POL 174

Whether more low income voters turning out results in greater welfare

- 1% increase in voter turnout is associated with 25% increase in mean welfare payment - Substantively small: difference in expected mean payment from state with lowest to highest low-income voter turnout is $14 - Caveats: it was found that higher income inequality is associated with lower voter turnout. Lenz finds no relationship between increased inequality and proportion of state legislators that are Democrats

Comparison to pre-WWI era of capital income to today

- 1900 France, Britain, and Sweden: top owned 90% of capital, middle owned ~5% - Today "top": top own 60% in Europe, 70% in U.S - Today "middle": own 35% in Europe, 25% in U.S. - Today "bottom: ~5%

Difference Between 1980 and 2001/08 Recovery

- 1980-1982 recovery o Housing deregulation: deregulation/innovation in credit markets that spurred growth in home ownership, setting stage for 90s housing bubble o Personal computing: manufacturing bounce-back from 70s o American auto sales: manufacturing bounce-back from 70s - 2001 and 2007-09 recovery o Jobless recovery o Great recession was the greatest decline in employment on record (7%) o The degree of recovery after 2001/2008 was even less than in 1980

AFDC

- Aid to Families with Dependent Children (AFDC) originated with Social Security Act in 1935 - Social assistance program for low income mothers. Black women not eligible until 1960s - Supported with both federal and state funds. States set eligibility requirements and benefits - Replaced by Temporary Assistance to Needy Families with PWORA (1996) which included 5-year lifetime limit

Causes of Levels of Tax Progressivity

- Allen/Campell consider determinants of federal tax progressivity and find that macroeconomic and government fiscal conditions predict levels of progressivity - Find that increased unemployment corresponds to decreased tax progressivity. State governments reduce taxes on rich to stimulate economic growth. - Income inequality is cyclical: income inequality is lower when unemployment is higher. There is a compression due to losses at the top - Democratic presidents raise nominal rates, but not effective tax rates - Taxes at the state level are regressive (sales tax and property tax) and are constrained by changes in federal tax policy

Poverty relief

- Baseline relief: basic income support to households in poverty - Relief fallout: efforts to minimize the drop-off in economic supports for working households - Poverty relief index: (based on 150% poverty line goal) - ability of state policies to raise households out of poverty

Poverty relief history/statistics

- Baseline relief: long-term reduction - Relief fallout: steep rise wit EITC (1993), followed by long-term steady increase - Poverty relief index (based on 150% poverty line goal): PWORA???? Decline mostly affecting baseline relief - Poverty relief index was at 32% in 2012, an all-time high

Effect of Recessions on Different Occupations (2000 - 2012)

- Construction, manufacturing, and financial sector disproportionately impacted - Housing bubble affects construction jobs - Credit crunch reduces consumption and affects manufacturing jobs - Slow recovery begins after summer 2010 and has steadily climbed since. December marked 70 consecutive months of job growth, a historic reord - Not a big loss in jobs for public administration, education and health care sectors, but not much of a recovery either

Causal problem

- Conversion problem: disparities in resources do not necessarily indicate disparities in political power - Non-decision problem: Not making a decision indicate may indicate either lack of interest or strategic action. The status quo bias in the American system favors those who want to keep redistribution off the agenda - Connecting inputs to outcomes: causal chains are complicated and long. It is difficult to attribute policy outcomes to parties or legislative changes - Problem of observation: difficulty in providing the cause of observed outcomes. Who and what is to blame for the lack of policy response to growing inequality?

