A graph to illustrate the US structural problem

This graph illustrates an article by David Leonhardt (NY Times) on the US income distribution.

It shows how the income distribution has changed between 1980 and 2014.
In 1980, there was a catch-up effect for low incomes. Their growth rate was higher than the average and higher than high incomes. For the lowest 20%, the 1980 income growth was higher than the average (2.5% inflation adjusted growth)
In 2014, every percentile has an income growth that is lower than percentiles higher on the distribution. There is no more catch-up but divergence.
For the highest 20%, the 2014 income growth was higher than the average (1.4% inflation adjusted growth).
The proposal made by Donald Trump and the Republicans to lower tax rates would accentuate the divergence of the income distribution. It would be negative for the economy.
« Most Americans would look at these charts and conclude that inequality is out of control. The president, on the other hand, seems to think that inequality isn’t big enough. »

On the US Income Distribution

A  national accounts framework  that can show the income distribution by decile is a priori  fascinating. Piketty, Saez and Zucman have done that for the US. It allows to look at income shares through time. They show that the first 5 déciles share in national income intersects this share of the top 1% in the 90’s. The first five déciles share went from circa 20% in the 70’s to a little more than 12% in 2014. The top 1% has had a profile that mirrored this trajectory from 11% to 20%. 

A comparison of the first five déciles share between the US and France shows that French people have had really a better situation. 

The summary of a detailed document is available here 

Upheaval in the income distribution

Branko Milanovic (@BrankoMilan) shows, with a simple graph, one of the most important change seen since the end of last century. His question was related to real income distribution but not in a country but at a global scale from 1988 to 2008.
He has calculated the income growth on this period for each percentile of the global income distribution.
The graph is shown below and looks like an elephant (see at the bottom of the post)
Three points to be mentioned
People leaving close to the median (point A), mainly Chinese and Indian, have income that grown by circa 80% from 1988 to 2008. This is absolutely spectacular on such a short period of time.
On the contrary, people at point B have had at best stagnant real revenues. These people belongs to the lower halve of the income distribution in developed countries. The immediate question is whether the improvement seen in A is the counterparty of B? In other words, is there a trade off for income between emerging and developed countries at the expense of the latter? Could be, that’s the type of answer that is given by David Autor ( @davidautor )
Point C corresponds to the highest percentile, mainly American people.


See Branko Milanovic (see text below)

The greatest reshuffle of individual incomes since the Industrial Revolution

The effects of trade, or more broadly of globalisation, on incomes and their distribution in the rich countries have been much studied, beginning with a number of works on wage distributions in the 1990s, to more recent papers on the effects of globalisation on the labour share (Karabarbounis and Neiman 2013, Elsby et al. 2013), wage inequality (Ebenstein et al. 2015), and routine middle class jobs (Autor and Dorn 2010).

In joint work with Christoph Lakner (Lakner and Milanovic 2015) and in a recently published book, Global Inequality: A New Approach for the Age of Globalization (Milanovic 2016), I take a different approach of looking at real incomes across the world population. This is made possible thanks to the data from almost 600 household surveys from approximately 120 countries in the world covering more than 90% of the world population and 95% of global GDP. Since household surveys are not available for all countries annually, the data are ‘centred’ on benchmark years, at five-year intervals, starting with 1988 and ending in 2008. I report the results for up to 2011 in Milanovic (2016), while Lakner has an unpublished update for 2013. The updates confirm, or reinforce, the key findings for 1988-2008 that I discuss here.

The advantage of a global approach resides in its comprehensiveness and the ability to observe and analyse the effects of globalisation in many parts of the world and on many parts of the global income distribution.  While the true or putative effects of globalisation on working class incomes in the rich world have become the object of fierce political battles – especially in the wake of the Brexit vote and the rise of Donald Trump to political prominence in the US – the overall effects of globalisation on the rest of the world have received less attention, and when they have, were studied separately, as if independent, from the effects observed in the rich word.

Continue reading The greatest reshuffle of individual incomes since the Industrial Revolution

My Daily Column – Income Distribution and Growth

Income distribution is currently a major topic as the crisis has persistent effects. We remember during fall of 2011 the “Occupy Wall Street” movement. More recently Thomas Piketty‘s book gave a framework to analyze and to understand deformations in income distribution. Piketty suggests that the economic dynamics doesn’t spontaneously converge to a fair situation and that corrective measures may be needed.

Nevertheless we didn’t have an analysis linking income distribution and growth.
In a recent document, OECD gave some answers to this question that divides economists: Is an unequal income distribution a key-element to create incentives for growth? Or: Is a narrow income distribution the clue for a strong growth? We understand that answers are necessary to understand how economies move in the long-term. Continue reading