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September's Atlantic Magazine has a great article titled "The Height of Inequality" by Clive Crook (is that a real name?). Couldn't find an online ref - I think it's subscription.

The article discusses the gains in productivity and how they have been reflected - or not - in wages.

I knew things were skewed but was dumbfounded at the example given.  We are talking about WAGES - not investment income here..... which makes this all the more appalling......  

The image is too good NOT to get wider coverage  the flip explains

The article takes an example used first by a Dutch economist - Jan Pen - to illustrate wage distribution.....

Imagine a parade.  

You are watching every person in the economy walk by - taking exactly an hour to pass.

You are of average height - Assume 5' 10" for this example - as are the other observers.  Your height represents the average wage paid to all those in this nation's economy.  Of note - that was $36,700 in 2002 (quick search, I doubt it's gone up all that much) - a figure that is damn near impossible to live on in a place like NYC (A receptionist around here will make $25,000 a year).

The height of all those marching is proportional to their wages, with the lowest paid marching by first.

At the beginning of the parade, you see nobody.  They are actually "invisible" - underground - losing money.  Think of the proprieters of small businesses.

Eventually you begin to see very small, tiny, miniscule marchers - part time workers, those that work sporadically.... they are a few inches high.

After 6 minutes, the tenth percentile, marchers are 7" tall - they earn 1/10 of the average.

At the 35th percentile, 21 minutes into the parade, people are still only 2'6"........ over a third of the workers in the economy are not even making half the average....

The parade continues, with office workers, tradesmen, skilled workers..... at the 65th percentile, 39 minutes along, people are now 5'9"   Almost two-thirds of the workers in our economy are not making the "average" wage paid......

At the 85th percentile, 9 minutes before the parade ends, heights have now reached 10'- but that's not even $65,000 a year with our 2002 average.

At the 92.5th percentile, heights have reached 13'9" - tall but not gigantic.....  basketball players on growth
hormones......large but not frightening mutants yet.... that's 235% of the average wage  (being fair, that's still not even an affordable wage in places like NYC or LA)

At the 97th percentile, with 108 seconds left in the parade, marchers are at a still viewable 21' tall - we are now into a seemingly different species.  But that is still only 3.6 times the average.  Using the 2002 average salary, that's $133,200..... sounds impressive, but that makes for a pretty tight household in some locales...

But at the 99.5th percentile, with 18 seconds left in the parade, heights have jumped to 49' - more than 8 times the average - but less than $300,000 with our 2002 number...

The end of this parade is getting downright ridiculous....

At the 99.95th percentile - that's 1.8 seconds, marchers are 81' tall  almost 14 times the average (just over half a million in 2002 $)

and at the 99.995th percentile - 0.18 seconds - less than a fifth of a second left in the parade (a blink of an eye) at the end of our parade, the marchers are an astounding 933 feet tall.  You can't even see the tops of their shoes.......  that's 160% of the average..... but not even $6 million.

this is pre-tax salary and wages

I hate to think of what the idle rich are earning off investment income.......

Quoting the article, between 1966 and 2001 median wage and salary income - REMEMBER, NO INVESTMENT INCOME HERE - increased by just 11 percent after inflation.......

At the 90th percentile - six minutes from the end of the parade - where marchers are just over a dozen feet tall, income for the same period increased by 58% - almost 6 times more....

At the 99th percentile, 3.6 seconds before the end, wages grew by 121%

And for the 99.99th percentile (the last 0.36 seconds), wages for the 13,000 highest paid workers in the US grew by 617%.

This is pretax income - wage and salary - NOT investment income.

Our economy has gotten more and more efficient in many ways. Greater efficiencies can mean lower prices for goods, and greater profits.

I just finished a book on Carnegie - he made money by producing steel more and more cheaply ........ironically, the squeeze he put on wages actually did little to lower his total costs..... wages were a small part of his total costs......  things are a bit different in our non-capital intensive non-manufacturing economy but look at the cost of "non-executive" wages copmpared to "executive" wages..... a rational analysis would say cut the wages of the very few VERY overpaid executives and ADD more lower paid workers that actually produce product or services.... but the well paid execs are the ones making those decisions, right?, so you KNOW you'll never hear "Cut the Executive pay"......

So..... it seems that the large gains made in productivity here are not

a) being passed on to consumers in the form of lower prices (which has the effect of increasing buying power - i.e. "wages")

or

b) being passed on to investors as profit

or

c) being used to raise the wages of most employees in the industrities that have seen remorkable productivity gains...

So where's all that increased "profit" going?

to a very, very small number of people

REMEMBER - THIS is WAGE/SALARY income  - NOT investment income....

Seriously..... Wouldn't a more 'equitable' distribution of income actually benefit the economy more?

How many Bentleys can be sold in a year - compared to say a Taurus, Malibu or Civic?

How many people buy $600 shoes - compared to those that NEED $40 shoes?

How many people can spend $1000 on a dinner out - compared to $50?

Those at the end of this parade can't spend FAST enough for it to "trickle down."    Remember - this is salary and wage income.  So where does that money go?  And remember what Buffett and others have said about inherited wealth......  

Unless there's some alien running a very high priced excursion/escape service for the uber-wealthy - allowing them to survive the end of life on this planet as we know it - how can you possibly justify this type of disparity?  Are they going to leave it for their kids?  And just think of what THAT will mean....... do you want Paris Hiltons ruling the world?.... hell, George W. is bad enough.....

I'm no Communist.  Hell, I think you should have the ability to make as much money as you can - in a rational, fair, legal manner..... but this is absurd.

Even when companies LEGITIMATELY have increased profitability, the stockholders aren't getting their fair share (and they ARE the owners), and the great mass of employees aren't benefitting.  Consumers aren't seeing drastic drops in their costs......   nope - a few execs are walking away with most of the $.....  EMPLOYEES (who have an equity stake ONLY through stock options and such - at least the robber barons WERE owners putting their own money on the line).....

I was the guest at a wedding a few years back..... A CEO's daughter..... very nice wedding.  The flowers alone must have cost (literally) $200,000.  I have a realistic sense of costs - my wife has run events for her company in the same place ( a VERY expensive NYC hotel).   This CEO just got a bonus of over $25 million - and had laid off 5,000 workers just a few weeeks earlier.......  

Now, do the math......doesn't that $25 million pretty much pay for most of those workers?   I mean, that bonus comes out to $50,000 per worker......  and meanwhile, when you talked to those remaining employed with this company - they were screaming that they couldn't handle the workload.... work wasn't getting done.... The company was a formerly regulated utility.....  it seems that the ONLY people making out through deregulation were the top execs.... the customers sure weren't - nor were most employees.....  Ironically, they had to hire back most of those laid off - BECAUSE work wasn't getting done......  hmm.... seems like someone screwed up..... any consequences?  nah.......

 

Originally posted to xrepub on Thu Aug 03, 2006 at 07:53 PM PDT.

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