Causes of rising income inequality, makers of a New America

Summary: While the news media fills the air with flotsam and jetsam, powerful forces reshape America. Chief among them is rising income inequality. Like so much happening to us, it results from rational policies skillfully executed by our rulers for their benefit, not ours.

Income Inequality Scale -dreamstime_84244231
ID 84244231 © Prazis | Dreamstime.

Conclusions

The evidence is more technical than usual here, so I state the conclusions at the beginning. Let us be clear about this. The drivers of inequality discussed here are political, although their effects are economic. First, business power is concentrating largely because the government does little trust-busting. Mergers which concentrate economic power receive only sporadic review from the government. Monopolies oligopolies grow like weeds.

Second, the destruction of private sector unions was done with support of Congress and the Courts, as the Left abandoned them in favor of radical social engineering.

None of this need matter for the future. We fought these battles once before, in the early 20th century – and won. We can do so again if we organize and stand together.

NBER: Union membership falls and income inequality rises - w24587

In the September Digest of the National Bureau of Economic Research (NBER), Steve Maas discusses one major cause of rising income inequality in “New Evidence that Unions Raise Wages for Less-Skilled Workers.” It is a summary of the NBER Working Paper “Unions and Inequality over the Twentieth Century: New Evidence from Survey Data” by Henry S. Farber. “Tapping into eight decades of private and public surveys, a new study finds evidence that unions have historically reduced income inequality.”

“…Their study finds that the salary premium for union members compared to workers with comparable skills and demographic characteristics has remained relatively steady over the last 80 years despite large swings both in the overall number of union members and in their education levels. The less skilled the workers were, the greater the wage premium associated with their union membership. The researchers find a negative correlation between unionization rates and measures of inequality such as the Gini coefficient.

“Between 1940 to 1970, when unionization peaked and income inequality narrowed, unions were drawing in the least-skilled workers. Before and after that period, unions were smaller and a higher fraction of their members were drawn from the ranks of high-skill workers. The 1940-1970 period also coincided with the highest share of union members drawn from minority groups.

“The clear implication of the researchers’ analysis is that, because unions offer a larger wage premium to less-skilled workers, unions have an important equalizing effect on the income distribution to the extent that they are successful in organizing the less-skilled. Recent decades have seen growth in educational attainment in the workforce, and, importantly, not only has the overall share of workers who are unionized declined, but unions have also become relatively less successful in organizing less-skilled workers. The remaining unionized workforce is more highly educated than it was earlier. The combination of the declining presence of unions in the labor market and the increased skill level of the remaining union workers means that the important equalizing effect of unions on the income distribution that was seen in the middle of the 20th century has diminished substantially. …”

For more about the crushing of America’s unions, see these posts.

Another paper shows a second cause of rising inequality

Increase in employment concentration - NBER paper w24307

In the May Digest of the National Bureau of Economic Research (NBER), Steve Maas discusses another major cause of rising income inequality in “Employer Concentration and Stagnant Wages.” It is a summary of the NBER Working Paper “Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?” by Efraim Benmelech, et al. “Two studies suggest that an increase in employers’ monopsony power is associated with lower wages.”

“Stagnant wages and a declining share of labor income in GDP in recent decades have spawned a number of explanations. These include outsourcing, foreign competition, automation, and the decline of unions.

“Two new studies focus on another factor that may have affected the relative bargaining position of workers and firms: employer domination of local job markets. One shows that wage growth slowed as industrial consolidation increased over the past 40 years; the other shows that in many job markets across the country there is little competition for workers in specific job categories. …

“The researchers found a negative relationship between employer concentration and wages …In addition to finding lower wages in monopsony markets, the researchers also found that, over time, firms that dominate their labor markets were less likely to share productivity gains with employees. …

“Over the course of the study period, U.S. imports from China increased. The researchers found that import competition from China, which was associated with the closure or relocation of plants in a number of industries, accelerated the trend toward greater employer concentration in some local labor markets. This finding suggests that import competition not only reduced the demand for workers who previously produced the now-imported products, but that it may also have depressed wages for workers in other industries in affected labor markets as a result of increased labor market concentration.”

What do we get instead of news about these obvious findings?

