Lifetime Earnings in the United States over Six Decades
bfi.uchicago.edu
bfi.uchicago.edu
I was wondering the other day other how many years are high earners are actually earning a very high income. In-equality wise it is very different if people in the 2 percentile of income stay there for a decade or more or if they are in that income bracket only for a few years while doing a specific job and drop down to lower income again when they change their job.
Assuming for instance an average work-life of 40 years (25-65), and anyone in the 2 percentile income bracket stays there only for 5 years, that means 16% of the population will be high-income at some point in their life (and stay there for 5 years), or up to 32% of households. This means that in this scenario up to a third of the population (maybe more if kids are taken into account?) would benefit sooner or later from an exceptional boost in disposable income.
That picture would be very different if high-earners stayed high earners for a longer time as they would truly form an elite that is clearly separated in income wealth from the rest of the population.
Obviously what you do with this income determines a lot about your actual wealth. So this is a different question than how absolute wealth is distributed.
I would be very much interested in pointers towards data and/or studies about how runaway elite incomes actually are in different parts of the world.
In summary, people in the top income quintile have a 70% chance of staying there. In other words, less than one third of the top income bracket are "new" people every decade.
40% of people also escape the bottom income quintile every decade.
Overall, the diagonal on the chart shows that you are pretty likely to stay in the same quintile over time, but there is still lots of mobility.
[1] https://www.clevelandfed.org/newsroom-and-events/publication...
However, some people very briefly enter high income status via a windfall. But, even here it’s mostly people with high incomes rather than poor people winning the lottery etc.
While I know there are exceptions and odd examples, IMO people in general have little desire to take a large pay cut, so if you manage to get yourself to the point you are in the top 2% of earners, why would you step back?
But I don't think it's a question of how often people decline high wages to take a lower paying job (although this obviously happens as well). It's whether they can continuously be offered high wages as their career continues.
Either way, one should definitely be investing in passive income sources for their 50s and up.
Another issue not addressed is lack of employment flexibility. If you are in the top 5% of earners, by extension you are likely limited to the top 5% of all available positions. Whereas someone with a more "mainstream" income can likely switch employers or industries, or even locations, with less impact (or maybe even positive impact, moving into a region with a better pay:cost-of-living ratio).
I am willing to bet a top 5% earner would be able to land a top quintile job just by asking people in their network.
I’m skeptical. My peers and I are in the top 1% of earners. We cannot save enough money to just opt out of our 1% incomes. Real estate is too expensive. (Bay Area)
I suspect many people in the top 5% are wage slaves as much as anyone else and have very little available in terms of viable options to continue the same lifestyle.
I’m in the top 1% but I still live in a 400sqft inlaw unit. Real estate is very expensive where you get those high incomes.
I suspect many people in the top 5% of earners aren’t my age though (30) and have generational wealth going on if not wealth from buying their home a long time ago when things were cheaper.
Alternatively, so I thought, high earners could continue to optimize for high pay to afford more luxuries.
My expectation was then that a considerable amount of high-earners would choose to trade income with work they value personally. Triggering social mobility by allowing someone else to take their place.
Reading these threads, I am thinking now that maybe this is not so much relevant. If it is true, as others have suggested, that high-earners have more chances to get into positions that are well paid almost by default, than the choice for high earners is not between high income or valuable work. They can do both, because even when they start working for an NGO or take government position, their income would be expected to be high.
What is the solution? Obviously, we would like to keep moving forward and allow anyone that is willing and able to do the job they want, but if anyone would like to be with their children, or take time off while a spouse works, that should also be able to be done.
The solution to me seems to forcing the gains in production and efficiency to the people. With what mechanism I am not sure, but a society that increases output while the lifestyle of average people decreases is not a successful society. Obviously, companies are not going to do this on their own, so I think this should be governments main role, to ensure companies act in the people's best interest and fill in the gaps where companies fail or are not efficient.
It seems to me the increases of efficiency should allow all people a minimum quality life(i.e. a place to live, something to eat, a doctor, education), no matter their contribution to society. I think this can turn people that are a strain on the system to contributors (and if not, we should still do it. What is the point of society, if not to take care of people and give them a better life?)
