On how an increasing gap between "rich" and "poor" can be GOOD: Consider one simple and obvious case: say people's income were to increase with age. Say on average, you income IS your age: at age 20 people average $20 a day, and by age 40 it has increased to $40 a day. Then the "wealth fairy" introduces a new technology that permits much greater productivity, but takes time to master. After the new technology, peoples income becomes twice their age. Or maybe even the square of their age! Clearly: The "disparity between the rich and the poor" (ie young and old) will greatly increase. People are better off as a result. And it is GOOD. kenfranson@hotmail.com (Kenfran): > Nope. You mean that even if there to happen, it would be BAD??? You think it better if incomes would not increase with age? Better if income remained constant as people got older? >..First off, you have yet to give an example of any technology where this > is the case. The big increases in income over time are mainly by a few people, > mostly business execs and the like. What factory workers can expect a constant > increase in their pay over their whole working life? What retail workers get > more income as they get older? What construction workers get twice the pay at > twice the age? First, income DOES increase with age. The median income of men 25-34 years old in 1999 was $29,864. For the age group 35-44 it is $36,217. For the age group 45-54 it is $40,939. http://www.census.gov/hhes/income/histinc/p08.html And from Grinch: (posted 13 June 2004) Sure. A NYC public school teacher moves through all five quintiles by the union pay schedule via seniority over a career. Two married to each other wind up at the top 5% level, the accursed rich. (Not too bad for working 6.5 hours a day 180 days a year with a paid sabbatical year off.) More generally as to the larger US population, Census figures for median family income with a family head age... [] under 25: $26,000, second income quintile [] 50 to 54: $69,100, fourth income quintile So the median family steps through the middle three quintiles and moves up and well into the second highest just as a matter of age. Jim Blair again: In my recent discussion with David Cross, he thinks this effect is SO obvious that he claims that the income increase people get BECAUSE of their greater age should not count in income mobility studies, since it is "automatic". It is the result of technology: in a primative society, productivity (and income) is likely to decrease with age--old people can't work as hard. But in a technological society, people learn greater skills with age: sometimes technical, sometimes business skills. And income increases with age until people retire (at least on a statistical basis). I can see from your comments that you don't understand this empirical fact. People who contunue to do the exact same job are not likely to get big pay increases. But most people do not remain in exactly the same job their entire life. What construction worker may make more money as he gets older? The one who becomes foreman. And then starts his own company. Or becomes a "consultant" or an engineer. >You have yet to demonstrate that we are all getting richer.. Back to square one. Were people better off in 1950? >The disparity between the rich and the poor is growing. Is that >simple enough for you? Jim Blair: I KNOW that. But is that BAD?? Don't you see that at least it CAN be GOOD? That whether this is GOOD or BAD depends? And specifically, it depends on income MOBILITY? And the realistic situation is that people do move between income quintiles. And on average, they move up with age. So a high degree of income inequality means that the (current) poor have a good likelyhood of being middle income or even rich later in life. And this is GOOD. And it means that the growing income gap between the top and bottom quintiles is not BAD. .... >??? If they are predictable, then nothing you do can change them. >Where is the motive to do any _work_? Well at an idividual level, incomes are not exactly predictable for most, and income can be changed by behavior. People who stay in school and study and get good grades, and who work hard at their job are statistically more likely to have higher incomes than those who don't. But like life span, even if you do everything "right" (like don't smoke, eat a good diet, exercise, wear a seat belt etc.) you may still die young, while someone else can do all the unsafe and unhealthy things and live to 100. dcross1@home.com (David Cross) wrote: >In the case of the Soviet Union, their income equality was too low, in the >sense that there was not enough emphasis on using differential wages to >encourage individual initiative. Hi, Well you are way ahead of Kenfran, because you at leat recognize that inequality CAN be GOOD. To him it is always BAD. Period. >Income mobility to some extent depends on there being a happy medium. I submit >that the era of the 1960s, when the Gini for the USA was around 0.350, fits >that criteria. Why this "happy medium"? And what was so special about the 60's? And did Moses bring a tablet down from Mount Siani with "Gini Shall Be 0.350" inscribed on it?? Jim Blair (from another discussion) First, income DOES increase with age. In my recent discussion with David Cross, he thinks this effect is SO obvious that he claims that the income increase people get BECAUSE of their greater age should not count in income mobility studies, since it is "automatic". David Cross: >It *is* very nearly automatic. I, for example, at the age of 22, at my current >job, cleared $8 Canadian an hour. I