-tax Ireland.
In this case, we would be understating the value of US exports, since the subsequent flows of income would be showing up at Google’s Irish subsidiary, not its Mountain View campus. Clearly, there is much of this sort of gaming taking place, as most of the big tech companies seem to do a surprising share of their innovative work in low-tax countries, although it probably does not get you to $200 billion a year. (And here is my easy fix for this problem, if anyone is interested in a fix.)
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It’s really great that Tthe New York Times’ reporters are able to read people’s minds, especially when it comes to Donald Trump. After all, the guy constantly contradicts himself and makes assertions that clearly are not true, so it might be difficult for most of us to know what he really believes.
But NYT reporters can cut through the confusion with their mind reading powers. An article on the failure of a House Republican bill for renewing food stamps and farm subsidies told readers:
“[…]he [Rep. K. Michael Conaway, chair of the House Agriculture Committee] also sought to accommodate the White House and outside conservative groups, which demanded new election-year initiatives to reduce the rolls of the Supplemental Nutrition Assistance Program, or SNAP, which Mr. Trump regards, along with Medicaid and housing aid, as ‘welfare.'”
It’s good to know that Trump actually believes that the $126 a month that people collect in food stamps are welfare, as opposed to just being something he says to denigrate low- and moderate-income people for his base.
It’s really great that Tthe New York Times’ reporters are able to read people’s minds, especially when it comes to Donald Trump. After all, the guy constantly contradicts himself and makes assertions that clearly are not true, so it might be difficult for most of us to know what he really believes.
But NYT reporters can cut through the confusion with their mind reading powers. An article on the failure of a House Republican bill for renewing food stamps and farm subsidies told readers:
“[…]he [Rep. K. Michael Conaway, chair of the House Agriculture Committee] also sought to accommodate the White House and outside conservative groups, which demanded new election-year initiatives to reduce the rolls of the Supplemental Nutrition Assistance Program, or SNAP, which Mr. Trump regards, along with Medicaid and housing aid, as ‘welfare.'”
It’s good to know that Trump actually believes that the $126 a month that people collect in food stamps are welfare, as opposed to just being something he says to denigrate low- and moderate-income people for his base.
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The NYT had a column by Christina Gibson-Davis and Christine Percheski telling readers that wealth inequality had grown much more among families with children than among the elderly. While there is little doubt that inequality has increased hugely over the last three decades (they look at the period from 1989 to 2013), with the implications they describe for inter-generational mobility, there are serious problems with their use of wealth.
First, it is important to note that while the authors’ research shows a much larger increase in inequality among families with children than the elderly, they still find that the top one percent of elderly households has more than twice the wealth of the top one percent of households with children. The next 9 percent of the elderly households actually saw a considerably more rapid percentage increase in wealth over this period than was the case for the next 9 percent of the distribution for families with children.
While the bottom 50 percent of the elderly distribution look to be in much better shape in terms of their wealth than the bottom 50 percent of the distribution for families with children (median wealth of $46,020 for the elderly, an inflation-adjusted gain of 70 percent, compared with debt of $233 for families with children) on closer analysis this is much less clear. An elderly household was far more likely to have some income from a defined benefit pension in 1989 than in 2013. They were also more likely to have retiree health benefits. Furthermore, the amount of health care spending not covered by Medicare would be much higher in 2013 than in 1989. In addition, Social Security benefits are lower relative to workers’ wages in 2013 than was the case in 1989. When these factors are taken into account (we would take the discounted value of these benefit reductions), it is not obvious that the median elderly household would have more wealth in 2013 than in 1989.
Wealth is also a problematic measure for families with children. The families at the bottom by this measure are likely to be recent graduates of elite programs like Harvard business school. These families would have borrowed heavily to earn their degrees, but would not have much work experience to pay off their debt and accumulate assets. Many recent college grads would also have negative wealth. While some of these people will face serious problems paying back their debt, most will have much higher paying jobs than non-college educated members of their cohorts and have much better life prospects.
Also, since there is a huge age aspect to wealth (on average, people have much more wealth in their 40s than in the 20s or 30s) the fact that many people are having children at an older age is likely to be a huge contributor to wealth inequality among families with children. This would especially be the case if more educated families tend to be the ones having children at older ages.
None of this should be taken to minimize the problem of inequality or the difficulties that children from low- and moderate-income families face in obtaining a decent education and in their subsequent careers. However, trends in wealth inequality are probably not a very good way to access these difficulties.
The NYT had a column by Christina Gibson-Davis and Christine Percheski telling readers that wealth inequality had grown much more among families with children than among the elderly. While there is little doubt that inequality has increased hugely over the last three decades (they look at the period from 1989 to 2013), with the implications they describe for inter-generational mobility, there are serious problems with their use of wealth.
First, it is important to note that while the authors’ research shows a much larger increase in inequality among families with children than the elderly, they still find that the top one percent of elderly households has more than twice the wealth of the top one percent of households with children. The next 9 percent of the elderly households actually saw a considerably more rapid percentage increase in wealth over this period than was the case for the next 9 percent of the distribution for families with children.
While the bottom 50 percent of the elderly distribution look to be in much better shape in terms of their wealth than the bottom 50 percent of the distribution for families with children (median wealth of $46,020 for the elderly, an inflation-adjusted gain of 70 percent, compared with debt of $233 for families with children) on closer analysis this is much less clear. An elderly household was far more likely to have some income from a defined benefit pension in 1989 than in 2013. They were also more likely to have retiree health benefits. Furthermore, the amount of health care spending not covered by Medicare would be much higher in 2013 than in 1989. In addition, Social Security benefits are lower relative to workers’ wages in 2013 than was the case in 1989. When these factors are taken into account (we would take the discounted value of these benefit reductions), it is not obvious that the median elderly household would have more wealth in 2013 than in 1989.
Wealth is also a problematic measure for families with children. The families at the bottom by this measure are likely to be recent graduates of elite programs like Harvard business school. These families would have borrowed heavily to earn their degrees, but would not have much work experience to pay off their debt and accumulate assets. Many recent college grads would also have negative wealth. While some of these people will face serious problems paying back their debt, most will have much higher paying jobs than non-college educated members of their cohorts and have much better life prospects.
Also, since there is a huge age aspect to wealth (on average, people have much more wealth in their 40s than in the 20s or 30s) the fact that many people are having children at an older age is likely to be a huge contributor to wealth inequality among families with children. This would especially be the case if more educated families tend to be the ones having children at older ages.
None of this should be taken to minimize the problem of inequality or the difficulties that children from low- and moderate-income families face in obtaining a decent education and in their subsequent careers. However, trends in wealth inequality are probably not a very good way to access these difficulties.
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