Alaska's Permanent Fund is only allowed to invest in Alaskan companies and is "only" $75B in size (https://www.alaskajournal.com/2021-02-24/fund-continues-bull...), and even then an Alaskan resident would have received $2,000 in 2015 simply for existing: https://pfd.alaska.gov/Division-Info/Summary-of-Applications...
By scaling up the size and scope of the fund, you can conceivably get to a place where the dividend can work out to $10k+ per person per year.
The greatest tool for building wealth is time. That is an asset that organizations have that individuals do not. Look at the endowments of top tier universities. There is no reason that governments can't do the same and benefit from the long lifespan of a non-human entity.
This has the benefit of aligning government interests with the interests of the people. It also makes government more supportive than punitive as revenue only increases by cultivating an environment for business to flourish.
I think the sovereign wealth funds have a lot of the same problems the social security has. Politicians will borrow against it and never pay it back. From what I have heard some middle eastern countries had a sovereign wealth fund that was mismanaged, I guess if you have a competent government it is fine, but you don't always get to decide that.
Overall, I agree with you that both of these are a good way to distribute society's prosperity to the people.
One potential way to mitigate these risks is to have the fund be set up with a strict breakdown, say, 20% of the dividends can go into a pot that the government can use for discretionary spending, and 80% goes to the people equally divided as a dividend, and the only way to change this percentage is with a 2/3s majority. The percentage split and the consensus threshold are certainly debatable.
We've done that, except the dividends to go to a few rich families instead of to everyone.
Is it clear that the causation is only in that direction? I am not familiar with economic history back into the 40s and 50s when a lot of women started entering the workforce (note more than 25% of the civilian workforce were women already in 1945 [1]), but could it have been that it's partly the other way around?
In other words, how much of "it is becoming more difficult for a family to survive on one income" caused the need for "more women entering the workforce en mass"?
[1] https://www.dol.gov/agencies/wb/data/facts-over-time/women-i...
That's kind of expected. Our society/economy/marketing are designed to get people to spend 100 percent of their income or more. So when families get 2 incomes it causes inflation or enables people to buy more stuff (iPhones) or whatever until they're spending the same percentage. Aside from not actually saving the extra income, the obvious downside is to screw single people by raising prices without raising their income.
No idea what the solution is. I think in general we need better ways to save for retirement and also need to reduce the cost of living/rent. Doing both those things together seems to go against nature - if people have it they will spend it. BTW by "people" I mean in general, there are obviously individuals who live differently.
I do not think this has much to do with it.
The much larger sources of volatility would be massive increase in labor supply due to other countries coming "online", women entering workforce (this might be overstated), immigrants entering workforce. And all of that was coupled with huge advances in automation, namely computer software, and then the internet. Although advances in farming and manufacturing automation cannot be overstated either.
Both labor supply and labor demand curves shifted the price of labor down for "unskilled" labor.
The other societal impact that is large is women gaining independence, therefore impacting the couples markets. Due to our biology or sociology or whatever, typically, people are going to seek out mates in equal or higher socioeconomic classes with more economic stability. This results in high earners pairing with high earners, competing with other dual high earning couples.
Finally, birth control reduces need to form families while still satisfying biological urges. I know quite a few people sitting out the family thing because they were unable to find an acceptable partner per their requirements. I think this is being seen in general in all developed countries via the plummeting birth rates.
All in all, people have a lot more information available than they used to, and a lot more control of their bodies, and the conclusion for many is the cost:benefit:volatility ratio of starting families is not worth it.
A 25-year-old American man in 1960 had more status in society than a similar man today.
I'm not sure how it could have played out differently. Women have always, always worked to support themselves and their families. But the invention of household labor saving devices freed up enormous amounts of time that would have been spent primarily in the household. Of course those women would look for additional opportunities to support their families. It's the same story as men moving from farm labor to factory labor as farm labor became increasingly mechanized.
How would they be contributors? I'm thinking maybe you mean that they will participate economically (buying stuff and making more babies). Is that really a good thing though, to have people who do nothing to contribute besides consume things--especially from a climate standpoint? It seems unnatural to me, because nature rewards competition, survival of the fittest, etc..
Poor data visualization is such a pet peeve...especially for a university.
