In my previous post on Busting the Myths of the American Dream and Rising Tides Arguments, a couple of readers raised some interesting questions that “defenders” (that’s probably too strong of a word, but we’ll go with it) of income inequality can cite, which I neglected to answer the first time (though not on purpose).
- What about the argument that the American Dream is alive, but that poor people just aren’t taking advantage of it…in other words they are lazy or don’t provide a lot of value to society?
- But are the poor better off in absolute terms in these places with higher social mobility and less income inequality…this is the poor people have flat screens argument essentially…?
Again, my feeling is that these are more excuses than explanations for our stratified society, as you’ll see there is, has been, and likely will continue to be sufficient evidence to debunk them. While there is a focus on comparing the US to Europe, my point is less to debate whether Europe is better or worse than the US, and more to show that the rationales for “defending” income inequality in the US are flawed at best.
LAZY POOR PEOPLE MYTH
We’ll quickly gloss over the irony of the dissonance necessary to make an argument that “welfare” states in Europe cause people to work less, but somehow, the poor in the US, with it’s shrinking social safety net, have less opportunity than in Europe because they don’t work as hard (see the circular logic?). But, just for kicks, let’s look at a couple of objective measures: Hours Worked and Productivity.
When examining hours worked, what jumps out is that lower income people work just as hard, if not harder, when there is work to be had, and not so much when they can’t find a job (duh…). For instance, take a look at this chart courtesy of the Economic Policy Institute:
Pay special attention the the circled data. In terms of hours worked over the 20 year period between 1979 and 2000, the bottom fifth quintile of workers actually increased their number of hours worked more than the top quintile. In fact, every other quintile did too. First indicator that it can’t be that those in the bottom 80% are too lazy to take advantage of the debunked American Dream.
But as I have been told, working hard doesn’t necessarily mean working smart. That’s what productivity measures (frequently GDP / hour worked). Unfortunately, this is much harder to get data on for specific quintiles, but the following can provide a bit of insight:
As the chart above (courtesy of Mother Jones) shows, productivity in the US has grown considerably over the past 30 years, while average (I believe this is a median calculation by the way) wages have not. Now unless you can say with a straight face that the source of all of the productivity growth is the top earners in the US (but again, the same wouldn’t hold in other countries strangely), then this would indicate that income inequality and the lack of social mobility is not due to lower and middle income people being unproductive either.
(Related, but considerably more detailed than most will tolerate, is data which charts Labor Productivity by industry. And there you can see such industries as Mining, Agriculture, Wholesale and Retail Trade, where you would expect more lower and middle income workers, all having higher productivity than such higher income professions such as Finance and Business Services).
POOR PEOPLE IN THE US HAVE FLAT SCREENS MYTH
While it has already been demonstrated that the “rising tide” is not lifting all boats, what was not discussed was an old argument over whether, even with stagnation and increasing income inequality, lower income (and people in general) were better off, in absolute terms, in the US than in other areas such as Europe, where income inequality is lower and social mobility is higher.
Since Denmark was used in the last example, lets stay with it…
A good starting point is median disposable income. It takes into account cross-country differences in cost of living and currency values for example, and also provides a look at how much income is left over after the deduction of direct taxes and payment of social security contributions. And, not surprisingly, the US has a higher median disposable income than Denmark (US: $31K vs. Denmark: $22K or a difference of $9K).
That’s pretty substantial, so that should be the end of the discussion right? Not at all. Median disposable income doesn’t take into account government transfers and public expenditures, which are considerably higher in Denmark, than in the US. In fact, take a look at this table (from this tremendous post by Lane Kenworthy which does this specific topic a lot more justice than I am) and you can see that the gap is closed considerably, especially at the bottom decile where the $4K difference between $6,800 (Denmark) and $2,900 (US) would likely cover a higher percentage of the gap found in disposable income (that is to say, that at lower income levels, we would expect that the difference in disposable income would be smaller than the median figure of $9K).
That’s a long winded way of saying that lower income people in the US, in addition to not being lazy, since they work more hours, likely with comparable levels of productivity, are also not likely to be demonstrably better off (if at all) here in the US given the low levels of public support that are provided.
This is true no matter how many caricatures of “welfare queens driving Cadillacs” or buying flat screens are thrown out there (by the way…those Caddy’s and flat screens? Bought on credit or layaway).