Real Median Family Income is Falling. Family incomes have stagnated since the mid-1980s. Income in 2012 ($51,017) is lower than in 1989 ($51,681).

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1 U.S. Income 1

2 Real Median Family Income is Falling Family incomes have stagnated since the mid-1980s. Income in 2012 ($51,017) is lower than in 1989 ($51,681). 2

3 Labor Income Share Falls As Profits Rise 3

4 Income Growth Entirely in the Upper 1% Table 1. Real Income Growth by Groups Full period Clinton Expansion Recession Bush Expansion Great Recession Recovery Average Income Real Growth Top 1% Incomes Real Growth Bottom 99% Incomes Real Growth Fraction of total growth (or loss) captured by top 1% (1) (2) (3) (4) 17.9% 86.1% 6.6% 68% 31.5% 98.7% 20.3% 45% -11.7% -30.8% -6.5% 57% 16.1% 61.8% 6.8% 65% -17.4% -36.3% -11.6% 49% 6.0% 31.4% 0.4% 95% Source: Emmanuel Saez 4

5 Income Shares of 1% and the 0.1% Shares of the top 0.1% exceed those of the Roaring Twenties 5

6 Who Earns the Top Incomes About 70% of the increase in income going to the top 0.1% from 1979 to 2005 comes from increasing pay for executives and financial services professionals, researchers estimate. Compensation for chief executives swelled about 725% in real terms from 1978 to At the same time, worker compensation increased just 5.7%. The ratio of chief executive compensation to worker compensation has grown to 209-to-1 in 2011 from 18-to-1 in Source: New York Times 6

7 Labor Income Mobility An earner in the 1% has a one-in-three chance of staying there for all of the next five years. There s also a good chance that their children will make it into the 1%. Families with very high and very low incomes tend to see the most stickiness in earnings from generation to generation. Research by the Canadian economist Miles Corak, for instance, has found that about 25%of the sons of fathers in the top 10% of earners were in the top 10% themselves. 7

8 U.S. Wealth 8

9 Wealth Inequality Source: Saez and Zucman (2014) 9

10 Merely Rich is Not Enough Source: Saez and Zucman (2014) 10

11 Wealth Composition Source: Saez and Zucman (2014) 11

12 Wealth Mobility Source: Pew Economic Mobility Project 12

13 Global Income and Wealth 13

14 Intl. Evidence: Per Capita Income Growth Source: Luxembourg Income Study 14

15 U.S. Middle Class Has Lost Relatively Source: Leonhardt and Quealy (NYT, 2014). 15

16 International Evidence: Income Inequality 16

17 International Evidence: Income Inequality Source: Oxfam (2014) 17

18 International Evidence: Income Inequality Trends 18

19 Global Wealth and Distribution Global wealth has reached a new all-time high of USD 241 trillion, up 4.9% since last year and 68% since 2003, with the USA accounting for 72% of the latest increase. Average wealth per adult reached a new all time high of USD 51,600, with wealth per adult in Switzerland returning to above USD 500,000. The 85 richest people on Earth have the same amount of wealth as the bottom half of the population though (that is NOT my topic today though). Source: Credit Suisse Global Wealth Outlook 19

20 European Wealth U.S. $225,000 Median wealth is only 40,000 though. Source: Credit Suisse Global Wealth Outlook 20

21 Wealth Inequality: US v. Europe Source: Thomas Piketty 21

22 Global Wealth: Generational Mobility The probability of being found in the same wealth quintile is still 36% after one generation, and 31% after two generations. This probability will eventually shrink to the perfectly mobile figure of 20%, but it seems unlikely to get close to this value for several centuries. Source: Credit Suisse Global Wealth Outlook 22

23 Explanations and Questions 23

24 Questions for This Panel (1) Why is a disproportionate share of income and wealth going to the top 0.1%? (not just the top 10%). Explanations also need to consider the international evidence. (2) What if anything should be done to reduce income and/or wealth inequality? 24

25 Some Partial Answers from Piketty (1) Why: Returns to capital are growing faster than the overall economy. It is NOT education: As Paul Krugman notes, high school teachers and hedge fund managers have about the same amount of education. (2) Remedies: Global wealth taxation. 25

26 Current Policy: Income Taxation 26

27 Current Policy: Wealth Taxation Conclusion: Unfortunately, policy trends are generally going the wrong way. 27

28 Some More Answers from Reich 1) Make work pay. 2) Unionize low-wage workers. 3) Invest in education. 4) Invest in infrastructure. 5) Pay for these investments with higher taxes on the wealthy. 6) Make the payroll tax progressive. 7) Raise the estate tax. 8) Constrain Wall Street. 9) Give all Americans a share in future economic gains. 10) Get big money out of politics Robert Reich, How to Shrink Inequality, The Nation, May