Observations on labor and capital income inequality (larger scale)

- Correlated across countries and individuals - Same distributions within age cohorts - Importance of real estate decreases with income: financial and business assets predominate among top 1%

Degree of minimum wage and unionization's decline on growth in inequality

- Decline of real value of minimum wage between 1979 and 1990 explains 25% of overall wage dispersion for men and 30% for women - Decline in unionization an important factor, explaining as much as 20% of increase in earnings inequality - The effect of minimum wage and unionization erosion was more limited to the 1970s and 1980s - 90s: increases in share of the top 1% explain most of growth of income inequality

Extreme poverty

- Defined as less than $2/day - 4.3% of population in 2011 - 1.6% of population if non-cash transfers included - Deep poverty rate highest in bible belt and southwest

Statistics demonstrating degree of American inequality

- Distribution of income shares by percentiles o Top 10% of US households hold 35% of total income o Top 1% of US households hold 12% of total income o 90th-99th percentile, thus, hold 23% of total income

Education Inequality

- Dramatic closing of white-black reading and mathematics gap from 1950s-70s followed by long period of flat/slight declines in 1980s and 1990s - Post No Child Left Behind gains in reading, math, and higher high school graduation rates for blacks and Hispanics - Continued disparities in college graduation rates (23% black, 15% Hispanic, 40% white)

Campaign finance

- Dramatic increase in campaign contributions, rise of PACs - Could reinforce incumbency advantage as cost of successful challenge increases, however incumbency advantage has not increased with rise in contributions - Money can influence candidate pool

Wartime and higher wages correlation

- During war it is very difficult to underpay workers politically so lower wage brackets get higher wages during these periods

Great Compression

- Economic change o Great Depression and destruction of capital assets o More equitable distribution of labor and capital; lowest levels of income inequality ever recorded - Political change o Emergence of socialist, communist, totalitarian movements o WWI and WWII: destruction of assets, real estate lost value, companies went under, all disproportionately affecting the wealthy o Rise in unions and labor protections

Unemployment and Education (2000 - 2012)

- Education premium increased: widening gap between college degree and some college - Women gain disproportionately from education - Those with less education are hurt disproportionately by recessions

Two possible explanations for lack of responsiveness to income inequality with increased redistributive policies

- Elite capture o Political elite and interest groups cater to privileged interests o Politicians enact policies against the public interest and majority opinion - Public disinterest o Lack of awareness of income inequality o Lack of support for public redistribution o Source of public disinterest could be elite driven

Employment ratio by gender

- Employment ratio dipped more for men during the Great Recession, but rebounded more - Employment ratio for women during the Great Recession did not dip as much, but did not rebound as much

Criticism of Marx

- Failed to anticipate the rise in productivity of labor and the rise its value as a result of this new class of high-skilled workers - Identified the problem, but offered no political solution

Former British colonies' contrast with other developed countries

- Former British cololnies have shown a resurgence in inequality to a much greater degree than other countries like France, Germanby, Sweden, Japan

General prediction of inequality and redistributive policies

- General prediction: more income inequality produces greater support for progressive tax and transfer policies among low income voters and (sometimes) middle income voters - If not middle income voters, a coalition with low income voters must include high income voters - One exception: if income inequality increases due to declining wages among low income workers, there may be an incentive to decrease mean-tested benefits

Measures of income inequality

- Gini index o Most common measure of income inequality o Ratio comparing distribution of income under absolute equality to the true distribution of income o Index ranges from 0 to 1: equality to inequality o Historically ranges between .3 to .5 for total income oCriticism: this broad look obscures changes in relative standing of lower, middle, and upper incomes individually

Trend over 20th Century (Piketty)

- Great compression o Historic reduction in income inequality o Caused by disruptive events (WWI, Great Depression, WWII) and government policies resulting from them o Stability lasts until 1970s - Great divergence o Return of high levels of income inequality o Accumulation accelerated by conservative policies of Reagan and Thatcher

Key assumptions of the Meltzer-Richard Model

- Greater income inequality produces relatively more low income voters - Individuals vote only based on income to the exclusion of other issues - the median voter is the individual with the median income so votes based on what is advantageous to this position - Direct democracy - voters decide on policies directly, not indirectly through representatives

Piketty's explanation for increasing education premium in U.S.

