Poverty reality

Economic growth and social policies have helped pull millions out of poverty in the developing world. Or have they? The often-heard narrative is based on data from the World Bank showing a sharp reduction in the number of people living below $1.25 per day, adjusted for inflation. However, new research suggests a deeper look into poverty statistics paints a different picture. While there has been progress in reducing the number of people living below the poverty line, this has been achieved largely by raising those considered ultrapoor to just above the poverty line, rather than by boosting the standard of living of the poor more broadly, according to a paper from Martin Ravallion, economist at Georgetown University’s Center for Economic Research. 

“There has been very little absolute gain for the poorest,” Mr. Ravallion writes in a new working paper from the National Bureau of Economic Research. “Using an absolute approach to identifying the floor, the increase in the level of the floor seen over the last 30 years or so has been small—far less than the growth in mean consumption…The bulk of the developing world’s progress against poverty has been in reducing the number of people living close to the consumption floor, rather than raising the level of that floor,” Mr. Ravallion. “Growth in mean consumption has been far more effective in reducing the incidence of poverty than raising the consumption floor. In this sense, it can be said that the poorest have indeed been left behind.”

Nothing is more central to the American Dream than equality but it is all a mirage. Fifty years after President Lyndon B. Johnson declared War on Poverty it's not just the poor who are falling behind in the new global economy, according to a new report: "From Poverty to Opportunity: The Challenge of Building a Great Society." People on the middle-income have been struggling to maintain the standard of living they once knew. The report says. "As the economy grew, wages grew at roughly the same rate." That changed beginning in the 1970s. "Productivity continued to increase and our economy continued to grow," the report said. "But the new income created by that growth has gone overwhelmingly to the wealthiest Americans." While the economy of the state of Massachusetts, for example, has grown 125 percent during the last five decades, income growth rates have barely budged. "Today's economy has left behind people who have gone to school, gotten jobs and done their best to pay their bills," the report said. "They live in every city or town in the commonwealth. Many of them struggle to get their lives back on track, only to encounter a hardship and fall back down." 

Between 1979 and 2011 incomes overall in the state grew by 55 percent, according to the report. If the pay had increased by 55 percent for all workers, income for lower- and middle-class families would be thousands of dollars higher than they are today, the report said. For example, a person who earning $13,500 annually in 2011 should have been paid another $6,500 for a total of $20,000 if he or she had a 55 percent pay increase. "The incomes of the highest income households would also have grown over those three decades," the report said, "but they would have grown by the average rate of 55 percent rather than by the 270 percent income that those incomes actually grew." In figures comparing wage growth since 1979, the report said the lowest paid "had almost no real wage growth," those in the middle "had little wage growth." But the highest paid had wages that increased by 64 percent once figures were adjusted for inflation.

"Stagnant income at the bottom of the wage spectrum has meant that Massachusetts has not been able to make significant progress in eliminating poverty," the report states. "Twenty-five years ago, close to one in five residents in Massachusetts was poor or near poor ... Today that number is one in four."

Economist Paul Krugman writes in his New York Times column. “Competition from emerging-economy exports has surely been a factor depressing wages in wealthier nations, although probably not the dominant force. More important, soaring incomes at the top were achieved, in large part, by squeezing those below: by cutting wages, slashing benefits, crushing unions, and diverting a rising share of national resources to financial wheeling and dealing.”

He merely confirms what others have already been saying. Federal Reserve chairwoman Janet L. Yellen in October, speaking at a conference on inequality at the Federal Reserve Bank in Boston, she put it plainly: “It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority.”

Wall Street showered itself with gold in the run-up to the financial crisis. The Street again struck gold—this time from taxpayers—with the bailout from the crisis. It was a neat trick to profit so richly both ways, but Wall Street managed.

In Canada top-paid corporate executives are raking in the benefits as the country's average workers struggle, a new study by the Canadian Center for Policy Alternatives has found. The country's top 100 CEOs took home $47,358—an average citizen's yearly salary—in less than half a day.

The study, Glory Days: CEO Pay in Canada Soaring to Pre-Recession Highs , analyzed the 2013 earnings of executives of the country's 240 publicly listed corporations, and found that their average compensation that year was $9.2 million—almost as high as their $10 million average salary in pre-recession 2007. It is not just pay but the fringe benefits as well. Almost half of the 100 highest paid CEOs also have stratospheric pensions waiting for them when they retire. And most also profit handsomely from the dividends paid on the shares they own in the companies they work for.

As the study notes, it is also 195 times more than the average Canadian citizen earns in a year and 237 times more than the average Canadian woman.

Gerald W. Schwartz, CEO of investment firm Onex Corporation took home more than $87.9 million. Russell Girling, head of TransCanada, received $8.7 million. And Richard E. Waugh, CEO of the Bank of Nova Scotia, got more than $11.2 million for a partial year.

Meanwhile in the UK, during the last General Election, David Cameron stated: “We have absolutely no plans to raise VAT.” Yet less than a year later, in January 2011, the tax was raised to its current level of 20%. Theannual cost to a couple with children of a single percentage point rise in the standard rate of VAT is £180 - meaning the 2.5 per cent rise in the tax has cost an extra £450 a year since it was introduced. This means that these families have paid an additional £1,800 in VAT since it was raised on January 4 2011.