Studies of Income Gap Multiply
CHANGING FORTUNES OF AMERICAN FAMILIES
ALMOST suddenly, the distribution of income and wealth in the United States has become a lively topic. Liberal Washington think tanks are turning out reports on it. The headline on a news release for the latest study, by the Economic Policy Institute, tells why: ``Economy of 1980s left most workers and families worse off, while top 1 percent enjoyed windfall; latest statistics reveal that working Americans have experienced declining real wages, decreasing living standards, and worsening income inequality throughout the 1980s.''
In July, another think tank, the Center on Budget and Policy Priorities, looked at the issue: ``The richest 1 percent of all Americans now receive nearly as much income after taxes as the bottom 40 percent of Americans combined. Stated another way, the richest 2.5 million people now have nearly as much income as the 100 million Americans with the lowest incomes. Furthermore, the share of national income going to those in the middle of the income scale is now lower than at any time since the end of World War II.''
Among the most publicized survey of the issue is the new book by Kevin Phillips, a Republican political consultant, entitled ``The Politics of Rich and Poor: Wealth and the American Electorate in the Reagan Aftermath'' (Random House). Mr. Phillips speculates on the possibility of a political reaction in the 1990s to the tendency for the rich to get richer, the poor poorer.
``The 1980s were a second Gilded Age, in which many Americans made and spent money abundantly,'' he writes. ``Yet as the decade ended, too many stretch limousines, too many enormous incomes, and too much high fashion foreshadowed a significant shift of mood. A new plutocracy - some critics were even using the word `oligarchy' - had created a new target for popular reaction. A small but significant minority of American liberals had begun to agitate the economy's losers - minorities, young men, female heads of households, farmers, steelworkers, and others. Television audiences were losing their early-eighties fascination with the rich.''
Critics of the Phillips thesis note that as individuals gain experience and seniority, most normally do earn more until close to retirement. So many wage earners may not realize that they are struggling with lower average wage levels than in the past.
In a review of the Phillips book in the New Republic, Thomas Byrne Edsall adds that the economic core of the New Deal Democratic coalition split over issues of race, such as busing, residential integration, and affirmative action. These ``wedge issues'' served as powerful weapons for the national Republican party, ``not only to win the presidency in five of the six last elections, but to enact upwardly redistributive economic policies.''
Mr. Edsall, a Washington Post reporter, says the racial issues pulling apart the poorest half of the population - the view that federal taxes finance the transfer of white income to blacks and other minorities, that federal regulation cut back white control of schools, jobs, and neighborhoods - are still more powerful than the forces pulling them together.
In an even newer book, ``Prosperity Lost: How a Decade of Greed Has Eroded Our Standard of Living and Endangered Our Children's Future,'' (Addison-Wesley), the left-leaning author Philip Mattera speculates on the possibility of the government using the peace dividend from the end of the cold war ``to redirect its attention to those more malevolent domestic foes: poverty, hunger, homelessness, and other forms of privation.''
Even an economist from the Federal Reserve Bank of Boston, has addressed the question: ``Why were the income gains so unevenly distributed in the past decade?'' Katharine Bradbury, in the bank's New England Economic Review, offers several reasons, including higher interest rates and dividends that helped the rich more than the poor.
A new study by the Internal Revenue Service finds that wealth (as opposed to income) has also piled up in the hands of the rich. The richest 1.6 percent of US adults, those with assets of $500,000 or more, had total holdings of $4.3 trillion and a combined net worth of $3.8 trillion in 1986, the latest year for which figures are available. That group, 3.3 million people, held nearly 28.5 percent of the nation's personal wealth.
Four years earlier, the 2.2 million in that wealth bracket had a net worth of $2.1 trillion, or 23 percent of personal wealth. A major reason for the shift was the rise in stock prices.
Trends in income and wealth are complex. The Economic Policy Institute study, entitled The State of Working America, is 312 pages long. Here are just a few of its points:
Real hourly wages declined 0.5 percent per year from 1982 to 1987. This is the only such period of economic recovery since World War II during which real hourly wages fell. The yearly growth of 0.4 percent in annual wages since the bottom of the last recession in 1982 has occurred only because of a 1.6 percent yearly increase in the number of annual hours worked.
Greater hours of work by women have been crucial to maintaining family incomes. Without women's earnings, there would have been no increase in family incomes between 1979 and 1987, and the incomes of the bottom 80 percent of families would have fallen.
The drop in real wages has not been caused or counterbalanced by a compensating growth in fringe benefits such as pensions and health insurance. Between 1980 and 1989 the real value of hourly fringe benefits fell by 13.8 percent, even faster than the 9.3 percent fall in hourly wages.
The proportion of multiple jobholders in the work force has increased from 4.9 percent in 1979 to 6.2 percent in 1989.
The fraction of the US work force earning poverty level wages, as defined by the government, increased from 25.7 percent in 1979 to 31.5 percent in 1987. During the same period, the proportion of workers ages 25-34 who earned poverty level wages grew from 17.7 percent to 25.9 percent.
Since 1979, the bottom 80 percent of the population in terms of income has seen a decline in its total share of income. Only the top 20 percent has gained - by $23,620 per family, or more than the average total income of the families in the lowest 40 percent.
The upper 10 percent of families gained as much income in the 1980s, $543 billion, as did the remaining 90 percent of Americans.
Lawrence Mishel, one author of the study, says one aspect of the supply-side theories of the Reagan administration didn't work. This was the view that if the ``upper crust'' prospered through lower tax levels and other policy changes, these rich would save and invest more, thereby creating jobs and greater prosperity for all. ``There never was any trickle from their trickle down,'' he says.