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Sunday, November 09, 2014

Inequality

Inequality has become an increasingly important topic in global debates about economics and politics. The Occupy Movement helped put it on the agenda, Thomas Piketty’s best-selling tome renewed intellectual interest in the subject and around the world average citizens say it should be a major priority.

 Crédit Suisse says people with a net worth of more than $1 million represent just 0.7% of the global population, but they have 41% of the world’s wealth. Meanwhile, those with a net worth of less than $10,000 represent 69% of the population, but just 3% of global wealth.























Back in July of this year, Barack Obama boasted of an impressive recovery the US has undertaken since the Great Recession of 2008, proclaiming, "We've recovered faster and come farther than almost any other advanced country on Earth." To support this claim, the White House released a report showing that, out of 12 countries identified as "advanced" (France, Germany, Greece, Iceland, Ireland, Italy, Netherlands, Portugal, Spain, Ukraine, United Kingdom and United States), the United States is "one of only two (the other being Germany) that experienced systemic financial crises in 2007 and 2008 but have seen real (gross domestic product) per working-age person return to pre-crisis levels." According to the International Monetary Fund, there are actually 36 countries that are considered to have "advanced economies." And considering the global nature of the economy, it's difficult to claim that 67% of them avoided systemic crisis. When compared to the 36, the US ranks 12th in GDP growth and 9th in unemployment rate recovery.  In 2011, a report by Pew Charitable Trusts’ Economic Mobility Project compared upward mobility in the U.S. to that of nine other major countries, including Germany, France, Australia, Canada and the U.K.: Pew found that the U.S. was the lowest in terms of upward mobility. In other words, Americans who are born into poverty are more likely to remain in poverty than people in some parts of Europe.

Another major indicator used to gauge the state of the economy is the unemployment rate. In October of 2009, after the residual effects of the recession had settled, the US unemployment rate officially hit 10% for only the second time since 1940 (10.8% in 1982). After hovering around 9% through 2011, the rate has steadily decreased over the past few years, dropping below 6% in September of 2014 - a level untouched since July of 2008. Historically, the unemployment rate has been considered a fairly weak indicator of economic well-being, and for good reason. Its two major flaws lie in its failure to gauge levels of income, and its inability to consider things like "underemployment" and "hidden unemployment."

Let's say there are 100 people either working or looking for work. If 94 of those people have jobs, and six are seeking jobs, then the unemployment rate is 6 percent. Notice that a lot hinges on people 'working or looking for work.' Say you want to work, but the job market is bad and you decide to put off the search until conditions get better. You're still unemployed, just not counted as unemployed by the government. To return to the example, if three of those six people looking for work get discouraged and give up, the unemployment rate would fall to about 3 percent. When considering workers who have given up on job searches, the unemployment rate is estimated at more than 12 percent.

Furthermore, the unemployment rate completely ignores income. In other words, even rates that are considered to represent "full employment" (4-5%) essentially mean nothing if a considerable number of jobs pay poverty wages. In sectors that experienced severe job losses due to the recession, workers are earning 23% less today. The average annual salary in the manufacturing and construction sectors - a particularly hard hit area - was $61,637 in 2008. It has now plummeted to $47,171 in 2014. Similar adjustments to income levels imply that $93 billion in lower wage income has been created during the recovery - meaning workers, across the board, are receiving a much smaller share than they were before 2009. A report by the United States Conference of Mayors (USCM) also showed that "the majority of metro areas - 73 percent - had households earning salaries of less than $35,000 a year," hardly a living wage for families facing ever-rising commodity prices.

Low-paying jobs in fast food were once dominated by teenagers and high school students, who typically moved on to better paying jobs after attending college or trade school. But according to the Center for Economic and Policy Research (CEPR), 36.4% of fast-food workers are now between 25 and 54.  Lower-paying jobs had accounted for only 22% of the job losses, they accounted for 44% of the “recovery growth.” So in other words, most of the new jobs are dead-end service jobs—and people who once had high-paying white-collar or blue-collar jobs are now working part time at McDonalds or Burger King.

Layoffs were common during the recessions of the early 1980s, early 1990s and early 2000s. But in those recessions, most of the Americans who lost their jobs didn’t remain unemployed longer than six months—whereas in the current economic downturn, it isn’t hard to find Americans who have been out of work for two or three years. The U.S. Department of Labor has found that about one-third of the long-term unemployed (that is, unemployed for more than six months) have been out of work for over two years. And the longer they are unemployed, the harder it becomes for them to find work.

Despite recent and steady job growth, there are still 1.4 million fewer full-time jobs in the US today than there was in 2008. A recent survey conducted at Rutgers University reports that more than 20 percent of all workers that have been laid off in the past five years still have not found a new job.

"As a percentage of national income, corporate profits stood at 14.2 percent in the third quarter of 2012, the largest share at any time since 1950, while the portion of income that went to employees was 61.7 percent, near its lowest point since 1966,"reported Nelson Schwartz in 2013. Dean Maki, chief US economist at Barclay's reports that "corporate earnings have risen at an annualized rate of 20.1 percent since the end of 2008, but disposable income inched ahead by 1.4 percent annually over the same period, after adjusting for inflation," adding that "there hasn't been a period in the last 50 years where these trends have been so pronounced."

Between 2008 and 2013, the number of US households with a net worth of $1 million or more increased dramatically, from 6.7 million to 9.6 million. Households with a net worth of $5 million and $25 million respectively also increased. "There were 1.24 million households with a net worth of $5 million or more last year, up from 840,000 in 2008. Those with $25 million and above climbed to 132,000 in 2013, up from 84,000 in 2008."

"Despite the strong recovery in cash flow, to record-breaking levels, firms are investing at levels typically seen at cyclical lows, not highs. Some cash flow is going abroad, in the form of direct investment, but still you'd think returns like these would encourage investment. Instead, they've been providing dividends to shareholders. Instead of serving the textbook role of raising capital for productive investment, the stock market has become a conduit for shoveling money out of the 'real' sector and into the pockets of shareholders. Poverty for the people and record profits for corporations.

"As of 2012,49 million Americans suffer from food insecurity, defined by the U.S. Department of Agriculture (USDA) as lack of access to 'enough food for an active, healthy life.' Nearly one-third of the afflicted are children. And millions of them don't even have access to food stamps, according to a new report from the anti-hunger organization Feeding America."

In May of 2014, there were 46.2 million Americans on food stamps, a slight decrease from a record 47.8 million in December 2012. According to the US Department of Agriculture, 14.8% of the US population is currently on the Supplemental Nutrition Assistance Program (SNAP). Prior to the recession, the percentage of the population requiring such assistance hovered between 8 and 11 percent.

Figures from here

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