Tuesday, February 11, 2014

The Rich

It is a very good time to be very, very rich. The 1 percent are doing very well. The 0.01 percent — they’re doing even better.

Yes, we know the economic fortunes of the 99 percent and 1 percent have diverged over the last three or four decades. But the fortunes of the 1 percent and the 0.1 percent, or the 0.01 percent, or the 0.001 percent, have diverged even more. Economists have taken to calling it “fractal inequality.” It is not just that the rich have pulled away from the average American. It is that the richer you are, the more you have pulled away.

 It found that in 2012, the average household in the bottom 90 percent of the income distribution earned about $30,997. For the average household in the top 1 percent, the figure is $1,264,065, and for the top 0.1 percent, about $6,373,782.

Put another way, our 0.1 percent household made about 206 times, and our 1 percent household about 41 times, what our average household did. (That gap in 1990, for instance, the same multiples were 87 and 21. In 1980, they were 47 and 14.)

It helps to understand who the 1 percent and the 0.1 percent are. A broad range of professions are represented — artists and doctors and inheritors, lawyers and miners and university professors. But about two in five income earners who make it into the top 0.1 percent in a given year are executives, managers or supervisors. And one in five comes from the world of finance. For that reason, the extremely rich tend to cluster in big cities that are financial centers or home to corporate headquarters — New York, Los Angeles, San Francisco, Chicago, Washington and Houston. Management has always been overrepresented among top earners, of course. What has changed is what they are paid. About 70 percent of the increase in income going to the top 0.1 percent from 1979 to 2005 comes from increasing pay for executives and financial services professionals, researchers estimate.

One study by the Economic Policy Institute, a left-of-center research group based in Washington, found that compensation for chief executives swelled about 725 percent in real terms from 1978 to 2011. At the same time, worker compensation increased just 5.7 percent. The ratio of chief executive compensation to worker compensation has grown to 209-to-1 in 2011 from 18-to-1 in 1965. By just about any measure, earnings for executives are near their highs, achieved during the stock-market bubble that occurred around the millennium. Wall Street has gotten bigger and richer over time, even after accounting for the dot-com bust and the financial crisis. The higher a household is on the income scale, the more likely it is that a big chunk of its earnings come from investments rather than wages. Managers at Wall Street firms tend to take home options and shares, for instance, and chief executives often get stock as part of their compensation packages.

Not all of that increased compensation for managers is because of improving performance, either. The growth of earnings for executives has outpaced growth in the stock market or in corporate earnings, by a wide margin. Executives seem to have managed to co-opt passive corporate boards to extract fatter and fatter compensation packages.  As finance has grown, and with its profit margins remaining fat, compensation for financiers has grown. The average earnings in the top 0.01 percent, for instance, boomeranged from $38.9 million in 2007 to $20.7 million in 2009, before soaring back up to $31 million in 2012.

There’s also a good chance that their children will make it into the 1 percent, too — or at least that they will not fall too far down the income ladder. Families with very high and very low incomes tend to see the most stickiness in earnings from generation to generation. 25 percent of the sons of fathers in the top 10 percent of earners were in the top 10 percent themselves.

From here

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