The mayors report in on Income Inequality (and miss the conclusion).
(lightly edited for ease of reading)
Yesterday the Conference of Mayors and the Council on Metro Economies and the New American City released a report prepared by IHS Global Insight that is a repeat and thus update of a similar study performed after the 2001 – 2002 recession. Income and Wage Gaps Across the US.
I caught wind of it today reading our state news paper, it was on page 1 no less. I suggest reading it and then using it to judge your favorite candidate in the coming elections. See if they mention this report. There are 357 metro areas reported on in the index pages. Even Providence RI is noted. So look yours up.
The report looks at the jobs being created and the wages they are generating. The trend since the 2001/02 recession is that jobs lost in the recession are replaced by jobs producing lessor wages. No surprise as we have been hearing such for a while. However, this study documents that the difference in the wages is even greater this time. After the 01/02 recession it was a 12% difference or $23 billion in annual wage loss. After this current recession it is a 23% difference! $93 billion! Yes, it is because manufacturing and construction jobs are being replaced by hospitality, health care and administration jobs.
“Extensive job losses in high-wage manufacturing ($63K) and construction ($58K) sectors were replaced by jobs in the lower wage sectors of hospitality ($21K), health care ($47K), and administrative support ($37K).”
Some more general findings:
The 2012 household median income of $51,017 was, in real terms, the lowest since 1995. It had peaked at over $56,000 in 1999, and measured $55,627 in 2007 before the recession. It has fallen in each subsequent year.…the 20% of households with the highest incomes, which rose from 43.6% in 1975 to 51.0% in 2012. Moreover, most of this gain was among those in the highest 5% of income, which rose from 16.5% in 1975 to 22.3% in 2012, a gain of $490 billion in 2012. Each of the lower quintiles experienced a declining share of income.
Nothing too new there as with some other facts noted early in the report. However they do something I have not seen and I believe does a better job of presenting income distribution change in this nation. The cry we are hearing regards the decline of the middle class. But then the numbers are presented as blocks of 20%. In this report they divide the income distribution into thirds. Thus, you have a middle third…the middle class?
…we can also consider a broader group of middle income households, the middle third of the income distribution. In 2012, among US households, 34.8% earned less than $35,000, 31.8% earned between $35,000 and $75,000, while 33.5% earned more than $75,000.
The top ten metros (MSA’s) having the highest percentage in the lower third….the south. The breakout is as follows:
The top ten is dominated by MSAs in the South, while those places with fewer poor households are far more geographically distributed. Figure 6 displays metros with the ten smallest and largest shares of households in the middle income range of $35,000 to $74,999. Metros with the largest shares of middle-income households are concentrated in the Midwest and Northwest. Conversely, 33.5% of US households earned $75,000 or more in 2012. Figure 7 outlines those areas with the largest and smallest portion of households in this upper income bracket. With the exception of Anchorage, AK and Honolulu, HI, MSAs in the Northeast and coastal California comprise the top ten.
The authors then calculated the ratio of percent households in the lower third to those in the top third. Again, the south is the winner with the most households in the lower third. Interestingly those with the most balance of thirds are geographically mixed:
The large metros that have a very equal distribution are Phoenix, Riverside, Milwaukee, St. Louis, Cincinnati, Indianapolis, Charlotte, and Providence.
The report further confirms the shift of income up the ladder in their finding of the difference in the ratio of the bottom third to the top:
The ratio between the average and median household income increased by 2.6%, as wealth shifted to upper income households during these years.
Though some metros bucked the trend in that their ratio fell. Again geographically diverse. The greatest fall was in Columbus, IN.
They project the trend to 2016 and find that the separation over all will continue to increase.
With the exception of Vallejo-Fairfield, the ten slowest-growing areas in terms of household income are all located in the South and Midwest. Many of those located in the Midwest will continue to struggle in the wake of declining US manufacturing, particularly in that region of the country. Indiana and Georgia are heavily represented among the bottom ten.
Unfortunately in the report’s conclusion there is little to suggest that anyone has really ingested and digested exactly what their report is saying. Three proposals are made.
Education is one of the three. Job training and universal pre-kindergarten. Well, if we aren’t producing the jobs that require the education then what good is education? (Actually I have an answer for that but it has nothing to do with “go to school, get a job” and everything to do with “get a clue, get a life”).
The second is the Earned Income Tax Credit expansion. Really? The report is about income distribution but the distribution problem is a result of not earning income from labor. So the solution is to make up for that via tax credit? Are we going to go get the unearned income of the middle and lower third from the upper 20% or specifically the upper 5% via taxes? You know, considering this report’s findings. Or, are we just going to continue to subsidize the upper earners by using the tax system to make up for what they won’t pay the help? Is it not similar to subsidizing Walmart’s income by making up for what they don’t pay their help via our welfare system?
I do have a bone to pick with this statement (a small bone):
Proposals to increase the minimum wage are controversial as they do raise the cost of hiring unskilled workers,..
Did not the entire labor movement, the labor wars not raise the cost of hiring “unskilled workers”? Was this not the basis, the point of entry into the middle class? Oh, start asking people who if they have heard of the labor wars. If they are somewhere below the age of 50…that history did not happen. The rest of the statement does note:
…but they also directly raise incomes for a very broad class of low wage workers across the country.
The last proposal is rebuild the nation. Yeah, it needs it. Gee why did a 30” main built in 1921 suddenly flood UCLA. But are we going to make sure those doing the work get the money? Are we going to make sure those benefiting the most from the improved productivity due to the improved infra structure pay for it? No mention of promoting the arts, or science for the simple sake of discovery and knowledge as part of producing a healthy society and thus more diverse, stimulating and vibrant economy. Mr. Tyson explains the relationship and need well.
Well, it’s a good report anyway even though the mayors have shown no gonads in proposing solutions. After all, their entire tax base is totally reliant on the wages earned in their community. If it’s not earned, then the taxes can’t be paid. One would think they would get this and be fighting for labor being how close they are to this reality. Oh, and also considering how much they don’t want to raise taxes. Their only viable solution is to work to reverse the income concentration trend noted in this report via paying people the rise in productivity. Only they did not propose anything of this nature. Can’t imagine being a mayor in the south considering their politics and this problem.
This type of divergence is exactly why, when I look at the monthly job reports I focus on the average work week and average hourly earnings.
Short run changes in these series are dominated by how fast employment is growing in different industries.
For example, the average work week is 34.5 hours, but that contains 40.9 hours in manufacturing and 31.3 in retail.
Average hourly earnings is $24.45. But it is $24.89 in manufacturing
and $17.03 in retail. It is $31.01 in mining and logging that include oil servicing.
In both changes of the average workweek and earnings differences in the type of jobs created makes a significant difference in the averages that is lost in the widespread focus on the headline jobs lost and gained
One of the main reasons for the weakness in average hourly earnings and the average workweek this cycle is the more rapid growth of retail and hospitality employment while manufacturing employment grew very slowly.