- High cost of higher education prevents individuals from gaining skills in US - The supply of skilled workers never catches up to demand for them - Inequality with respect to education increased in the US, but not in France, due to lower levels of educational attainment/access in US - Policy recommendation: increase investment in education in US to reduce income inequalities related to education

Health inequality and Great Recession

- Higher percentage of adults report delaying medical care due to cost - Incidence of delay increases for all ethnicities - Delays rose for all income groups during the recession, though greater recovery for households earning 200% the poverty threshold - Dental, prescription medications, and eyeglasses are the most common medical costs delayed

Poverty rate by age cohort

- Highest among 18-24 - education is a part of the reason for this as those without a college degree are disproportionately affected - The older you are the lower your poverty rate - those with more experience earn more - The gap between different age groups has increased - evidence the "experience premium" has increased and with it the degree to which your salary will increase with increasing age

Gini indexes in different regions

- In order of rising inequity - Scandinavia, Europe, U.S.

Industrial Revolution: Ricardo's Theory in practice

- In the late 18h century to 19th century, per capita income increases ten fold - World per-capita income increases six fold - Income grew faster than population, keeping the price of labor steady - This conflicts with Ricardo's theory - Ricardo did not consider the possibility of increased productivity and technology in his Principle of Scarcity

Historical trends in U.S. with regard to inequality

- Incomes for top 1% plummeted during Great Depression and continued to decline, albeit more slowly up until the late 1970s. U.S. did not experience destruction of infrastructure during WWII - Income inequality rose rapidly after 1980. - wages for remaining 90% have largely stagnated. American household before 2008 increasingly went into debt to finance consumption (home mortgage, student loans), which likely contributed to 2008 financial crisis - U.S., unlike France, has experienced the return of pre-WWI levels of incocme inequality with the rise of "supermanager" class

Wealth inequality among blacks and Hispanics

- Increase in ratio of mean net wealth for both groups between 2001 and 2007 - Gains lost in Great Recession - Culprits: great reliance on borrowing and higher share of assets in housing - Debt-equity ratio in 2007: .54 blacks, .31 whites, .51 Hispanics - Net home equity loss was 25% for blacks, 21 for whites and 48% for Hispanics

Explanations for increasing polarization in the electorate

- Increasing polarization in the electorate has two possible sources o Voters are better sorted among the two parties based on their policy preferences. This resulted from southern realignment at civil rights with conversion of Southern Democrats into Republicans o influence of elites

Criticism of Piketty

- It may be argued that income is from capital, just as income from labor, may be reinvested in the economy(perhaps in labor) and not just stored as wealth to accrue interest - Compensation of management is just as it represents a system where income is generated by skill. If we do not pay these salaries we do not have these highly skilled individuals - Taxes on capital/upper income is a disincentive to innovation/hard work

Kuznets Criticism

- Kuznets was incorrect because after he stopped writing, pre-WWI inequality returned - Kuznets argued that low level of income inequality were an inevitable result of industrialization regardless of war or government policy o However, it has been shown that the level of inequality does have policy-related explanations - More recent trends seem to indicate that, if anything, high rates of inequality are what is inevitable in capitalist society

Historic trends of poverty

- LBJ's War on Poverty cuts poverty rate in half between 1964 and 1973 - Improvements driven by reduction in poverty among elderly (Medicare and Medicaid) - No recent improvements in this area - Rising child poverty - The majority of homeless in the U.S. are single mothers with children - very "visible"

Law of diminishing marginal returns - Ricardo

- Law of diminishing marginal returns: o Principle of scarcity: each additional unit of production will yield marginally less output o As you add more worker, the increase provided by their employment decreases. Doubling workers does not double production. - Population growth was occurring, meaning the cost of labor will get progressively cheaper (lower wages) compared to the cost of land, a finite resource, which will be increasingly valuable - Profits are invested in land not labor or technology (since labor is plentiful and cheap), causing land rents to rise. Thus, those who control the land reap the profits of production. - In an agricultural society, land owners and not farmers reap the profit of more productive land

