Setting the Stage President’s Symposium Confronting Inequality: Political, Educational, and Social Consequences & Remedies May 11, 2012 Kristin J. Kleinjans Assistant Professor of Economics Mihaylo College of Business and Economics California State University, Fullerton Mihaylo College of Business and Economics

Setting the Stage Inequality – How it is measured – Current levels & trends Mobility – How it is measured – Current levels & trends How do we compare to other countries? Cal State Fullerton Mihaylo College of Business and Economics

Setting the Stage This will also answer …. Why there are different estimates Why “the 99%” Cal State Fullerton Mihaylo College of Business and Economics

Between 1979 and 2007 (Before the Great Recession) Income inequality has risen dramatically. Average incomes have increased for all quintiles but more so at the top. A major contribution was the increase in income of the top 1% from labor and business income (+ changes in taxes and transfers).  How much exactly? That depends on whom you ask. Cal State Fullerton Mihaylo College of Business and Economics

Income Inequality Measured as relative income shares Depends on definition of income – after tax? – after government transfers? – including fringe benefits? – adjusted for household size? – which year(s)? Cal State Fullerton Mihaylo College of Business and Economics

Income Inequality 1979 and 2007 (Before the Great Recession) Income SharesMarket Income “Disposable ” Income The top 1%9%  23.5% 8%  17% The next 19%35%  36% The middle 60%50%  43% The poorest 20% 7%  5% Sources Piketty&Saez (2003) Saez (2012) CBO (2011) Cal State Fullerton Mihaylo College of Business and Economics

We know much less about changes in income inequality since 2007 Share of Market Income of Top 1% in 2010: 19.8% Income Changes Top 1%-36.3%+ 11.6% (93% of gains) The other 99%-11.6%+ 0.2% Source: Piketty & Saez (2012) Cal State Fullerton Mihaylo College of Business and Economics

Mobility Cal State Fullerton

Inequality is of Greater Concern if Mobility is limited Source: Gallup (Poll: Nov. 28 – Dec 1., 2011), 2011 Mihaylo College of Business and Economics Cal State Fullerton Extremely Important Very Important Somewhat important Not important Increase the equality of opportunity for people to get ahead if they want to 29%41%18%12% Reduce the income and wealth gap between the rich & the poor 17%29%26%28% “Next, how important is it that the federal government (…) enacts policies that attempt to do each of the following (…)”

Intergenerational Economic Mobility Moving up in relative income Note: Measures are backward-looking Estimations fraught with difficulties – when to measure – what to measure: income, education, social class – comparison over time – … Mihaylo College of Business and Economics Cal State Fullerton

What we know about intergenerational income mobility in the U.S. Declined sharply in the 1980’s Relatively constant since then Strongly related to academic achievement & test scores Lower than previously thought Lower than in many other industrialized countries Source: Mazumder (2008 & 2012) Mihaylo College of Business and Economics Cal State Fullerton

Stickiness at the Top and Bottom Source: Mazumder (2008) Mihaylo College of Business and Economics Cal State Fullerton Parents in top 20% Parents in bottom 20% Children in top 20% 38%7.4% Children in bottom 20% 11%34%

How do we compare to other countries? Growing income inequality in OECD countries since the 1980’s Income inequality is higher in the US than in all but 3 OECD countries. Taxes and benefits redistribute income less in the US than in all but 3 OECD countries. Mobility is higher in Europe – even the UK Difference the greatest at the tails Sources: Black & Devereux (2011), OECD (2011) Mihaylo College of Business and Economics Cal State Fullerton

Take away Income inequality has increased since 1979, no matter what the definition of income is Intergenerational mobility has not increased Inequality is greater than in other developed countries Mihaylo College of Business and Economics Cal State Fullerton

Sources and Further Readings Black, S. E. & P. J. Devereux (2011). Recent Developments in Intergenerational Mobility. In: Handbook of Labor Economics, Ashenfelter, O. & D. Card (eds.), Vol. 4b, Elsevier: North Holland: Congressional Budget Office (CBO) (2011). Trends in the Distribution of Household Income Between 1979 and Pub. No The Congress of the United States. Gallup Poll: Americans Prioritize Economy Over Reducing Wealth Gap. (2011) Kopczuk, W., E. Saez & J. Song (2010). Earnings Inequality and Mobility in the United States: Evidence from Social Security Data Since Quarterly Journal of Economics 125(1): Mazumder, B. (2008). Upward Intergenerational Mobility in the United States. Pre Charitable Trust, Economic Mobility Project. 20EM%2014.pdf 20EM%2014.pdf Mazumder, B. (2012). Is intergenerational mobility lower now than in the past? Chicago Fed Letter 297. OECD (2011). Divided we stand: Why inequality keeps rising. also see Country Note: United States) Piketty, T. & E. Saez (2003). Income Inequality in the United States, Quarterly Journal of Economics 118(1) Saez, E. (2012). Striking it Richer: The Evolution of Top Incomes in the United States.