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December 12, 2004
Peter Gosselin on Economic Insecurity
Peter Gosselin continues his excellent series about rising economic risks in America today:
Peter Gosselin: Protections that Americans, especially poor ones, once relied on to buffer them from economic setbacks--affordable housing, stable jobs with good benefits, union membership and the backstop of cash welfare--have shriveled or been eliminated. These losses have been only partially offset by an expansion of programs such as the earned-income tax credit for the working poor and publicly provided healthcare.
For the most part, the poor have been left to cope on their own, scrambling from one fragile employment arrangement to the next, doubling up on housing and borrowing heavily.
"Families up and down the income distribution are bearing more economic risk than they did 25 or 30 years ago," said Johns Hopkins University economist Robert A. Moffitt. "But the increase has been especially dramatic among the working poor."
As a result, their earnings are jumping around like never before.
During the early 1970s, the inflation-adjusted incomes of most families in the bottom fifth of the economy bounced up and down no more than 25% a year. By the beginning of this decade, those annual fluctuations had doubled to as much as 50%, according to statistics generated by the Los Angeles Times in conjunction with Moffitt and researchers at several other major universities.
For a family with an income at the 20th percentile--or roughly $23,000 a year in inflation-adjusted terms--that has meant recent annual swings of as much as $12,000. Twenty-five years ago, those swings tended to be no more than $4,300.
The Times' figures are based on the Panel Study of Income Dynamics, a database funded by the National Science Foundation and run by the University of Michigan. In contrast to most economic indicators, which involve taking random samples of different Americans at different times and comparing the results, the panel study has followed the same 5,000 nationally representative families and their offshoots for nearly 40 years.
In supplementing conventional statistics with the panel-study data, the newspaper has sought to explain why Americans in rising numbers report being less financially secure, even as the nation has grown richer overall...
Posted by DeLong at December 12, 2004 11:59 AM
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Comments
Have you noticed that the level of income inequality in the US is back to where it was around 1928...
Here is an interesting study: "Income inequality in the United States 1913-1998", Thomas Piketty and Emmanuel Saez, Quarterly journal of Economics, February 2003.
http://pythie.cepremap.ens.fr/~piketty/Papers/PikettySaez2003.pdf
Posted by: Melanchthon at December 12, 2004 12:47 PM
You would know far more than me, Brad, so I must ask, how far back do studies about the relationship between periods of income decline or gain and technological change altering the types of jobs most Americans have go? Maybe it's just because I am an amateur, but I suspect that it may just be a temporary thing.
Granted, no matter what the cause or how long it's going to say, it's a problem. So what is the solution? Is an expansion of the EITC or something like it the easiest method?
Posted by: Brian at December 12, 2004 01:00 PM
I posted a graph from the Times article here:
http://infoproc.blogspot.com/2004/12/income-volatility-data.html#comments
Interestingly, income volatility has increased over 50% since 1970 for 90th percentile earners, and almost doubled for the 50th percentile. Our financial lives are riskier than ever.
We've certainly gotten richer in the last 30 years, but I advocate thinking about this income growth in "risk adjusted" terms. How much increase in vol do we have to endure for those gains?
Posted by: steve at December 13, 2004 11:08 AM