Criticism of Ricardo's Law of Diminishing Returns

- Law of supply and demand: as the price of food increases because land is prohibitively expensive, demand decreases - At this point when land becomes prohibitively expensive there is incentive to develop a new method of production to lower production costs and efforts to make land more productive through technological innovation - Increased efficiency through technological innovation could increase production in response

Puzzle of Great Recession

- Median wealth fell 47% - Housing values fell 24% - Stock values fell 26% - High leverage explains the difference between the collapse in median wealth and the fall of housing and stock values

Medicaid

- Medicaid provides health related services to low income citizens and legal permanent residents - States can enact more generous Medicaid benefits by expanding eligibility requirements to over more individuals to cover more individuals or by expanding services and coverage - On average, the federal share of Medicaid is 57% and state share is 43% although there is substantial variability across states - ACA allowed states to increase eligibility to individuals with income up to 133% of poverty line, although not all states have elected to expand coverage - Mixed evidence that Democratic-controlled states have more generous Medicaid programs. Recently, many Republican states have opted not to raise eligibility threshold

Other explanations (besides Piketty's) for greater income inequality in U.S. as compared to France

- Minimum wage policy (can reduce education gap) - Rise of supermanager in Anglo-Saxon countries: incomes of the rich not explained by observable differences in education or experience o The boards making decisions compensating CEOs are of the same sector of the economy - However, raising the minimum wage will have minimal effect in terms of reducing income inequality as it is precipitous growth at the top that overwhelmingly is responsible the Great Divergence

Inequality level - welfare relationship

- Most cross-national studies do not find a relationship (or find a negative relationship) between increasing income inequality and level of redistribution - Studies of changes in income inequality and welfare benefits find mixed evidence. Husted/Kenny find that states with highest income inequality have higher welfare benefits. Others find opposite relationships. Moffit, Ribar, Wilhelm find that states reduce AFDC benefits as low-skilled wages decline - Overall trend is increasing income inequality and reduction to social assistance programs. Lenz finds no relationship between changes in CINI and changes in maximum welfare benefit

Thomas Piketty

- No natural process will prevent inegalitarian forces from prevailing permanently in capitalist economy - Forces of Income Convergence o Diffusion of knowledge across countries and classes o Investment in training and skills - Forces of Income Divergence o Lack of investment in training and education o Expanding labor supply o No control on management compensation

Observations regarding inequality

- No relationship between income inequality and redistribution policy across countries and within US - Scant evidence that changes in income inequality produce changes in redistribution - Low income voters are more likely to support redistributive policies and Democrats in elections - Democratic control is more likely to lead to enaction of more progressive policies - Social safety net has not expanded nor have the top income tax rates declined despite record income inequality

Measures of poverty

- OPM: Official Poverty Measure o Poverty line defined as "income necessary to provide a minimally decent standard of living" according to mid-1960s standards; we spend a lot more on housing and less on food o Potential overestimation: Does not take into account non-cash transfers from government o Potential underestimation: Varies with family size, but not by regions of different housing cost o Not adjusted for differing cost of goods - SPM: Supplemental Poverty Measure recommended alternative o When you take this into account, poverty is more concentrated on the populous, expensive, coastal states more so than the bible belt

Interest group politics trends since 1960s

- Permanent presence in beltway. Growing number and greater variety - More money in politics and remaining bias toward smaller well financed organizations - Little evidence that groups "buy" votes, rather contributions act as a "legislative subsidy" for their time - These groups invest dissemination to allow elites to influence public opinion

Polarization and voter choice/redistributive policy viability

- Polarization in congress affected redistributionist policies - Status quo advantage was that there is a structural bias toward - "Responsible parties": if there is a clear difference between the parties there will be a clearer choice for voters, making it easier to act in own economic interest. In this way polarization may be "good"

Poverty historic trends among prime-age adults

- Poverty disproportionately affects younger adults - Poverty disproportionately affects the less-educated - Poverty rates for individuals with "some college" more than twice those of college graduates

