Tag Archives: income

Rising income segregation in the United States

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Sociologist Stephen Klineberg discusses income segregation and a new Pew Report that suggests it is growing in the United States:

So what’s happening – as the gap between rich and poor increases, people increasingly live in very separate worlds and we’ve always sort of been more comfortable in communities made up of what the Wall Street Journal once called PLUs, people like us. Right? We never liked it too much. There were a lot of people much poorer than us or much richer than us. We’d like to be in those communities where we felt at home and with people like ourselves and you see it in Houston, I think, more than most other cities because Houston is still, today, the most spread out, least dense major city in the country…

The great danger for the future of America is not an ethnic divide. It’s a class divide…

Oh, tremendous consequences of the isolation of the poor in places where there are only other poor people with very few connections to the job opportunities that are out there, to the knowledge. We know that there are several forms of capital. Right? There’s human capital, which is education. There’s financial capital and there’s, above all, social capital. Who do you know? Who are you connected with? Who can you go to for advice? Who will know about jobs that are opening and help connect you to those jobs?

And so the isolation of the poor creates two things. Number one is it isolates the poor in ways that make it much more difficult for them to work their way out of poverty and it isolates the rich so that they live in worlds where they have no clue as to the kind of challenges that people are facing.

This is not a new issue. However, several decades ago, the focus was more on the extremely poor/the hypersegregated living in inner cities, and now the problem is perceived to be affecting more people.

The Pew report can be found here and here are some of the findings:

The analysis finds that 28% of lower-income households in 2010 were located in a majority lower-income census tract, up from 23% in 1980, and that 18% of upper- income households were located in a majority upper-income census tract, up from 9% in 1980.

These increases are related to the long-term rise in income inequality, which has led to a shrinkage in the share of neighborhoods across the United States that are predominantly middle class or mixed income—to 76% in 2010, down from 85% in 1980—and a rise in the shares that are majority lower income (18% in 2010, up from 12% in 1980) and majority upper income (6% in 2010, up from 3% in 1980)…

By adding together the share of lower-income households living in a majority lower-income tract and the share of upper-income households living in a majority upper-income tract, this Pew Research analysis has developed a single Residential Income Segregation Index (RISI) score for each of the nation’s top 30 metropolitan areas…

Among the nation’s 10 largest metro areas, Houston (61) and Dallas (60) have the highest RISI scores, followed closely by New York (57). At the other end of the scale, Boston (36), Chicago (41) and Atlanta (41) have the lowest RISI scores among the nation’s 10 largest metro areas.

Worth paying attention in the years ahead. Even in the era of Facebook, Twitter, and more weak ties, neighbors and neighborhoods still matter for a number of important life outcomes.

“It is the privileged Americans who are marrying, and marrying helps them stay privileged”

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A New York Times article looks at how marriage affects inequality. Here are some of the interesting tidbits:

Estimates vary widely, but scholars have said that changes in marriage patterns — as opposed to changes in individual earnings — may account for as much as 40 percent of the growth in certain measures of inequality. Long a nation of economic extremes, the United States is also becoming a society of family haves and family have-nots, with marriage and its rewards evermore confined to the fortunate classes.

“It is the privileged Americans who are marrying, and marrying helps them stay privileged,” said Andrew Cherlin, a sociologist at Johns Hopkins University.

About 41 percent of births in the United States occur outside marriage, up sharply from 17 percent three decades ago. But equally sharp are the educational divides, according to an analysis by Child Trends, a Washington research group. Less than 10 percent of the births to college-educated women occur outside marriage, while for women with high school degrees or less the figure is nearly 60 percent…

Sara McLanahan, a Princeton sociologist, warns that family structure increasingly consigns children to “diverging destinies.”

I’ve tackled this before (see here) but this is still interesting: marriage can have powerful economic effects.

The normative implications of such findings are interesting to consider. Should we pursue pro-marriage policies in the face of record number of adult Americans living alone? If we don’t want to have the government promoting such things, how do you close this gap working with other social levers?

This reminds me of the recent discussion-provoking cover story from The Atlantic titled “Why Women Still Can’t Have It All.”  Marriage was not the primary focus of the story though it certainly plays a role in what both men and women can accomplish. Also, it is tied to a factor not discussed in the story: as Slaughter suggests, the women may be limited by the system but the interest couples have in both working might also be related to a desire to have two incomes. Indeed, having a certain standard of living in certain metropolitan areas generally requires two incomes unless one partner is in a lucrative job. Being married increases the purchasing power of a family which is no small feat.

 

More evidence that Americans don’t like answering survey questions about income

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While looking at data about the wage gap between men and women, two researchers discovered that respondents to the American Community Survey may not been completely correct in stating their incomes or the incomes of others in their households:

The authors, whose study will be published in the journal Social Science Research, identified these biases by examining data from the American Community Survey, which is also conducted by the Census Bureau. Respondents are interviewed multiple times, one year apart. When the researchers looked at how responses to these questions changed across the subsequent interviews (controlling for other factors), they found that people answered more generously for themselves than other people had for them.About half of the data on this income question in the American Community Survey have long come from “proxy reporters” — people answering on behalf of others in their household. In the early ’80s, a majority of these proxy reporters were women. “They were simply around to answer the phone call,” Reynolds said, noting that women had not entered the work force full time back then to the extent that they have today.