Rising income inequality is one of the most powerful forces shaping America today, affecting all levels of society. Our news media seldom mention it. Instead we get stories about “skills shortages.” Few of these survive any serious scrutiny. Perhaps they convince some Americans that they are prosperous.

Unity

For More Information

Ideas! For shopping ideas, see my recommended books and films at Amazon.

If you liked this post, like us on Facebook and follow us on Twitter. See all posts about increasing income inequality and falling social mobility, about corporate profits, about unions, especially these…

  1. See America’s income inequality grow during 1979-2011, a driver of Campaign 2016.
  2. More proof of rising inequality, perhaps our greatest threat.
  3. Review of Robert Reich’s great Inequality For All.
  4. America is well-run. Not by us. Not for us.

Books about the death of unions

Against Labor: How U.S. Employers Organized to Defeat Union Activism edited by Rosemary Feurer and Chad Pearson.

What Unions No Longer Do by Jake Rosenfeld.

Against Labor: How U.S. Employers Organized to Defeat Union Activism
Available at Amazon.
What Unions No Longer Do
Available at Amazon.

25 thoughts on “Causes of rising income inequality, makers of a New America

  1. The stats of robots by country male for interesting reading: “Robot density rises globally.” When America catches up it is going to put many people out of work and the lower wage earners are going to be the most hard hit which will push the have not’s further from the have’s. The saying goes, when the rich get richer the poor get babies.

    Indications are that the rise in the robot revolution is on the cusp of takeoff. The growth is exponential and the wage gap between the have’s and have not’s is going to increase at the same rate.

    I read recently that Adidas who had all their shoes made in the F East recently consolidated everything in one factory in Germany where they have 180 workers producing all shoes. All of the workers are maintenance engineers. “Inside the Adidas Factory That Uses Robots to Build Running Shoes
    My question is, Who are they going to sell the goods to?

    This revolution is not just confined to the manufacturing industry. Wait for it to hit the areas like transport and building. Framing for houses is coming on line and humans have now way of keeping up.

    It does not end there. the Lawyers , doctors and other professionals are going to find they are under pressure too. My son-in-law is a CA for one of the big 4; he tells me that they now have bots… they no longer need secretaries, receptionists, clerks doing the ticking but they are now cherry-picking CA’s. A bot installed in a large company not only does the audit at the end of the year, it does it in real-time. This bot does the admin too of taking phone queries, flagging unauthorized expenditure and oddities as well as answering emails. Now the CA’s man the bots and tune them. This too will be unnecessary as they are now introducing self learning bots.

    The fun is just beginning in the wage gap game.

    1. 7zander,

      For a decade I’ve written posts describing how A new Industrial Revolution has begun (see the posts here, by subject). As usual, both the doomsters and utopians are delusional.

      “My question is, Who are they going to sell the goods to?”

      That is a good example of the problems facing America: it’s not even difficult. Childishly simple compared to those we have faced in the past. The tech and methods of the new industrial revolution (of which automation is one) boost productivity. They make us richer. The gains are produced by machines – which we call “capital.” Under our current political economy, labor gets little of the gain — and those that lose their jobs get nothing.

      But that is just our tribal customs. The problem is identical to that of farmers in underdeveloped lands who refuse to use modern farming methods – because that’s not what their ancestors did. They have adapted, and so will we.

      One big driver of automation is aging of populations. See Doomsters warned of End Times from overpopulation. Now *fewer* people are disastrous. In fact, an aging and education population might be ideal for the next age. See Japan: soon to become a 21st century star.

      For a more detailed look at this, see the July NBER Digest: “Automation Can Be a Response to an Aging Workforce.” The graph tells the tale. Click on it to enlarge.

      Workforce aging and increase in industrial automation

    2. “They have adapted, and so will we.”

      I see Larry Kummer has a left a reply that is depressing in its blindness to the reality coming. I CAN TELL YOU as one of those on the bottom that there is NO ‘adapting’ because there is no means of survival to “adapt” to. We are seeing NO sign that the benefits of folks like Adidas who can make a ton of shoes is translated to away for us to BUY these shoes…unless the society is gunna redistribute wealth…. Who are those secretaries, receptionists, and clerks gunna do when the bots replace them Mr, Kummer…?

    3. SSS,

      Unless you have a proven ability to predict events, I suggest you avoid such hard predictions. Always in motion is the future.

