Slide 1Economic InequalityInequality and the U.S.Types of economic inequalityTypes of Economic InequalityIncome InequalityAfter-tax Household IncomeReal Mean Household Income by QuintileReal Mean Household Income by Quintile, 1967-1979Real Mean Household Income by Quintile, 1980-2012Change in Mean Family Income by Quintile, 1967-2012Income Share of Top Percent in USWealth Distribution: 1984 vs. 2012Economic (Im)mobilitySlide 15Relationship of InequalitiesCauses of inequalityCauses of Economic MobilityIllustrative split of corporate profitsCEO to Worker Compensation RatioThe ‘uncoupling’ of productivity and worker compensationSlide 22Global inequalitySlide 24Economic Mobility, Selected CountriesGlobal Economic MobilityCosts and consequences of inequalityWhy Do We Care?Why Do We Care?Why Do We Care?Why Do We Care?Why Do We Care?Why Do We Care?Why Do We Care?Why Do We Care?Why Do We Care?Why Do We Care?Economic Inequality TakeawaysTOPIC XX:ECONOMIC INEQUALITYWhat’s all the fuss about?“An imbalance between rich and poor is the oldest and most fatal ailment of all republics”Plutarch, ancient Greek biographerEconomic Inequality•President Obama has called income inequality and lack of mobility as ‘the defining challenge of our time’•On capitalism, Pope Francis wrote “The world needs a better distribution of income [than the invisible hand of markets]”•Economic inequality has become the hottest economic issue since the Great Recession•Why?•What is going on?•Should you care?Inequality and the U.S.•Facts are (relatively) straightforward, not in dispute•Inequality in the US has widened since late 1970’s•US now has the highest income inequality of any developed country•Wealth has become significantly more concentrated•Economic mobility in the US generally has not gotten worse•Income inequality has become a divisive issue in the US•Arguments are heated and emotional•Is it even a problem? Should we care? What are consequences of rising inequality?•Causes and costs are less clear•What is driving the gap and the damage it does are debated•Remedies are even less clear•How can we help fix it? Should we???TYPES OF ECONOMIC INEQUALITYWhat do we mean by ‘economic’ inequality“Any city, however small, is in fact divided into two, one the city of the poor, the other of the rich; these are at war with one another”Plato, ancient Greek philosopherTypes of Economic Inequality1. Income Inequality•The extent to which income (per time period) is distributed in an uneven manner among a population2. Wealth Inequality•The unequal distribution of assets (stocks/bonds/homes, etc.) within a population•The cumulative effects of income inequality3. Mobility Inequality•The ability (or lack thereof) of being able to move (0r down) the ‘economic ladder’•The effect across generations of income and wealth inequalityIncome Inequality•Several ways to show Income Inequality1. Examine incomes of different segments of population•How much does the average top 20% earn versus the bottom 20%?2. Examine the ‘share of income’ earned by different segments•What percentage of total U.S. income does the top 20% take versus the bottom 20%3. Look at the ‘Gini’ coefficient•How equally is the total U.S. income spread among U.S. households?•Technical mathematical equation that computes number between 0 and 100After-tax Household IncomeReal Mean Household Income by Quintile1960 1970 1980 1990 2000 2010 2020$0$50,000$100,000$150,000$200,000$250,000$300,000$350,000Source: U.S. Census Bureau; Historical Tables, H-3: Mean Household Income Received by Each Fifth and Top 5%; in 2012 $’s$169,000$318,000$107,000$182,000$60,000$82,000$43,000$51,000$27,000$30,000$10,000$11,000Top 5%Second 5thBottom 5thFourth 5thTop 5thMiddle 5thReal Mean Household Income by Quintile, 1967-19791965 1970 1975 1980$0$50,000$100,000$150,000$200,000$250,000Source: U.S. Census Bureau; Historical Tables, H-3: Mean Household Income Received by Each Fifth and Top 5%; in 2012 $’s$169,000$194,500$107,100$127,500$59,500$71,100$42,500$48,400$26,600$29,400$9,600 $11,800Top 5%Second 5thBottom 5thFourth 5thTop 5thMiddle 5thReal Mean Household Income by Quintile, 1980-20121975 1980 1985 1990 1995 2000 2005 2010 2015$0$50,000$100,000$150,000$200,000$250,000$300,000$350,000Source: U.S. Census Bureau; Historical Tables, H-3: Mean Household Income Received by Each Fifth and Top 5%; in 2012 $’s$184,300$318,000$123,400$182,000$71,100$82,000$48,400$51,200$29,400 $29,700$11,800$11,500Top 5%Second 5thBottom 5thFourth 5thTop 5thMiddle 5thChange in Mean Family Income by Quintile, 1967-2012Bottom FifthSecond FifthMiddle FifthFourth FifthTop FifthTop 5%0%10%20%30%40%50%60%70%80%23%10%14%19% 19%15%0%4%9%19%47%73%1967-19791980-2012Source: U.S. Census Bureau; Historical Tables, H-3: Mean Household Income Received by Each Fifth and Top 5%; in 2012 $’sIncome Share of Top Percent in US1900 1920 1940 1960 1980 2000 20200102030405060Top 1%Top 10%Source: Saez, Alverado, Atkinson, Piketty; World Top Incomes DatabaseToday, 10% of population takes home 50% of the country’s total income1% of the population takes home 20% of the country’s total incomeWealth Distribution: 1984 vs. 20121984 20120%20%40%60%80%100%120%35%26%40%35%16%18%10%22%Bottom 90% Top 90% - 99% Top 99.01% - 99.99% Top 0.1%Share of All Household WorthSource: Saez and Zucman, 2014Top 10% control 75% of nation’s wealthTop 1% control 40% of nation’s wealthEconomic (Im)mobility0%20%40%60%80%100%41%27%15%11%7%25%30%17%17%11%17%19%26%23%16%10%14%24%27%25%8%10%17%23%41%top quintile4th quintilemiddle quintile2nd quintileBottom quintile% of Adult Children in Each Family, Wealth QuintilePercent of adult children with wealth in the:Source: Pew Economic Mobility ProjectWhere you were bornWhere you end upThe Geography of Upward Mobility in the United StatesMean Child Percentile Rank for Parents at 25th Percentile (Y25)Note: Lighter Color = More Absolute Upward MobilityInteractive MapSource: Chetty and SaezRelationship of InequalitiesIncome InequalityWealth InequalityIncreased advantages/opportunities for wealthDecreased advantages/opportunities for poorMobility InequalityCAUSES OF INEQUALITY“Experience demands that man is the only animal which devours his own kind, for I can apply no milder term for the general prey of the rich on the poor”Thomas JeffersonCauses of Economic Mobility•Causes are not as straightforward as data1. Rising