am now 23, and clear $9.25 Canadian an >hour. As long as I don't experience a drastic change in my life or have to >relocate, my income will slowly rise over time by virtue of my rendering >useful labor for the company I work for and as I take on greater >responsibilities. You understand my frustration? Kenfran does not believe that people like you exist. He does not recognize that income does in fact increase with age. But this is a statistical correlation. Only some people have it "locked in" to their contract. And most of the big increases come from either moving up to a better job, starting your own company, or getting a promotion. But lets consider your case: you get "small" automatic raises. Would it be BAD if you were to get larger automatic raises? Say productivity were to increase dramatically with experience (ie age)? Suppose you (and millions of others) were to get "significant" raises every year. This would increase that sacred Gini index, and violate that "happy medium". So would it be BAD for society? >It's only BAD if the tendency exists for wage increases to be differentially >wider as time goes on (which is what is happening from the 1970s to today - You say it would be BAD if wage increase were to get larger as people get older?? Why? Suppose all you Canadian workers were to start at $8 an hour, but increase $1 an hour every year for the first 10 years, then increase $2 an hour each year for the next 10 years. Then increase $3 an hour for the next decade. All in constant dollars, (not inflationary because productivity had increased in proportion to wages due to technology). Explain to me why this would be BAD, but don't just say "because it would increase the Gini index": I KNOW that. But why would it be BAD. >But suppose that my wage increases are larger and STAY larger than everyone >else's over time (let's also assume I'm not being particularly outstanding to >merit these increases, to forestall an argument of yours) - Not just YOUR wages, but say "average wages" showed this increase with time (= experience = age). And while you are not "particularly outstanding", you do learn more and become more useful and more productive with age and experience. As does the "average" worker. Explain why this is BAD. David Cross wrote: > This is an oversimplification. Hi, Well of course. It is just a model to illustrate a point: that a bigger Gini index CAN be better for everyone. The ASSUMPTION by some of you seems to be that big is bad. Always. >There isn't *really* income mobility because > you've just had wages rise in lockstep with age. Of course it is. Moblilty means movement. If the income of individuals change with time, that is mobility. Would you say that people do not "really" get older? Because their age increases predictably? That "corrected for age" people don't get older? >REAL income mobility would > include downward as well as upward movement at any age. Why does REAL movement have to be in more than one direction? Is that another reason that I don't REALLY get older? Because no one gets younger? > In fact, Jim, that scenario you've given us pretty much parallels the way CEO > compensation and the general wealth-holdings (and corresponding income > generation potential) of the rich have risen while the "base level" ie. the > minwage, has remained fixed or nearly so for the last 20 years. That same guy is not likely still a minimum wage worker 20 years later. Say Joe starts out as a minimum wage worker and 20 years later he is the CEO of the company. Why is that BAD? And are you are saying my "model" does have some relevence to the real world? > > Somehow I fail to see how an ever-rising Gini index automagically translates > into us being all better off because the minwage worker has to spend more as a > percentage of his income buying doodads and whatnots like microwaves and VCRs > because everyone else has one. Remember these are inflation corrected REAL dollars. He does not "have to" buy new things because they are there. > I got along fine without a microwave for ages. I also don't watch TV, so the TV > I have which was a hand-me-down from my parents just sits there except on the > rare occasion when I actually watch a movie. The VCR was also a "hand-me-down". Try THE HISTORY CHANNEL sometime. I did and got hooked. I want to follow up on this Gini Index thing when I get back. If you guys won't calulate it for my model, I'll do it myself when I get back and have some time. I want numbers for various cases! But would you agree that if a group of people all arrived on an island at once, and (as they learned and build) their "incomes" increased, the faster the annual increase, the better? So why is the faster rate of increase not better for a "group" that was born at the same time??? -- ,,,,,,, _______________ooo___(_O O_)___ooo_______________ (_) jim blair (jeblair@facstaff.wisc.edu) Madison Wisconsin USA. This message was brought to you using biodegradable binary bits, and 100% recycled bandwidth. Subject: This just in: Wages strongly affected by MPL Date: Mon, 09 Aug 1999 13:15:42 -0400 From: Edward Flaherty Organization: College of Charleston Newsgroups: sci.econ, alt.politics.economics Mainstream labor theory predicts a direct causal relationship between a worker's human capital and his wage. This is not merely a belief of conventional labor theorists; it is supported by considerable empirical evidence. If human capital really has no effect on wages, then wages regressed on a set of productivity-related variables should reveal no significant results. However, if conventional theory is correct, then we