      “Who are those secretaries, receptionists, and clerks gunna do when the bots replace them”

      Those bots don’t buy stuff. So automation can either reduce or boost national income, depending on how automation is done. The easy solution is higher taxes on capital (ie, owners of the bots). They were over 40% in the 1970s and the economy did just fine. The income can be redistributed in a wide number of means.

      It is not even a difficult problem compared to those we have surmounted in the past. Of course, past performance does not guarantee future performance.

  2. Falling union membership and power is a consequence of falling labor bargaining power. This always happens during great credit expansions. One consequence is that working class purchasing power falls and income inequality rises.

    Employment concentration is due to the same credit expansion. It produces speculation, an asset price bubble, financial engineering on a mega scale. This also makes inequality rise. Always has.

    These are consequences, effects, not causes. An account that treats them as causes misses the real problem, which is credit creation and debt creation.

    Read Austrian economics. Debt creation and driving lnterest rates to zero are the problem. Refuse to grasp those and you can’t understand the situation. Refuse to change them, and no amount of anti-trust or union sponsorship will help.

    What America needs to do is balance its budgets at home, allow interest rates to rise to normal levels, and stop bombing people abroad.

    1. Henrik,

      None of that seems plausible, imo. Do you have any supporting evidence?

      “Falling union membership and power …always happens during great credit expansions.”

      The previous credit expansions in the US were accompanied by rising union membership and power: the late 19thc, the 1920s, and the post-WWII era (1950 – 1970).

      “allow interest rates to rise to normal levels”

      First, there is no such thing as “normal” interest rates. They fluctuate according to the supply and demand for capital, which is affected by many variables.

      Second, interest rates in the developed world are set by markets – and they are low in real terms, as they were in early 19thC Britain (Britain’s perpetual government bonds traded at 3% – 4%).

      And the Fed is not suppressing interest rates. The Fed has the ability to nudge the overnight riskless interest rate, depending on how much capital they’re willing to commit (i.e., buying or selling treasuries). But they have not been a major force since the end of quantitative easing in October 2014.

    2. On union membership, https://sites.google.com/site/unionsinthe1920s/

      That was the last huge credit bubble, the last one comparable to today’s. They only happen every 100 years or so in the same jurisdiction, because their end results are so catastrophic its a lesson it takes a couple of generations to forget. Dot.com was 1921. Or maybe 2007/8 was. Around now we are in 1929.

      On the other matters, including ‘natural level’ of interest rates, the Austrian economists and their business cycle theories. Big topic.

    3. henik,

      “Falling union membership and power …always happens during great credit expansions.”

      False. That graph shows only two relevant data points. Union membership fell during the severe post-WWI recession years (esp the 1920-21 depression), during which large corporations crushed unions. It was flat at about 3.5 million during the 1923-1930 expansion (which included large-scale credit growth). See Historical Statistics of the US.

      “They only happen every 100 years or so in the same jurisdiction, because their end results are so catastrophic its a lesson it takes a couple of generations to forget. Dot.com was 1921.”

      False. Before the late 19th century the financial systems in Western nations were too primitive to create massive amounts of credit. The panics and busts of that era (e.g., the massive British Railroad bubble of the 1840s, the Long Depression beginning in 1873) occurred without much credit, with hard currencies, and before much use of fractional reserve banking — or other right-wing boogie men.

  3. There several bipartisan issues that most Americans support and so they receive media blackouts:
    Term limits
    Campaign finance reform
    Trust busting
    No pointless or aggressive wars

    Probably a few more like good wages and health care cost related something or other.

    I’ve come to believe there is no left nor right, only power.

    1. Mandy,

      “I’ve come to believe there is no left nor right, only power.”

      Society is complex. Life can’t be boiled down to such simplicities. That would be like driving with only one eye opened while wearing very dark glasses – at night. There is an ideological spectrum (Left-Right is a simple, handy one-dimensional picture of it). There is also power, and many other factors.

    2. CORRECT….seen the SEC do any real investigations of TBTF Banks and ARREST the top managers for fraud and publicly haul then off like they do for some poor guy who stole a pair of shoes,…

      I suspect most of these folks on this thread are in the top 20% and have never spend a month unemployed or have to use an EBT card…am I right ? The things Mandy lists are BIG items that resonate throughout the 90% who have been left to rot by the 1%.

