Tags: Saez | rich | poor | income

UC Berkeley Study: Rich Get Richer, Poor Get Poorer

Wednesday, 20 Feb 2013 08:06 AM

By Michael Kling

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While the rich got richer during the economic recovery, most Americans saw their incomes decline.

Incomes for the top 1 percent of earners increased 11.2 percent during the recovery from 2009 through 2011, and incomes for the other 99 percent declined 0.4 percent, according to report by Emmanuel Saez, an economist at the University of California, Berkeley.

Although data from 2012 haven’t been tabulated yet, income probability surged for the top 1 percent due to the booming stock market and the retiming of income to avoid tax increases in 2013, Saez writes in the report. Incomes for the rest probably increased very modestly.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

During the recession, from 2007 to 2009, average real income declined 17.4 percent, the largest two-year drop since the Great Depression, Saez says.

Average real income for the bottom 99 percent fell 11.6 percent — more than erasing the 6.8 percent income gain from 2002 to 2007 for the group. Incomes for the top 1 percent fell more, by 36.3 percent, mostly due to the collapse of capital gains from the stock market crash.

“This suggests that the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s,” the economist writes.

Based on historical experience, drops in income concentration due to economic downturns are short lived, barring any drastic regulation or tax changes.

Recent legislation is modest compared with New Deal changes passed during the Great Depression, he says. “Therefore, it seems unlikely that U.S. income concentration will fall much in the coming years.”

Evidence indicates that top income earners today are not living off past wealth, but are “‘working rich,’ highly paid employees or new entrepreneurs who have not yet accumulated fortunes comparable to those accumulated during the Gilded Age,” Saez says. But that could change, he predicts, noting that cuts to the estate taxes might allow wealth to concentrate.

“We need to decide as a society,” he says, “whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it.

President Barack Obama has proposed increasing the minimum wage from $7.25 to $9 an hour to counter income inequality. Opponents say that would increase unemployment.

But economist Paul Krugman, in his column for The New York Times, says experience shows that increasing the minimum wage will not reduce jobs. In “natural experiments,” various states have increased their minimum wages with to little or no negative impact on employment, he argues.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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