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A few well-written words can convey a wealth of information, particularly when there is no lag time between when they are written and when they are read. The IPS blog gives you an opportunity to hear directly from IPS scholars and staff on ideas large and small and for us to hear back from you.



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Entries tagged "Inequality"

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America's Skimpy Minimum Wage

January 4, 2012 ·

In 2012, the 63 million Americans who depend on Social Security are getting their first cost-of-living adjustment (COLA) in three years: a 3.6 percent increase in benefits. In other words, one in five Americans are getting a raise. For the average beneficiary, this amounts to an extra $38.95 a month.

That's not much, but it's something.

The federal minimum wage is staying put in 2012. For workers earning the federal minimum wage, the COLA for 2012 is…zero. Washington raised the minimum wage to $7.25 on July 24, 2009, and there it stands. There's no regular COLA for the federal minimum wage. (Eight states, which set their own minimum wages slightly higher than the federal level, are raising them in 2012.)

COLAs are necessary because inflation constantly changes the dollar's value. A dollar today isn't worth the same as a dollar yesterday. The year-to-year changes are small, but over time they add up. The Bureau of Labor Statistics estimates that it costs $4.58 today to buy what a buck bought in 1974.

Because of inflation, payments for government benefits can't be set once for all. Most federal programs have some kind of built-in mechanism to update dollar amounts for inflation. For Social Security, benefits have been indexed to changes in the Consumer Price Index (CPI) since 1974.

No Adjustment System

While federal benefit programs like Social Security are indexed for inflation, the federal minimum wage isn't. It only gets adjusted whenever Congress and the White House get around to it. As a result, the minimum wage has only increased seven times in the past 30 years.

Back in 1974, when COLAs for Social Security were first indexed for inflation, the federal minimum wage was $2 an hour. If the minimum wage had also been indexed to the CPI, the inflation-adjusted minimum wage today would be $9.16 an hour.

If the federal minimum wage had been updated since 1974 using the Social Security yardstick, it would now stand at $10.74 an hour.

In other words, after adjusting for inflation minimum wage workers today are paid less — about 26 percent less — than they were in 1974.

But that's not the end of the story. The Social Security COLA is an adjustment made for people who are already receiving benefits. People's benefit levels are determined at the point of retirement by the average wages they earned over the course of their working lives.

Because of inflation, it's not fair to lump wages earned in the 1970s with wages earned in the 2000s. The earlier wages have to be adjusted to make them comparable with recent wages. But the Social Security Administration doesn't use the CPI for this purpose. It uses something called the Average Wage Index (AWI).

The AWI is exactly what it sounds like. It's an index of the average wages paid in any given year. Because wages tend to go up faster than inflation, the AWI goes up faster than the CPI.

The Social Security Administration uses the AWI instead of the CPI because the CPI doesn't capture changes in living standards over time. The CPI adjusts for changes in the cost of living, but it doesn't adjust for changes in the quality of life. Simply put, we expect people to live better in 2012 than they did in 1974.

How about $10.74 per Hour? $14.41? $26.96?

If the federal minimum wage had been updated since 1974 using the Social Security AWI, it would now stand at $10.74 an hour. That's quite a bit more than the $9.16 an hour it would be if it had been updated for inflation using the CPI. It's a whole lot more than today's $7.25 an hour federal minimum wage.

A very strong case can be made for a $10.74 minimum wage, which is only 50 cents higher than San Francisco's CPI-adjusted minimum wage.

But that's not the end of the story. The Social Security AWI is based on the changes in people's average annual wages over time. Wages, however, have not kept pace with rising economic prosperity.

Since the 1970s ordinary workers' wages have failed to rise along with the economy as a whole. The massive rise in non-wage income (dividends, interest, and capital gains) has made workers' wages a smaller and smaller slice of the overall pie. America's total personal income per capita — including income from all sources — has risen much faster than the Social Security AWI.

Between 1974 and 2011 the AWI rose a cumulative 17 percent (adjusted for inflation). Per capita personal income, on the other hand, rose 57 percent (adjusted for inflation). Had the minimum wage been indexed to per capita personal income growth starting in 1974, the minimum wage today would be $14.41 an hour.

That's a far cry from $7.25.

By today's standards $14.41 an hour might sound like a lot for a minimum wage, but it doesn't have to stop there. At the top 1 percent of the American income distribution, average incomes rose 194 percent between 1974 and 2011. Had U.S. minimum wages risen at the same pace as U.S. maximum wages, the minimum wage would now be $26.96 an hour.