Social safety net: state trends

- Poverty relief index varies from 24-40% between states - Eastern states favor high baseline relief and flatter relief fallout - Western states favor high baseline relief, steep fallout - South and Midwest favor low baseline relief, but flatter relief fallout - WY, OK, FL, NE, VA favor low baseline relief and steep fallout

Poverty article conclusions

- Poverty remains high because, since the early 1970s, unemployment rates have been high and economic growth has been less effective in reducing poverty than it was in the quarter century following WWII - Recommendations: War on Poverty and its successors had success in alleviating poverty and must continue to be strengthened. Need to build employment opportunities for the poor - 1960s' measures were effective in reducing poverty, but since then it has been largely stagnant, not improving

Long Term Trends In Recessions

- Pre-1980: five-year recession cycle - Post-1980: 10 year recession cycle - Improvement in female employment up to 2000 - Long term decrease in male employment: 96% to 83%

Post 1980s recession recovery

- Pre-1980: there would be a five year recession cycle in which the jobs would return - Post-1980 recessions: 10-year cycle / jobless recovery - Jobless recovery: After recession, we do not recover all the jobs lost - This has happened in the last few recessions and with each the employment drops - There is more volatility in year-to-year salary in new jobs compared to those which replaced them. The new jobs are not of the quality of those they replaced

Meltzer-Richard Model of Income Inequality and Redistribution

- Prediction: In a democracy, as income inequality increases, the low income and middle class voters will use their majority advantage to impose a higher tax burden on the rich, i.e. more progressive tax - income inequality in the model is defined as difference between the mean and median income - If the median voter's income is less than the mean income, they will want to redistribute. This is because taking tax and transfer into account, they will then be better off

Karl Marx

- Prussian Economist, author of Communist Manifesto - Observed poor working conditions in factories and wage stagnation despite rapid growth in national income - "Principle of infinite accumulation": wealth will continue to accrue at the top infinitely - Predicts o Diminishing rate of return on capital. Bourgeoisie incomes will drop leading to greater infighting for control of capital o OR Workers revolt against an increasingly unfair division of labor o Either way bourgeoisie will fall, victory for proletariat

The public's view on inequality

- Public is aware of growing inequality - Partisans divided equally on issue of whether government should take steps to reduce income inequality. Division falls on partisan line

Education premium

- Ratio of average hourly wage for those who went to college relative to those who did not - Has risen over the last few decades - One of the main drivers of education's increasing value is the growth of technology - Driver of inequality

Wealth inequality among younger age groups

- Ratio of mean net worth of under 35 compared to mean net worth declined from 21% to 17% from 1983 to 2007 - Mean net wealth ratio for 45-44 age group declined from 71% to 58% from 1983 to 2007 - Further declined to 10% and 41% during the Great Recession - Culprits: more leveraged and higher share of assets in housing

Elite Capture theory (detailed)

- Realignment of south - Stronger parties since 1970s - Decline of autonomous committee power - Polarization and "conditional party government" o Homogeneity o Distance between parties - Gridlock producing status quo bias

Historical trends in France with regard to inequality

- Reduction in income inequality came from decrease in the concentration of capital: "rentiers fell behind managers; managers did not race ahead of rentiers" - Capital income shrank as a result of two wars, the Great Depression, and public policies that emerged from these two traumatic events - Wages among low-income workers increased both during WWII and as a result of minimum wage policies first introduced in 1950 and then indexed to inflation in 1970 - Among today's rich, labor income makes up a larger share of their total income, although it is important to differentiate between the top 10% and the top 1% (top 1% may be mostly capital) - shown by the capital-labor line shifting "right"

Great Divergence

- Rise in income inequality since 1970s - Decline of unionization and increasing competition for blue-collar jobs (80s) - Continued rise in the value of highly-skilled (education at a premium), which is concentrated in a small subset of the population - Rise of super-manager and reemergence of capitalist class (90s-present)

