Arnold Kling  

Escalation of Income

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In this essay, I suggest using an escalator rather than a pie as a metaphor for differences in income.


Overall, over 60 percent of families surveyed in 1975 made it to the top 40 percent in 1991. If the "distribution of income" were a pie, this would be mathematically impossible...

To solve the apparent mystery, think of an escalator. In 1975, many of the families surveyed were young families or new immigrants, and they were near the bottom of the escalator. After fifteen years on the escalator, many of them reached the top half of the escalator...

If you want to address the real challenges of poverty in this country, use the metaphor of an escalator. Target government intervention at people who are unable to get onto the escalator, due to impediments that may be medical, behavioral, or social. But don't try to "fix" the escalator by carving it up like a pie.


UPDATE: My tabulation of the income data, which was first posted on Econlog, has been cited by Slate's Jack Shafer.

A different take on middle-class insecurity is given by Slate's Daniel Gross, who notes the consequences of the erosion of corporate benefits (what I call disintermediation). Gross concludes:


The more welfare capitalism declines, the more the federal government will have to fill the gap, and the more America will look like Europe.

For Discussion. What sorts of ideas for addressing poverty work with the escalator rather than in opposition to it?


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COMMENTS (6 to date)
spencer writes:

Bhash Mazunder at that great left wing organization, the Federal Reserve Bank of Chicago is doing some very good work on income mobility using life time earnings data.

He has found that income mobility is much, much less in the US than is generally believed.

A quick, somewhat biased, but still fair summary of is findings is that the primary determinate of
your lifetime income is your fathers lifetime income.

But if you are going to discuss income mobility you should look at his work.

Lawrance George Lux writes:

A real use of the escalator would require a time frame for each Income step. How many families were in the bottom 40% of Income in 1975, and how long did they stay there before shifting upward. How many families are in the bottom 40% of Income now, and how long have they been there. How many families that currently are in the top 40% Income have been there how long? These questions can be answered by taking the number of families in all cases, and multiplying them by the number of years in said catagory of Income. Then We get a functional statistic format of increasing or decreasing years in each catagory.

I agree essentially with Daniel Gross, but disagree that the lost Welfare Capitalism has had advantages for American industry. We have dedicated Ourselves for search for cheaper product for American markets, but at what cost? I outlined a sketch model once, since lost, which showed this search for cheaper product brought Us Government deficits, Trade deficits, and higher overall Product prices. It also brought Us Job insecurity, lower Pension benefits, higher Welfare costs, and Layoffs, Outsourcing, and inferior Product. It's benefits were hard to determine, as improvement in the Consumer product mix comes only with ignoring the shortened Product lifespan in everything except automobiles. lgl

William Woodruff writes:

What sorts of ideas for addressing poverty work with the escalator rather than in opposition to it ?

The following....
Ensure parents are aware how much influence they have on their childrens education....
Remove the fundamentally flawed contribution the Dept of Agriculture is making to the nations school lunch program ( and negate all of those bloody agreements between junk food purveyors and school districts....)
The cold war is over (!) TOMORROW, dramatically slash the military budget, re-deploy (home, where they belong)American troops from the 100+ plus countries in which they are currently stationed, and address the tens of millions of children which are without healthcare.....
Reduce the Federal deficit......
Cut Agricultural subsidies and truly embrace the Republican mantra of 'letting the market decide....'

William

G.Giridhar Prabhu writes:

An assessment of poverty has to include an element of "misery" in poverty. There are rich people who spend less than poor people deliberately. What can be defined is what is the miserability factor in poverty?
This can include denial or absence of opportunity to work, disabilities which prevent full potential of the person and more important health and well being.
Government intervention will have to be focused on the principle of "economic efficiency". How can the tools available under the creation of public assets be targeted to reducing the "misery" of the poor.

dsquared writes:

Should economic progress not be moving the bottom of the escalator upward somewhat faster than it in fact is?

Trevor Strohman writes:

It's interesting that the 2003 column in the "Income Distribution Percent of Households" table appears bimodal. That may be just an artifact of making the catch-all category "Above 75%", but it is still interesting.

If the distribution is, in fact, bimodal, that means that the median and mode are drifting apart. That may have a profound impact on our culture.

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