The difference between $7.25 an hour and $26.96 an hour shows just how much inequality has increased in America over the past four decades.

An Inequality Indicator

Inequality has risen across the developed world in recent years, but nowhere as much as in the United States. Incomes are higher for the top 1 percent in America than anywhere else in the world. And the rest of the world's developed countries in turn have much higher minimum wages.

In Canada, the minimum wage is between 9 and 11 Canadian dollars, depending on the province or territory. That's between $8.59 and $10.50 in U.S. dollars. These figures and the figures below are based on average exchange rates for the three year period 2009-2011.

In the United Kingdom, the minimum wage is £6.08, or about $9.56. In France, it's €9.19, or about $12.44. In Australia, the statutory minimum is A$15.51, or about $14.20, but very few workers earn so little. The standard wage for fast food and other service jobs is A$17.03, or about $15.59.

In all these countries, minimum-wage work also includes benefits like paid sick days and government-sponsored universal health insurance.

So how high should the U.S. minimum wage be? It's currently $7.25. Adjusted for inflation using the CPI it would be $9.16. Adjusted for wage growth using the AWI it would be $10.74, similar to the minimum wages found in other countries.

On the other hand, if the minimum wage had grown along with personal income overall, it would now be $14.41. That would put us on the high end of international comparisons. Once upon a time, America was always on the high end of international comparisons. Maybe someday we'll get there again.

Salvatore Babones is a senior lecturer in sociology and social policy at the University of Sydney and an associate fellow at the Institute for Policy Studies. An earlier version of this post appeared on the inequality.org website. www.ips-dc.org

'Tis the Season to Shop at Tiffany's

December 24, 2011 ·

The economy is expanding, the unemployment rate is down, and consumers are spending again. The National Retail Federation expects holiday season sales to be up 3.8 percent over 2010, and other organizations predict increases of 3.5 percent to 4 percent. It all sounds like it's shaping up to be a happy holiday season for America's retailers.

Luxury retailers are enjoying the prosperity of the One Percent. Photo by Steve Minor

But which retailers? Black Friday sales at JC Penney were down 2 percent compared with 2010 and 5 percent at the Gap, Bloomberg News reported. Sales at Kohl's were down 6.2, while Gap's discount line Old Navy reported a fall of 7 percent.

On the other hand, sales at upscale stores are up — and up more the more upscale the store. Black Friday sales at Macy's were up 4.8 percent, Nordstrom's rose 5.6 percent, and Saks Fifth Avenue's spiked by 9.3 percent, according to The New York Times.

Meanwhile luxury leader Neiman Marcus sold out of the Ferraris in its Christmas catalog in less than one hour. Neiman's $125,000 bookshelves are also selling well, New York magazine reports. (Not to worry, they come pre-stocked with books). "The most affluent luxury customer is spending with confidence," Neiman Marcus CEO Karen Katz told Reuters.

Whew! We were all worried about the most affluent luxury customers. After all, sales growth at Tiffany's has recently slowed to the low double-digits. Its stock has taken a beating.

The premiumization of holiday shopping is nothing new. It's all part of the premiumization of life that has been creeping up on us for forty years. Retail trends began to favor the wealthy long before the beginning of the current downturn.

In 2005 three Citigroup stock analysts announced the arrival of a new kind of economic system, which they dubbed the "plutonomy." They pointed out that aggregate statistics like national retail sales had become so skewed by the spending of a few wealthy people as to be almost meaningless. In their own words:

The World is dividing into two blocs — the plutonomy and the rest. The U.S., UK, and Canada are the key plutonomies — economies powered by the wealthy. In plutonomies, the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc. There is no "average consumer" in a plutonomy. Consensus analyses focusing on the "average" consumer are flawed from the start.

Six years later, this analysis is more accurate than ever. Yes, total retail sales are up this year. And the economy is growing. But is the recession over?

The Stagnant Realonomy

If it doesn't feel like the recession is over, that's because nearly all of the country's national income growth is going to the top 1 percent of the population. It's that same top 1 percent of the population that's driving the rise in retail sales. The plutonomy is growing, but the "realonomy" — the real economy in which the rest of us live — has been stagnant for three years now. In fact, it's hardly grown at all since 1999. And it wasn't going all that strong even then.