Social safety net

- Short term goal: alleviate current financial problems - Long-term goal: labor market self sufficiency - Less effective than it once was because it has not been updated - patchwork" of programs across states - called a net because it is not one systematic program, it is a whole host of programs, some federal, state, local; can be a difficult bureaucratically to navigate - increasing focus on incentivizing employment, towards supporting working poor rather than those in poverty

Poverty rate for children and elderly

- Since 1959 a decline among all rates - Sharpest decline in poverty among elderly - Poverty rate increased for children - LBJ's Great Society did the most to alleviate poverty , starting in the late 1960s and this is visible on the graph - Biggest programs for elderly made in this period are Medicare (elderly specifically) Medicaid (general poverty) - These statistics are according to the official poverty measures but this measure is not universally accepted

Transfers by type: social insurance, EITC, social assistance

- Social insurance: unemployment disability, and worker's compensation; utilized by people from all income levels o Therefore, social insurance is most popular of these programs - tax credits: Earned Income Tax Credit (EITC) and Child Tax Credit (CTC); utilized to a larger extent than social assistance for middling incomes - Social assistance: food stamps, Temporary Assistance for Needy Families; utilized by lower income families o therefore least popular

Elite capture theory - "Responsible" political parties

- Strong unified parties make clear choices - Madisonian systems of checks and balances, multiple veto points, federalism

Key features of the Meltzer-Richard

- Tax policy is flat; transfer policy is flat; overall redistribution policy is progressive - Sufficient statistics: mean and median income - Prediction: as mean increases relative to the median, support for any progressive redistribution policy grows - Extension to basic model incorporate the effect of the redistribution policy on worker productivity, meaning as taxes increase, individuals work less. These extended models make the same predictions

Alternative models to Meltzer-Richard

- Tax policy is progressive, transfer benefits are targeted at low income so do not garner middle class support - Upper class has political and altruistic incentives to support redistribution that outweigh associated economic cost - Parties do not converge to the median voter. They have their own policy priorities an/or must cater to interest groups and wealthy individuals to win elections - Class mobility (distance of middle class from top or bottom) and affinity for those in low/high income leads to support/opposition for redistributive policies, respectively

Education "arms race" theory

- Technological progress increases demand for highly educated workers - As more individuals obtain higher levels of education, supply of skilled workers increases, and wages of highly-skilled workers decrease as their quantity better meets demand - Education inflation: the result of this over time. The population becomes more educated so as to meet demands of emerging technology so that a master's degree earns what a bachelor's did a generation ago - Under this model, education-related income inequality remains stable over time even though the workforce is, as a whole, more educated

2006-13 Employment ratio graph

- The black X's (current as of 2013) are closer to the worst point in the recession - are a lot closer to the worst point in the recession (red) than the best pre recession point in blue (2006) - This demonstrates that employment ratios have not recovered - Bible belt and southwestern states were hit the hardest while Midwestern states fared best

Rebuttal to Piketty's explanation of increasing education premium in US

- The data show that more people attain higher education and that there are higher returns on education in the U.S. than in France - In France high school graduates earn more than in the U.S. - In the U.S. college grads earn more relative to high school graduates gain relatively more economically for having gone to college than they do in France

Capital income and Wealth

- The extremely wealthy generate most of their income from capital; they own generate income from held assets - This is true worldwide. Two means of income are useful in distinguishing the very wealthy from less so

GINI graph interpretation

- The flat straight line is the distribution of income if it were fully equitable - The curved line shows an inequitable society - When income is equitable perfectly median=mean

Income from capital and top incomes

- The higher in incomes you go, the higher the proportion of their income is from capital relative to labor - Today, with rentierism much less of an economic force than it is today, one has to go much further up in the top of the top incomes to reach the point where income from capital exceeds income from labor - The top 1% today still get most of their income from capital - The 9% today below them get most of their income from labor

Is inequality inherently bad?

