So far in this blog, we are 0 for 4 on good news. Middle-income workers have seen real declines in their income over the last forty years. The gains women have made in terms of equal earnings have stalled out. Household income has been stagnant as marriage rates have dropped. And black workers and households have made zero progress relative to white ones. Indeed, a recent Census report found that, despite a slight increase in median household income from 2017 to 2018, income inequality is at it’s highest level ever!
Well, I finally have some good news, I promise. Super rich people are doing awesome! Wait a second, are you not super rich? Hmm…me neither (unless this blog gets a lot more popular than I anticipated…). Maybe this news isn’t so good after all.
Whether it’s good news or not, the last of the five stylized facts I want to introduce has to do with the super rich. To look at this fact, I first have to say something about the data. The dataset I have been using so far – The Current Population Survey – “top-codes” the earnings of very high-income individuals, meaning their incomes are hidden from sight for privacy reasons. However, some excellent economists (far better than me) – Thomas Piketty, Emmanuel Saez, and Gabriel Zucman – have done work documenting the incomes of the very rich as of 2014.
The figure below summarizes their data, and gets straight to the point. When we look at the total income of the median household, we see almost no growth between 1975 and 2014. In fact, the black bars representing these households are kind of hard to see on the graph…sigh! When we look at the grey bars representing pretty rich households — those in the top 10 percent — we see some pretty solid growth, over 100 percent. But, the very rich — those in the top 0.1 percent, the richest 1 out of 1,000 — have seen incredible growth of over 300 percent. So…yeah.
Total Income at the Median, in the Top 10 Percent, and in the Top 0.1 Percent
The very rich have seen their incomes explode for two reasons. First, they are making a whole lot more from their labor. The richest people in our society tend to be managers like CEOs, and the pay for these jobs has more than doubled since 1990 alone. Some of this increase is because companies are much bigger these days, and therefore pay CEOs more. Some of the increase is because CEOs are increasingly getting huge payouts in the form of stock options. And some of the increase is because as middle-class workers have lost out, it has become increasingly hard for these workers to speak up against high pay for their bosses. Not a good idea to complain about the bosses’ salary if you feel your job could be in jeopardy.
The second reason the rich are doing so well is ownership of capital — stocks, bonds, homes, etc. According to the Survey of Consumer Finances, over the last three decades, middle-class households have seen their capital holdings grow by just 20 percent. The richest households have seen their capital holdings more than double. Today, the typical middle-class household has just over $200,000 in capital — mostly in homes and retirement accounts. The top 10 percent hold over $4 million. This capital generates income, and therefore rising inequality in who holds capital leads to rising inequality in income. In other words, you gotta have money to make money. “Mo’ Money Mo’ Problems” my butt (what a song).
Whatever the reason, we have made it to our last stylized fact: over the last forty years, the super rich have seen their incomes from labor and capital explode. We have a lot of time to investigate why this and the other stylized facts introduced so far have occurred. For now, you know that the very rich are the exception to the rule. The rich have seen progress, where others have been progressless, driving income inequality even higher.