In a recent post, I cited a post and column written by Simon Johnson, formerly chief economist of the IMF, to the effect that income inequality was a major source of the economic problems of the United States. His focus was on those with no more than a high school education:
The distribution of income in the United States is undoubtedly becoming more unequal. Specifically, over recent decades, it has become harder for people with only a high-school education to build a secure middle-class future for their families.
Since those with high school only or less are disproportionately immigrants or the children of immigrants and since, although the studies of the impact of immigration on wages in the United States have produced ambiguous results, the studies have uniformly illustrated downwards pressure placed on wages for those with high school educations or less by competition with immigrants for those jobs, to my mind the problem of low income growth among the lowest income earners and immigration are indivisible. Unionization is unlikely to produce improved economic prospects for this group. Why pay unskilled workers in the United States more when the world is full of unskilled workers who will work for much less?
A frequent commenter has repeatedly asserted that, no, the problem is not insufficient income growth among the lowest income earners but rather too much income growth among highest .1% of income earners. I see only the most indirect of relationships between how high the incomes of the top .1% of income earners are and the failure of the incomes among the lower quintiles of income earners to grow over the last 30 years. It might reasonably be said that the two things have common causes but I do not believe that one causes the other.
I’m also skeptical that the assertion of the primacy of incomes among the top .1% of income earners passes muster from a numerical standpoint so I thought it might be helpful to put some facts about the highest income earners on the table.
According to information drawn from the Internal Revenue Service and quoted in a link from the Tax Foundation the top .1% of income earners amount to some 141,000 households which account for about $1 trillion of adjusted gross income, about 12% of the whole. The next 4.9% amount to about 50 times as many households and about twice as much income. Why is the income of the top .1% harmful and disruptive and that of the next 4.9%, a significantly larger amount, isn’t?
I have found it terribly difficult to ferret out exactly who those who are in that next 4.9% are. Their incomes start at about $200,000. Many, I suspect, are owners of small to medium sized businesses who show up all over the Bureau of Labor Statistics’s numbers. Hundred of thousands are physicians.
According to the Bureau of Labor Statistics the total number of physicians in the United States is about a half million:
|Family and General Practitioners||99,000|
|Obstetricians and Gynecologists||20,380|
|Physicians and Surgeons, All Other||274,160|
Since the median income of physicians is right around that $200,000 figure, at least half of physicians are among that next 4.9% of income earners just below the ultra-rich.
The next largest identifiable chunk of people I’ve been able to identify among that next 4.9% of income earners are those in the financial services industry. They account for a much, much smaller number than physicians and have a lower median income. Lawyers don’t make the cut. There are about as many of them as there are of physicians but the median income for lawyers is about half that of physicians (and lower than the median income of GPs as well). That means that only a relative few are among those 4.9% of top income earners, perhaps tens of thousands of very wealthy lawyers and almost all, presumably, graduates of the handful of elite law schools, many of them working for top Wall Street law firms.
There are about 86,000 dentists with a median income of around $157,000. Clearly, some dentists fall within that next 4.9% of top income earners.
CEOs are clearly among the highest income earners. With just under 298,000 of them and a median income of $167,280, both their numbers and median incomes are below those of physicians but there are probably about 100,000 CEOs among that next 4.9%, a sizeable number. It may be that many of the balance of the top income earners who aren’t among the ultra-rich are management in large companies below the top management level. My experience has been that there’s a large gap between the guys at the very top and those farther down the ladder and that’s borne out by the BLS’s median income statistics for managers.
Disclosure: our household income does not put us among the ultra-rich (top .1%) or even the top 4.9% of income earners after the ultra-rich. We are upper middle class and I have never wanted anything else.