- There will always be some inequality, and it may be argued that this is even good - In theory, if you work hard you can earn more money compared to someone who does not work hard, good as a "motivator" - What is worrisome is large disparities in income that are not justified by work or skill.

Health inequality trends

- Those in poverty are 4-5 times more likely to report poor or fair health - There is no evidence of growing disparity since 1997 - Asthma rates among blacks are much higher than among other ethnic groups - Financial Accounts of US indicate full recovery by 2nd quarter of 2013(????)

Simon Kuznets (1901-1985)

- Two phases of industrialization in a democracy o Phase I: wages decline with loss of agricultural wages as this sectors' importance decreases o Phase II: Industrial workers become more in demand, drawing migrants to from country to city, wages of industrial workers increase due to this demand as well as specialization, leading to reduction of income inequality - Kuznets curve: industrialization inevitably reduces income inequality (II) after an initial uptick( I), making a curve - Supported by data on income distribution (US tax returns) - Not contingent on particular policies of democracy, but considered an eventuality

Measures of unemployment:

- Unemployment rate: percentage of workers who are unemployed and actively seeking a job (does not seek those not seeking job) - Employment ratio: the percentage of working age people who are employed

Union membership and inequality

- Union membership is positively correlated with a reduction in inequality

Lenz explanations for findings not correlating inequality with greater welfare stipend

- Voters care about other policies. McCarthy, Poole, Rosenthal find that public more polarized based on income, but the change is not driven by changes in income inequality - Turnout decreases with income - Pro-redistribution candidates may not seek pro-redistribution policies once in office. Bartels finds that candidates cater to wealthy constituents once in office - Endogeneity: generous redistribution policies decrease income inequality over time, even if you look at pre-tax income so it is hard to establish causation of inequality upon redistributionist policies - Possible substitution effect: state incentive to increase food stamps relative to AFDC, since federal government pays large share of food stamps (??)

Redistributive policies considered in Lenz Article

- Welfare policy (social insurance), evidence for the article drawn from Medicaid and AFDC - Tax progressivity - Minimum wage and unionization - Not considered: EITC, social insurance and non-cash transfers, middle class subsidies for health insurance and home ownership

Great Recession unemployment recovery with different stats

- While the unemployment rate has bounced back since 2008, the employment ratio has not - More people have given up seeking work and are therefore not included in unemployment statistics.

Employment ratio by education and gender

- Women gain more from education than do men - this is demonstrated in that the high school/less than high school have a larger gap from college graduate/advanced degree is larger among women than men - How hard you are hit by the recession is inversely related to your degree of education - Women with high school degrees work in secretarial jobs as opposed to construction jobs of men, the former being more stable and explaining less drop-off within this group among women relative to men during recessions such as the 1980 recession

Piketty's class definition

- bottom: bottom 50% (below median income) - middle: 50th - 90th percentile - top: 90th percentile + - very top:: 99th percentile +

Forms of household income:

- capital income: stocks/dividends, interest, and rent (from assets like savings accounts, life insurance contracts, financial investments and real estate) - labor income: wages, bonuses, pensions earned from employment (labor) - mixed income: self employment income

Conclusion of unemployment paper (?)

- consumer driven private economy cannot spark an employment recovery on its own - productivity increased profits soared and Wall Street recovered since 2009 - Overall employment languishes at levels barely above recession lows - Recovery has not lifted all boats as those at bottom still not doing well - Recommendation: private sector breakthrough or public sector stimulus

Wealth inequality statistics

- debt-equity ratio: ratio of debt to net worth o .37 (1983) to .61 (2007) to .72 (2010) o post-2008 rise high due to declining housing values - debt-income ratio: ratio of debt to income o .67( 1983) to 1.57 (2007) to 1.35 (2010) o post-2008 improvement as households paid down mortgage and consumer debt

Source of capital change from pre-WWI to today

- hyperpatrimonial society (pre-WWI): society of rentiers where inheritance dominates income - hypermeritocratic society (more recently): income stems from innovation, work; "super managers"

Sources of inequality in capital income

- inheritance - savings and investment behavior - demographics (ethnicity, gender, age) - public policy, including tax law (capital gains and inheritance) and tax incentives such as the home mortgage deduction - demand for capital: varies according to rat of return to capital in real estate and financial markets; if rate of return is lower, more likely to make investment in labor than in capital and vice versa - For most, assets are typically in retirement accounts or their home, with the exception of those at the very top

Poverty rate by education

- much more stark differences than poverty rate by age - with a college degree, unemployment rate is 4.5% - makes a big difference

5% unemployment does not mean 95% employment because...