      As the French King found, you can ride roughshod over us…for a while…it ends not very good…

    3. SSS,

      What crime did bank executive commit? Stupidity is not illegal.

      “I suspect most of these folks on this thread are in the top 20%”

      Nope. Many are young. Many are in the military. Many are retired boomers.

      “As the French King found”

      Revolutions are rare. We remember the French Revolution because it was unusual.

    4. 7zander,

      TV shows from the 1960s (e.g., Secret Agent, The Avengers, Man from UNCLE) often showed Africa’s leaders. Good or evil, they tended to be strong, smart, well educated. They gave us optimism about Africa’s future.

      Reality was less pleasant. While exploitive, the French and British turned over working governments to the locals when they left. What happen next was tragic. South Africa is the latest in this long sad story.

  4. Here’s not wanting to enter this discussion because I’ve nothing to add though It got me sopping up the info and chewing on it. However, I do want to express delight over the use of graphs and charts and visuals. Fabius Maximus makes good use of same throughout his many postings and I’ve a comment or two about that.

    Color me stupid, I just learned the term “Graphicacy.” Graphicacy is defined as the ability to understand and present information in the form of sketches, photographs, diagrams, maps, plans, charts, graphs and other non-textual, two-dimensional formats. See Wikipedia.

    “In a (TED) talk that’s part history lesson, part love letter to graphics, information designer Tommy McCall traces the centuries-long evolution of charts and diagrams — and shows how complex data can be sculpted into beautiful shapes. “Graphics that help us think faster, or see a book’s worth of information on a single page, are the key to unlocking new discoveries,” McCall says. See this exciting and informative video here https://goo.gl/a3VXWN

    I know that “The Buzzard’s Blog” may be a bit “off putting” to traditional journalists for its sometimes zany graphics. Point made here https://justice4all.blog/2018/08/15/big-tobacco-and-utahs-legislators/ The 54 Utah legislators who took money from Big Tobacco and who personally received this posting from me are still sweat’n, stomp’n and swear’n while a host of their constituents are have’n a great laugh.

    I believe that 21st Century journalism isn’t keeping pace with an audience compelled to consume a glut of information flow that begs to be translated into meaning and, “… helps us think faster.”

    Hats off to Fabius for graphics/visuals that help this Ole’ Buzzard’s brain think faster and more clearly.

  5. Thanks Larry,

    Good lead! Liked what I saw. I’ll list Tuft with the visualization resources in my Criminal Justice Grad course, “The Institutional Memory of Major Cases and Visual Analytics.” Hans Rosling is another master of visualization found at Gapminder here https://www.gapminder.org/ Hans passed away but his art and legacy live on. His visualizations are extraordinarily unique, beautiful and insightful.

    Thanks for letting me get a bit off topic from time to time. Feel free to shut me up whenever you decide it’s time. I’m enjoying Fabius.

    I’m responding to, “10 thoughts on “America is well-run. Not by us. Not for us.” Your earlier reply seems to circle the point that I’m determined to make and that is for an appeal to engage more humor, simplicity, common and street sense in communications regardless the complexity and volatility of the issues.

    You said, “That is a common sentiment, and one with which I have no sympathy. Peasants always wish for a Winged Savior. They don’t get it. When we decide to again bear the burdens of self-government, irrespective of the cost, then we will find leaders. When we wish for strong leaders to carry us, we will get rulers.”

    If it’s the primacy of the Rule of Law vs. Elites, tyrants, oligarchs, and scheming sycophants, I couldn’t agree more. The following paraphrasing is closer to my intent and seems to resonate with our time.

    “We are engaged in a battle against … Short Termism and Entropy. The challenge is to minimize entropy (chaos) … Nothing escapes the Second Law of Thermodynamics. The pull of entropy is relentless. Everything decays. Disorder always increases. Life always seems to get more complicated because of lack of order or lack of predictability resulting in a gradual decline into disorder and chaos.” Found from James Clear here https://jamesclear.com/entropy

    Finding better ways to communicate … albeit with zany graphics and/or the homely wisdoms from the likes of Laurence Peter, Winston Churchill, Sam Clemens, Walt Kelly, Al Capp, Will Rogers, Will James, Eric Hoffer and a host of others may “minimize,” delay, or even stand in the way of the inevitable chaos creep toward Entropy. With humor, visualization and determination, we may even learn to more effectively mock, shame, and shun the elites, tyrants, oligarchs, and scheming sycophants who would rule us. We can fight back! Please see, “Is Shame Necessary” by JENNIFER JACQUET here http://www.isshamenecessary.com/

    May we be wise enough to advocate a return to our roots in order to resurrect the “Institutional Memories” of that which we’ve screwed and continue to screw. The challenge is to learn from the memories of our failures in order to recall, repeat, replicate and protect our many successes. We can fight back.