should expect those variables to have positive and significant coefficients. Using data from the 1993 Current Population Survey, which can be found at my web site at http://www.cofc.edu/~flaherty/labor.html http://www.cofc.edu/~flaherty/labor.txt I ran an OLS of log-wages on a constant and 25 variables which in theory should have a measurable effect on wages. The productivity- related variables are schooling, experience, and job tenure. If labor productivity has no effect on wages, then the coefficients on these variables will be statistically insignificant. This is an empirical test and set-up common throughout the labor literature. The results support the conventional theory that productivity matters. Each extra year of experience *adds* about 1.8% to wages (there's a non-linear component to this which I won't get into). Each extra year with the same employer *adds* about 2.9% to wages. Each extra year of schooling *adds* about 8.7% to wages (the t-statistics respectively were, 15.9, 23.0, and 62.3. n=18,638). Other variables were also significant, including sex and minority status, geographic region, union status, firm size, sector, marital status, and others. This doesn't mean that labor productivity labor is the only determinant of wages. Labor theory has never, ever said any such thing. It only concludes that it is an important factor. In fact, the 25 variables together account for only 50% of wage variation in the sample. That means there are other important factors at work, say, nepotism, dumb luck, institutional effects, and so on -- things not easily measured. Some people will continue to drone on and on, endlessly asserting that conventional labor theory is wrong and that labor productivity has nothing to do with wages. However, the data is the ultimate arbiter of whether a hypothesis is worth anything. In this case, conventional theory has it exactly right: human capital matters. It is not the exclusive determinant, but an important one nevertheless. Claims to the contrary are flat wrong. -- Edward Flaherty School of Business & Economics College of Charleston Office: (843) 953-7166 Fax: (843) 953-5697 Web site: http://www.cofc.edu/~flaherty AND: Edward Flaherty wrote: .... > The results support the conventional theory that productivity matters. > Each extra year of experience *adds* about 1.8% to wages (there's > a non-linear component to this which I won't get into). Each extra > year with the same employer *adds* about 2.9% to wages. .... Hi, Very interesting. And I see here some indication of "income mobility": evidence that incomes increase with age. This has been a point much debated. An increase in incomes (and/or wealth) with age of course increases "inequality" (as measured by the gini index for example), and is thus considered BAD by the ideological egalitarians. AND: Wealth also increases with age, at least until retirement age: From: http://www.sipp.census.gov/sipp/sb94_02.pdf Median Net Worth, by age of houselholder: 1991 under 35 $ 5,565 35 to 44 $ 31,148 45 to 54 $ 58,250 55 to 64 $ 83,041 65 to 69 $104,354 70 to 74 $ 92,763 75 and older $ 76,541 The Distribution of Wealth, by Age Group (dollar figures in thousands) Age Group Top 1% Top 5% Top 10% Top 25% Median 80 or older $2,957.8 $ 693.0 $440.0 $252.2 $118.0 70-79 $4,338.1 $1,074.5 $703.4 $316.5 $140.9 60-69 $6,263.4 $1,850.2 $902.8 $356.7 $155.8 50-59 $5,791.7 $1,410.6 $708.8 $326.7 $120.9 40-49 $3,402.7 $ 829.0 $531.6 $226.8 $ 86.2 30-39 $1,210.1 $ 451.1 $267.5 $127.4 $ 34.7 20-29 $ 383.3 $ 148.2 $ 78.3 $ 25.4 $ 5.2 Source: The VIP Forum, Corporate Executive Board, 1998 data And updated by Ron Peterson: > The 2001 household median net worth (in thousands) of the top 1%, 5%, > & 10%, median are > 80+ $2,322.40 $1,165.70 $ 762.60 $143.00 > 70-79 $7,038.00 $1,866.20 $1,077.30 $173.50 > 60-69 $9,722.70 $2,861.00 $1,408.60 $168.20 > 50-59 $9,054.00 $2,435.30 $1,154.70 $178.70 > 40-49 $4,161.50 $1,206.50 $ 677.90 $107.00 > 30-39 $1,833.20 $ 533.30 $ 352.30 $ 38.60 > 20-29 $ 885.50 $ 163.00 $ 94.50 $ 7.80 > > -- > Ron > Hi, Thanks. I note that the median net worth (last column) increases by factor of 178.7/7.8 = 22.9 times from age 20's to 50's I think that supports my claim that on average, people's wealth increases with age. Even I didn't expect it to be by over 20 times in 30 years. AND this from sci.econ 24,May 2006: "Ron Peterson" wrote (on income mobility studies) > > Perhaps it would make more sense to look at the rank of individuals for > a given birth year. -- > Ron > Hi, It would be instructive to see data on the incomes of a group of individuals of the same age, collected at several times (say every 5 years or every decade). My guess is that this would show a lot of Income Mobility with an almost complete turnover during the first several decades. Because those who dropped out of school and went to work at an early age would have the highest incomes at age 16, while those who stayed in high school would be earning much less. Those who finished high school would then get higher paying jobs and soon pass the drop outs (say by age 25), but those who went on to graduate or medical or law school would be in the bottom income quintile. But a decade or two later they would move from the bottom to the top, with the HS drop outs falling from top to bottom by around age 35-40. Do you agree? ,,,,,,, _______________ooo___(_O O_)___ooo_______________ (_) jim blair (jeblair@wisc.edu) Madison Wisconsin USA. This message was brought to you using biodegradable binary bits, and 100% recycled bandwidth. For a good time call: http://www.geocities.com/capitolhill/4834