- not all are seeking work - Some would like to work but have given up due to repeated failure to find a job.

Poverty rate by ethnicity

- poverty rate relatively flat for whites over time - 1990s saw a great closing of the gap between Hispanics/blacks and whites - larger increase in poverty among black and Hispanic following recession

Health inequality: insurance provision

- proportion of adults with health insurance fell between 2002 and 2012 - Proportion of children insured increased 3 percentage points - Uninsurance rates vary between 25% for poor households to 8% for households earning 75,000+ - 23% of firms with low wage workers offer benefits compared to 60% of white collar firms

Experience premium

- ratio of average hourly wage for 45-55 year olds as compared to 25-35year olds - Up until 1990 the ratio of the wages of older workers relative to younger workers was growing - Since the 1990s this ratio has decreased

Gender gap

- ratio of average hourly wage of men to women - has been dropping consistently for decades - reduction in gender inequality has lessened the increasing inequity of economy somewhat

Sources of inequality in labor income

- skill, work ethic - education, experience "justified" - demographics (ethnicity, gender, age) - public policy: income tax, welfare, earned income tax credit, unempl - demand for labor

Safety net: three types of income support

- social insurance: unemployment disability, and worker's compensation. They function as insurance because you are paying into these programs in the form of taxes. You only get it for temporary, unanticipated events - social assistance: welfare; whether you are eligible for them is related to your income - Earned Income Tax Credit: you get a tax return; similar to social assistance but done through taxes

Policies that reduce inequality

- tax code, where those who make less are taxed less - direct payments such as welfare/unemployment

Meltzer-Richard Model: Game Scenario

1. Propose income tax and redistribution policy 2. Citizens vote on tax with majority rule a. Passes with greater than 50% yes b. Loses with greater than 50% no - Policy: o Flat tax: all are taxed the same proportion of their income o Redistribution: tax revenue equally distributed among all households - Majority rule: means that median voter is "the decider" - Measure fails if median voter is indifferent, meaning they neither gains nor lose

Meltzer Richard: Will tax and redistribution plan pass with majority?

1. Take all of the taxes acquired at a certain flat rate (like flat tax of 10% in this case) 2. divide it by the total tax revenue by the number of income groups (40,000/5)= 8,000 3. Take this value and add it back into the after tax income of each group 4. If the median group experiences a net gain (not just low-income groups) then the measure passes; "swing group"

Trends in asset prices

Both stock market and housing prices rose a lot during the 90s, rose slowly in the 00s, and crashed abruptly in Great Recession

Conversion problem

It is an error to confuse potential power in terms of nonpolitical resources and actual exercised power. It is difficult to understand the chance that potential power of powerful groups will actually be converted into political power and under what circumstances

Problem of observation

It is difficult to find an exact cause of observe outcomes within something as complex as politics. For example, saying who and what are to blame for lack of policy response to inequality is not easily answerable.

Nondecision problem

It is difficult to gauge the power over decisions not made. Whether a particular policy direction not being taken a result of lack of interest in it or strategic action is difficult to establish

Connecting inputs to outcomes

Outcomes produced by government decisions on complicated matters such as inequality are the result of long, tangled chains. The connection these tangled outcomes to assessment of the bases of political power at the time are difficult to establish

Wartime's effect on inequality

Wages at the bottom of the wage scale generally rise, however, and are somewhat more generously protected from inflation than those at the top