Home > Uncategorized > Income inequality in the United States increases as people get older.

Income inequality in the United States increases as people get older.

from David Ruccio

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Income inequality in the United States increases as people get older.

That’s the stark conclusion of a new study by Fatih Karaham for the Federal Reserve Bank of New York.* In the chart above, men are grouped into percentiles of total lifetime income (income earned between ages twenty-five and sixty).

The chart shows that the median worker in the income distribution experiences about a 38 percent rise in his real earnings between ages twenty-five and sixty. There is an impressive amount of heterogeneity: Workers below the 20th percentile actually experience a decline in earnings, while those in the top 1 percent experience a fifteenfold increase.

Both Karaham and Mark Thoma [ht: ja] then focus on two causes of that growing inequality: “differences in permanent abilities” (which have “to do with human capital investments before labor market entry”) and “labor market risk” (such as unemployment and health problems).

Me, I think there’s a key difference between the wages of those who produce the surplus and those at the top who get a cut of the surplus.

In the way the U.S. economy is currently organized, the wages of workers who actually produce the surplus may or may not increase over their lifetimes (depending, of course, on how precarious their jobs and their job-related lives are)—and, even if they do increase, it’s not by a lot. However, the incomes of those at the top, who manage to capture a portion of the surplus created by the workers they manage or because they work in sectors (like finance) where a great deal of the surplus ends up, get older with much higher incomes.

Neither improved education and job training nor better social insurance will solve the growing dispersion of incomes as Americans get older.

*To be clear, this is a study of men’s earnings only. Apparently, they’re “currently undertaking a similar study that focuses on the earnings dynamics of women.”

  1. November 11, 2015 at 7:17 pm

    In the 1970s as a psychologist (one of my several hats) I counseled leaders of “organized crime.” Generally referred to as “the mob.” The counseling was mostly about marriage and family problems and problems with addictive drugs. But I learned a lot about how these folks see the world and how they make decisions. Regarding business and money the ubiquitous mantra was, “a piece of the action.” In other words for them the way to make money was to cut yourself in on what others were producing. Whether that was businesses such as trucking, waste disposal, laundries, etc. as happened in the large cities in the East, or gambling, prostitution, etc. our West, or banks and financial investing. In others words their view is to let others do the work and then take a share of the earnings. I don’t think there’s much difference between the “mob” and the 1% or 10% you discuss. Some say the 1%/10% are legitimate and less violent. I disagree with the legitimate conclusion and the less violent conclusion is subject to check. After all look what happens when proposals are made to reduce gun violence by “selling” few guns or when Black citizens try to vote in the South.

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