It's been widely reported that median incomes have been stagnant since the 1970s. What's been much less reported is that even college-educated professionals' incomes have been falling for a dozen years. Adjusting for inflation, no group below the top 5 percent has seen its income rise since 1999.

Among Americans with high school degrees only, median incomes have fallen 10.4 percent since 1999. Among Americans with college degrees, median incomes have declined by 7.6 percent. As a result, even families at the 95th percentile of the U.S. income ladder have seen no raises since 1999. Their incomes are down on average 1.2 percent in real terms, from $202,850 to $200,354.

When the data show that no one in the bottom 95 percent of the national income distribution has seen a raise in over 12 years, it's no wonder that holiday sales are driven by luxury goods.

All that talk about "the 1 percent versus the other 99 percent" really is true. Before 1973, America's economic prosperity was widely shared. In the 1980s and 1990s most of the country's economic growth went to the top 20 percent. In the 2000s, rising prosperity benefited only the top 5 percent.

Since 2008, only the top 1 percent have seen their incomes grow. They're Neiman's "affluent luxury customers." Pity them. At Christmas of all times it is wise to remember that "it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God."

There's no word on what books are included with that Neiman Marcus $125,000 bookshelf, but I know one I might recommend.

Salvatore Babones is an American sociologist at the University of Sydney and an Institute for Policy Studies associate fellow. His book on the American economy, Benchmarking America, is due out in 2013. www.ips-dc.org

The Other 99 Percent: How the U.S. Compares

December 5, 2011 ·

One reason why the Occupy Wall Street movement grabbed the world’s attention was its protest against the injustices of 21st century capitalism. The Occupiers focused on the fact that "the other 99 percent" — the non-wealthy majority of the population — are increasingly excluded from the world’s economies.

The other 99 percent didn’t benefit from the economic booms of the 2000s. The other 99 percent didn’t cause the global financial crisis. The other 99 percent paid for the bank bailouts of 2008. And yet, the other 99 percent are now being asked to suffer cuts in pay, benefits, and government services. Increasingly, the other 99 percent are saying "no."

Occupy movements have now sprung up in at least 20 countries, and probably more. They all speak, in one way or another, for the other 99 percent. But the other 99 percent means different things in different places.

In some countries, the other 99 percent are truly oppressed.  In others, they manage reasonably well.

The accompanying figure shows the percentage of total income going to the other 99 percent in eight different countries. The data are taken from the World Top Incomes Database produced by economists Emmanuel Saez, Facundo Alvaredo, Tony Atkinson, and Thomas Piketty.  This database uses tax records to analyze the distribution of income across countries.

What immediately stands out in this figure is that the other 99 percent do far worse in the United States than in any other developed country.  The other 99 percent take home just 82.6 percent of America’s personal income. In the United States the share of the other 99 percent has been falling for decades.

(The data in this figure are from 2005 because that’s the latest year for which comparisons are available for most of our peer countries.)

The other 99 percent share of total income reached a high of 92.3 percent in 1973. Back then, U.S. income distribution looked the same as it does in continental Europe today. It fell slightly in the late 1970s and early 1980s. In the mid-1980s it was still over 90 percent. Then the slide began.

The share of the other 99 percent's income fell from 90.9  percent to 83.5  percent between 1986 and 2000. It reached its lowest point at the height of the 2000s boom, just before the global financial crisis. By 2007, the income share of the other 99 percent had declined to just 81.7 percent.

In other words, between the 1970s and the 2000s the United States went from looking like a European country to looking like an African country. Data are available for very few poor countries, but even in South Africa the income share of the other 99 percent is higher than it is in the United States.

The only developed country that comes close to the United States in the decimation of its other 99 percent is the United Kingdom. In the UK, the other 99 percent take in 85.8  percent of total income, down from 90.2  percent in 1990, the earliest year with data are available. Surely it’s no coincidence that some of the biggest Occupy encampments have been in New York and London.

Back in the 1970s, the United States and United Kingdom looked, statistically, more or less like the rest of the developed world. We may have had our own distinctive institutions and policies, but the outcome for the other 99 percent was similar in the US, UK, Europe, Japan, and Australia. It’s simply not true that American — or British — capitalism has always been more unequal than in the rest of the world.

With the Reagan-era tax cuts and union busting in the 1980s the United States moved decisively from being a country for the other 99 percent to being a country for the top 1  percent. The same happened in the United Kingdom after the premiership of Margaret Thatcher, though her policies were more strongly resisted and took longer to have an impact. Today, the United States and the UK represent pathological economic models, out of step with the rest of the developed world.