    The Ole’ Buzzard (Gotta’ shut up and get back to The Buzzard’s Roost blog.)

    1. Wayne,

      I agree with most of what you said. Here’s the pointed end of the spear: we need to arouse the American people. That’s a common problem, confronted by Sam Adams and every generation or so of American reformers. More analysis is nice, but pouring more water on a rock won’t make it wetter.

      Talking about the wonderful spiritual qualities we need more of is imo pretty useless. My guess (guess) is that we’ve long passed the point at which that’s useful. Anger is probably our only remaining recourse.

      I’ve written 120 posts about Reforming America: steps to new politics. I long wondered why these didn’t arouse any enthusiasm among readers – unlike the food fight posts that got so much attention elsewhere. My guess is that the reason is obvious. People want food fights. Us good! Foes bad! Schoolyard insult, and you’re mother too!

      Talking to people locked into peon thinking about sacrificing their “lives, fortunes, and sacred honor” to gain self-government is … missing the point. We need to break Americans out of that thinking, back to what they were at their better moments. I don’t know how to do that. See my posts about ways to inspire, and about ways to arouse anger. They’re the best I’ve got at present.

    2. Larry,

      I’m setting out to digest much of your “Reforming America: steps to new politics” and the first stop is your “to arouse anger.” Fabius has worked his way into my political DNA and there doesn’t seem to be a cure.

      I love to play with words. Let me “metaphorialize” for a moment …. After 40 years, I lost my dear Sheri to Melanoma. The best that traditional medicine had to offer was cut, burn, and poison. As we continue to learn and in the future, I’m certain there will be more humane and effective ways of dealing with that dread disease.

      The tools that the Ole’ Buzzard has to use to reform our system are similar to cut, burn, and poison with humor, sarcasm, shaming and shunning at the pointy end of the spear. This is not a criticism but kind of a compliment by way of comparison … while Fabius is poking at and peering away over his petri dish … moving the DNA around scientificating for a solution … I’m compelled to piss em’ off by lighting their pants on fire.

      See how many pants could have been lit up if the following Buzzard’s posting would have hit the NY Times or Washington Post. “Saudi Arabian prosecutors are allegedly pushing to behead female activist Israa al-Ghomgham” go here please. I challenge you to go to the end of it. It’s short https://goo.gl/SKDd7Y Jack Anderson did it day after day in the “Washington Merry-Go- Round” as did Al Capp in “Lil Abner,” and so many others. To the purveyors of pap and crap, “Give us some space in your sleazy, sleepy ole rags and we’ll light em’ up!”

      There’s room for all in this “dust up.” And … as you’ve endlessly and effectively pointed out … a mindful and responsible media could help at the nexus.

      A life long friend I never met said, “You can always tell a real friend: when you’ve made a fool of yourself he doesn’t feel you’ve done a permanent job.” Dr. Laurence J. Peter at https://goo.gl/HVFpqp

      Please forgive this Ole’ Buzzard’s foolishness.

    1. info,

      Very little, imo. Our system allows the rich to harvest most of America’s productivity gains. Senior corporate execs pay themselves a large fraction of corporate profits. Estate taxes are easily avoided. Why steal?

    2. That’s why I support German model of Unions. They get to sit at the company board and know all the in’s and outs of the business. This way they get to milk the golden goose without inadvertently killing it.

    3. info,

      I am baffled by American conservatives confident belief that Europe is inferior to us in every way. So many of their political systems are obviously superior to ours.

    4. ”I am baffled by American conservatives confident belief that Europe is inferior to us in every way. So many of their political systems are obviously superior to ours.”

      I dunno I can only speculate that Americans despise the Genteel nature of Europe compared to them? How their supposed snobbishness probably rubs them the wrong way

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