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Egalitarian income growth: Why?

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Bucking recent trends, the wallets of the poor and least-educated swelled the most. Income at the twentieth percentile (meaning the level at which exactly one-fifth of the population earns less) grew by over 6%. The average income of households headed by someone who left school before ninth grade—typically reached at age 14 or 15— grew a fulsome 12.5%, compared with just 3.2% growth in those headed by someone with a bachelor’s degree or more. Just as the disadvantaged are usually the first to lose their jobs in a recession, they have been the last to benefit as the economy has recently closed in on full employment, argues Jared Bernstein, an economist at the Centre on Budget and Policy Priorities, a think-tank. That also helps to explain a fall in the poverty rate from 14.8% to 13.5%—the largest annual percentage-point drop in poverty since 1999.

Link. Paywalled, but google it if you want to read the whole thing (never mind, seems to work now. Was paywalled when coming from facebook). When I first heard 2015 was an unusually strong year for income growth, I was mildly surprised at the relatively obust figure. But the egalitarian, inequality-reducing pattern of the growth was far more surprising. I’ve been teaching a kind of “intro to social science” interdisciplinary class the last few years on inequality, with a non-exclusive focus on efforts to explain current trends in economic inequality in the US in particular and the developed world more generally. The material I’ve been working with (think Hacker and Pierson, Piketty, Atkinson, Milanovic, etc.) And while these scholars differ in various ways in their account of the primary causes of growing inequality and the the kinds of policies needed to counteract it, it’s safe to say we haven’t exactly embraced any of the policies they recommend in any significant way. Pessimist that I am, I’m inclined to assume this is a one-off in light of larger trends, but that pessimism is bolstered by my lack of any compelling story to anchor any optimism to.

So what’s going on? If you’ve got any links to compelling explanations for the relatively egalitarian character of income growth, or a theory of your own, please provide. (In a facebook discussion, someone suggested we might be seeing the effects of various local and state increases to the minimum wage. This strikes me as a prima facie plausible explanation for strong income growth in the 20th percentile, but it’s hard to see it having this kind of impact on the 50th).

Relatedly, here’s a good piece about how economic inequality has been studied widely by economists and by Americans, but rarely by American economists:

Galbraith, for his part, says that he has found other American economists’ interest in the topic lacking. He has found that in American economics, there’s one accepted explanation for the growth of inequality: that globalization and technology created a world in which high-skilled people did well and others did not. If you come along with a different set of ideas, he told me, “you find that it is not open to any discussion.” When he has looked to publish papers and data with other explanations for rising inequality, he finds there’s no proper journal open to it.

Why is class conflict more taboo in the United States, a nation dreamed up with at least a bit of rhetoric about throwing off the rigid class structure of Europe? Michael Zweig, an emeritus professor at SUNY Stony Brook, says that American economists haven’t always shied away from social problems like class and inequality. But during the second half of the 20th century, he says, class was “driven from the discipline,” Zweig says. This is largely because U.S. economists focused on the market, always the market.

“In the American economics profession, the scope of economics as a field has been reduced to a study of the market, as though the market was the same thing as the economy,” he told me.

…..commenters are emphasizing the effects of a tight labor market, understandably. That also appears to be central to Jared Bernstein’s analysis (thanks for the link). I suppose I’ve been reflexively dismissive of the possibility of the low unemployment rate having this kind of effect, because we’ve not really seen any kind of recovery in labor force participation from the collapse, and a rising participation rate in response to low unemployment would counteract the effects of a tight labor market. It looks like I may well have been wrong about this, too.

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