The decline of the other 99 percent in the United States has been underway for 30 years or more. It will take a major, sustained effort to restore normalcy. If we want to restore a healthy income distribution, somehow we have to claw our way up from the low 80s to the mid-90s.

In other words, it’s not enough to stem the decline of the other 99 percent. At some point in the near future ordinary workers have to start getting raises that are actually higher than those of their bosses and CEOs, and they have to keep getting those higher raises for 30 or 40 years. That may sound like a fantasy scenario, but it happened from the 1930s through the 1970s. It can happen again.

Policies to support the other 99 percent include a shift in taxation from payroll taxes to capital gains taxes, an expansion in government employment and government salaries, support for unions, and much higher minimum wages. The experience of other countries shows that such policies are possible in the United States. It all comes down to politics: If the other 99 percent demand these policies, they certainly have the numbers to get them.

The 99 Percent Have Found Our Voice

November 4, 2011 ·

Could any of us have imagined that in six short weeks, the people of this country would have found our voice? Most of you reading this have likely participated in Occupy activities in your town or city. IPS board member Barbara Ehrenreich worked with IPS interns to create a massive list of phone numbers of mayors of Occupied towns. They came up with over 400 places where people are standing up to be heard.

Doctors for the 99 Percent march from Zuccotti Park to St. Vincent's Hospital to demand its reopening and health care for all. Photo by Sunset Parkerpix.These are days of action. I've just returned with a group of IPS colleagues from the U.S. Treasury Department where National Nurses United led thousands of us in a protest for a measure that IPS has been advocating for years: a Wall Street tax that would curb financial speculation and generate tens of billions of dollars that can be used to create jobs and help the environment. Tomorrow night, IPS and the Other 98% and thousands more will march from Occupy DC to protest a gala dinner backed by the Koch brothers

On Saturday, tens of thousands will join in a "move your money" day that uses our power to defund Wall Street banks and build up Main Street banks. And, on Sunday, thousands more will create a human chain to surround the White House to demand an end to an oil pipeline that would despoil land and water from Western Canada to the Gulf of Mexico. 

The 99 percent have found our voice and at IPS we are devoting every ounce of our energy to filling this new public space with the true picture of the obscene inequality that our corporations and U.S. policy have created over the past three decades. We have a team at IPS, led by Chuck Collins, that is both putting out daily facts and figures on inequality and is steering people toward creative action. Chuck himself is now working on a book to trace the gap between the 99 percent and the 1 percent (help us decide on a title for the new book).

And, working with allies at YES! Magazine and elsewhere, we have built up a New Economy Working Group that is illuminating the path from this failed Wall Street economy to a green Main Street economy – an economy that is ecology balanced, that eliminates extreme inequality, and that nurtures the democratic expression that is blossoming across this country. IPS is producing fact sheets, leading workshops at Occupy sites, sending op-eds to papers all over the country, and giving voice to the rising tide of moral outrage.

The Occupy outpouring is changing the entire debate in this country. Newspapers are reporting on inequality. Politicians are being forced to respond to the charge that their policies lavish favor on the 1 percent. Banks are canceling outrageous fees on consumers. Conservative officials in Ohio and Wisconsin are feeling more heat to maintain protections on workers and communities. As we change the national conversation, we can dismantle the barriers to change.

This is your moment and IPS is proud to walk down this path with you. Sign up to receive our Unconventional Newsletter every two weeks.

Rick Perry: Reverse Robin Hood

October 31, 2011 ·

Texas governor Rick Perry has unveiled, with suitable hoopla, his Presidential campaign’s tax plan. His new plan, released last week, differs on the details with the tax plans his rivals for the GOP nod had earlier offered up. But all the plans end up in the same place. They all generate huge tax savings for America’s rich.

A reporter asked candidate Perry if these windfalls for the wealthy — “millions of dollars” in savings for some taxpayers — bothered him at all. Perry shrugged. His response: “I don’t care about that.”

Those of us who do care about “that,” about policies that widen our already staggering economic gaps, now have two new resources. In this week’s Too Much, we review the first, a sprightly UK think tank online pamphlet that offers “ten reasons to care about economic inequality.”

The second, an engaging 17-minute video from the famed epidemiologist Richard Wilkinson, charts how inequality is eating away at how well — and how long — we all live. Rick Perry will likely never watch his video. The rest of us should.

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