In 2016, the median net worth of non-Hispanic White households was $143,600. The median net worth of Black households was $12,920. Between 1983 and 2013, White households saw their wealth increased by 14%. But during the same period, Black household wealth declined 75%. Median Hispanic household wealth declined 50%.
https://inequality.org/facts/racial-inequality/#racial-incom...
https://www.federalreserve.gov/econres/notes/feds-notes/disp...
It has huge impact on both income and wealth.
There are wealthy families and poor families of every race. Focusing on race as the reason for income disparity is detrimental to the success of the whole. When race is marked as the reason for income inequality we get programs targeted at a specific race. It encourages building "institutional racism".
> Note: Each observation represents the median earnings of men of a particular age in a particular year. For example, the 1957 cohort is represented by an Age 25 observation in 1957
For chart 1
“ Each marker/observation represents the median lifetime earnings of a cohort that turned age 25 (entered the labor market) in the year indicated on the x-axis. Values are displayed in thousands of 2013 US dollars. Earnings are deflated by the Personal Consumption Expenditure (PCE) deflator.”
Leaves that particular part out.
https://www.migrationpolicy.org/programs/data-hub/charts/imm...
At the same time as the Immigration and Nationality Act of 1965 which essentially opened up immigration to anyone in the world instead of just people from North Western Europe.
https://en.wikipedia.org/wiki/Immigration_and_Nationality_Ac...
As for your second link, I have no idea what you're trying to get at, but it frankly sounds a bit racist.
Given that for the last part of the 19th century and the first part of the 20th century immigrants could basically get off a boat in New York and enter the US or Canada without much restriction and get citizenship quite easily compared to now, this is beyond silly. Literal boatloads of eastern Europeans and Italians (not "north western Europe") arrived in the first part of the 20th century. And built the backbone of the US and Canadian economies in that period.
Finally, northwestern Europeans stopped wanting to _come_ to North America after the early 60s. There was no need for them to emmigrate. My own father's economic fortunes would have been far better off if he'd just stayed in Germany.
Practically speaking, people will spend their money on limited resources like land and basically lose out on most of the gains. That's the primary way "housing as an investment" earns money, by extorting the wages of future workers. If there are more workers (women and men) then you get to earn even more despite doing absolutely nothing to deserve the money.
The other issue is that "women entering the workforce" is not really an accurate description of what is going on. Women have been entering the formal workforce. This means that family now need to pay for what was once done for free by the wife. The most significant expense here is childcare (the cost of which is often cited as a major barrier to women "entering" the workforce); however there are all sorts of little expenses that could be avoid at the cost of additional time, so not heaving an unpaid homemaker increases your living costs in a bunch of little ways.
This is only true for DINKs, families with access to free childcare, or families in which both parents work schedules that can be arranged to make childcare possible, such as having non-overlapping workdays.
The cost of child care where I live in MD is slightly greater than my wife's maximum post-tax earning potential, so we've chosen for her to stay home with the children.
Moving back near family in NJ for the free childcare would reduce my income enough to negate any extra earned income from my wife working.
In practice, it doesn't translate to immediately doubling the effective income. You hear many accounts of people whom their father was working a single job in a gas station, yet they afforded a house and car and other amenities. Today that doesn't happen anymore. Furthermore, the children will suffer when both parents are working.
PS Isn't it funny that a women "selling her body" on prostitution websites is bad, but a man (or woman) selling their body doing back breaking work for menial wages is OK?
> but a man (or woman) selling their body doing back breaking work for menial wages is OK?
Straw man fallacy.
The post script is a humorous observation of what “selling your body” is used to refer to.
It's a straw man because no one brought up the issue of "selling your body doing back breaking work", or whether that is acceptable or not.
EDIT: I may have answered that to myself by drawing some income distribution curves. I guess it's a plausible outcome if the P90 for "all" is closer to the male P90 while the P10 is closer to the female P10 with the two curves being significantly different (which is increasingly the case as one goes to the past).
Terribly off numbers for illustrative purposes of course.
What does this show? Are people earning less or more?
I see it says men are earning less, but women earned more, which I mean makes sense. But is it saying that men earning less is due to women earning more?
And if I understand, it also says women earned more but have started to stagnate as well?
https://www.transformingsociety.co.uk/2019/10/28/explaining-...