Are you better off?

Are you better off than you were forty years ago?

Real per capita GDP was $25,427 in 1974 (in 2009 U.S. dollars) and now it is almost double that at $49,810. If per capita GDP nearly doubled surely that would mean that everyone’s income had nearly doubled. That’s not what happened.

Instead, those at the top of the income distribution have vastly more income than 40 years ago while those at the bottom have less. The real income of a household at the 20th percentile (above 20% of all households in the income ranking) has scarcely budged since 1974—it was $20,000 and change then and is a bit over $20,000 now.

For those below the 20th percentile, real income has fallen. The entire bottom 80% of households ranked by income now gets only 49% of the national pie, down from 57% in 1974. That means that the top 20% has gone from 43% to 51% of total income.

 Even within the top 20%, the distribution skews upward. Most of the income gains of the top 20% are concentrated in the top 5%; most of the gains of the top 5% are concentrated in the top 1%; most of the gains in the top 1% are concentrated in the top 0.1%.

More people are working, but the share of national income that goes to ordinary workers is smaller. The labor force participation rate passed 61% in 1974 and peaked at 67% in the late 1990s. Labor force participation has drifted back downward somewhat since then through a combination of baby boomer retirement and discouraged workers giving up on the labor force since the crisis that began in 2007, but it remains at 63%, still higher than in 1974. That means that even while more of us are participating in market work, the market is concentrating its rewards in a shrinking cabal of increasingly powerful hands.

One category of income—wages and salaries earned in return for work—is labor income. The other categories—profit, dividends, rent, interest—are all forms of income that result from owning (and extracted according to the Marxists from the workers surplus labor.) For many decades, the labor share of national income held fairly steady, but beginning in the mid-1970s it started falling.Economist James Heintz found that the share of the national income earned as private-business-sector wages (excluding executive compensation) fell from 58% in 1970 to 50% in 2010; the share that went to non-supervisory workers fell from 45% to 31%. Even as hourly pay for a broad swath of people in the middle—between the 20th and 80th percentiles—has just about kept pace with inflation. Rising costs of higher education and housing have consigned many to a near-permanent state of debt peonage. College tuitions have risen more than three times as fast as inflation since 1974. The total volume of outstanding student debt has passed $1 trillion—greater than even the volume of outstanding credit card debt. Housing, too, has become more unaffordable. Within recent decades, however, home prices have risen faster than median incomes and deceptive lending practices trapped many home-buyers in unaffordable mortgages. For those who were lucky, and bought and sold at the right times, the housing bubble was a windfall. For many more, the home has become a millstone of debt and the threat of foreclose has rendered shelter uncertain.

Workers on short-term contracts and the self-employed, whose income is also unpredictable, add up to 30% of the U.S. workforce with uncertain, episodic income. The mid-1970s poverty rate had fallen to 11%, but the reduction was not sustained. Since then, the poverty rate has fluctuated between 11% and 15% with no consistent long-term trend. Today, we are in a high poverty phase: somewhere in the neighborhood of 15% of the population is living in poverty during any given month. While most spells of poverty last well under a year (6.6 months is the median), a large minority of the population cycles in and out of poverty. From January 2009 to December 2011, 31.6% of the population spent at least two consecutive months below the poverty line.

Families can fall into poverty for a number of reasons. Loss of employment, certainly, is a major cause. Health problems are a trigger for economic distress. Medical bills are the number-one cause of personal bankruptcy; even those who have health insurance may be unable to pay for their medical care. Insecurity is our constant companion.

The inequities of the labor market have divided us into two categories—the overworked and the underemployed. For those with consistent employment, the work is often too much work. Even as output per worker hour rises—meaning that, as a society we could increase our material standard of living while holding leisure time steady, or hold our material standard of living steady while increasing leisure time, we have instead increased average work hours per year. Hours of paid labor per employee were about the same in 2000 as in 1973, but since more people were in the paid labor force, the average number of hours per working age person rose from 1,217 to 1,396, equivalent to a full extra month of forty-hour workweeks. One consequence is that we have a leisure shortage. Chronic sleep deprivation has become the norm. According to a study by the National Academy of Sciences, Americans’ average amount of sleep fell by 20% over the course of the 20th century. Meanwhile, the unemployed and underemployed have hours on their hands that they either spend job hunting, in the endless sequence of bureaucratic tasks necessary to access the meager benefits available through the threadbare social safety net, or idle, their unclaimed hours more a burden than a gift. The supposed benefit of unemployment—leisure time to mitigate the loss of income—is not in evidence in the subjective well-being of the unemployed, who are more likely to suffer depression and family stress.

Sociologist Arlie Hochschild was already noting in her research during the 1980s that dual- income households were giving up leisure or letting the standards of housework and at-home caregiving slip—often a mix of both. When a stay-at-home mother goes out to work for pay and reduces her hours of home production, the household’s increase in cash income gets added to GDP but the household’s loss of unpaid labor time is not subtracted. Or, if she hires a housecleaning service and a babysitter, the wages earned by the mother, the housecleaner, and the babysitter all get added to GDP, but the work done by the housecleaner and babysitter are substituting for unpaid work that was already being done. Correcting for the loss of home production that has accompanied the rise in female participation in the paid labor force requires us to revise downward the increase in output over the period 1959-2004—the largest hit came between 1959 and 1972 with the withdrawal of about 500 hours of household labor per year, a reduction of almost 20%.

The probability that a person who starts out in the bottom income quintile will make it into the top quintile has stayed remarkably constant since the mid twentieth century. A child born in the bottom quintile in 1971 had an 8.4% chance of making it to the top quintile; for a child born in 1986, the probability is 9.0%. Despite the national mythology of the American Dream, mobility is lower in the United States than in other comparably developed economies. The war on drugs and other “get tough on crime” policies really mean the mass incarceration of black men. “Welfare reform” withdrew much of whatever limited support there was for the intense labor—mostly women’s—of raising children with minimal cash resources.

The insecurity of the average family today is one of gigantic proportions as they witness before their own eyes the systematic destruction of all hopes for a better life by policies designed only to enrich a few at the expense of the many. Unable to understand this process and in the absence of organised resistance many have resigned themselves to their fate or sought refuge in the false but comfortable world of religion or right-wing ideology. The sheer scale of global finance conjures up an awe among many human beings that was once upon a time reserved only for the giant forces of Nature. And in a world where money mysteriously appears in some lives and disappears from others it is difficult not to become superstitious. It is not accidental therefore that bankers and speculators are often dubbed as 'wizards' by the media and  have become the new high priests of our societies and their profession described as voodoo economics. Go through the classifieds section of any newspaper and you will find outfits peddling everything from astrology, numerology, feng shui, magic crystals side by side with get-rich-quick finance companies, stock brokers, real estate agents, investment consultants, wheelers and dealers of every description. New Age religions join the spiritual world with the commercial world  in the business of marketing and selling God.

Adapted from here