On the whole, these female survey respondents likely under-reported the income of their husbands, and over-reported their own — creating the skewed impression that the gender gap in America was much smaller in the early ’80s than it really was…

Once Reynolds and Wenger had calculated the extent of these biases, they went back to the data we’ve long used to measure the wage gap and readjusted it. Over time, as more women have entered the labor force, men have also become more likely to answer these surveys for themselves. And that impacts the data, too. The existing analysis — based on what the authors call the “naïve approach” to this data — suggested that the wage gap in America between 1979 and 2009 closed by about 16 percent (or $1.19 per hour). Wenger and Reynolds put that number instead at 22 percent (or $1.76). And so we have been 50 percent off in this basic calculation.

Interesting finding. As I tell my students, how you collect the data matters a lot for your conclusions. How much will other researchers be willing to change their data and conclusions based on this “quirk” in the data? No other researcher had ever thought about this before or have others considered the issue and moved forward anyway?

Researchers need to be particularly careful in dealing with questions about income. The researcher will have to find some sort of compromise where you can get the most fine-grained data while making sure that people are still willing and able to answer the question. If you ask about specific incomes, you are likely to get a lot of missing data as people are not comfortable answering. If you ask too broadly (say by having really large categories), you may not be able to do much with the data.

Does this suggest that other surveys that ask a single person to report on their whole household may also be skewed?

Americans don’t know about the level of wealth concentration in the United States

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Sociologists have been talking about the growing levels of inequality in the United States for some time now. But a recent survey suggests that Americans are unaware just how much wealth is concentrated at the top (and there is a lot more information on the topic at this link):

A remarkable study (Norton & Ariely, 2010) reveals that Americans have no idea that the wealth distribution (defined for them in terms of “net worth”) is as concentrated as it is. When shown three pie charts representing possible wealth distributions, 90% or more of the 5,522 respondents — whatever their gender, age, income level, or party affiliation — thought that the American wealth distribution most resembled one in which the top 20% has about 60% of the wealth. In fact, of course, the top 20% control about 85% of the wealth (refer back to Table 1 and Figure 1 in this document for a more detailed breakdown of the numbers).

Even more striking, they did not come close on the amount of wealth held by the bottom 40% of the population. It’s a number I haven’t even mentioned so far, and it’s shocking: the lowest two quintiles hold just 0.3% of the wealth in the United States. Most people in the survey guessed the figure to be between 8% and 10%, and two dozen academic economists got it wrong too, by guessing about 2% — seven times too high. Those surveyed did have it about right for what the 20% in the middle have; it’s at the top and the bottom that they don’t have any idea of what’s going on.

Americans from all walks of life were also united in their vision of what the “ideal” wealth distribution would be, which may come as an even bigger surprise than their shared misinformation on the actual wealth distribution. They said that the ideal wealth distribution would be one in which the top 20% owned between 30 and 40 percent of the privately held wealth, which is a far cry from the 85 percent that the top 20% actually own. They also said that the bottom 40% — that’s 120 million Americans — should have between 25% and 30%, not the mere 8% to 10% they thought this group had, and far above the 0.3% they actually had. In fact, there’s no country in the world that has a wealth distribution close to what Americans think is ideal when it comes to fairness. So maybe Americans are much more egalitarian than most of them realize about each other, at least in principle and before the rat race begins.

So Americans have some ideas about what the wealth distribution should look like but not much of an idea of what it actually looks like. What exactly might they do if they knew the exact figures since it doesn’t seem to line up with what they think it should be?

Read about the possible effects of this heavy concentration of wealth, including helping to bring about our recent economic crisis, here.

Questions to ask about the wealth gap in the United States

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The income and wealth gap (also here for information about wealth) in America has grown in recent decades. But rather than simply decry this trend, a sociologist suggests that we should ask some questions:

When it comes to division of wealth, the topic is best tackled by asking questions rather than making statements, according to Mike Dalecki, a professor of sociology at the University of Wisconsin-Platteville.

“How big a gap should there be?” he said, of the wealth divide in the U.S.

“At what point does that gap become so great that we start to have serious societal problems?” Dalecki asked…

How much money do people need to make per year to be satisfied?

If the nation’s wealth divide continues to expand, is there a failure in the economy itself or the ways the rules are written?

Should the wealthiest people pay more taxes?

At what point will they be taxed so much they leave for a different state or country?

These are some good questions because they address larger issues: how do these figures relate to American values and policies? What is an appropriate gap in wealth and how far should we go through measures like taxes to try to limit this gap? These questions link the wealth gap to larger structural and cultural concerns that should interest many Americans. These are the kind of questions I like to ask my Introduction to Sociology courses because they then have to think about how this issue of inequality relates to their thoughts about a “good” or “just” society.

I also think the emphasis here on wealth, instead of just income, is helpful. Income gives you part of the picture but wealth is more accurate measure of the resources people accumulate over time and then can pass on to their descendents. This wealth gap is particularly stark between racial and ethnic groups.

Update on affordable housing debate in Winnetka

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The Chicago Tribune reports on Tuesday’s meeting in Winnetka regarding a proposed affordable housing ordinance. Here is how the comments at the meeting were summarized:

Rick McQuet, a Winnetka resident, said at the meeting that the affordable housing plan is intended to help young families and recent college graduates.

“That young family was me about 15 years ago, a new degree in hand and aspirations of becoming a member of a truly great community,” he said.

Northfield resident June O’Donoghue received applause after she said she opposes the proposal because it interferes with the housing market.

“Housing is affordable to the people who can afford it. That is a simple thing,” O’Donoghue said. “I think you need a referendum for people to vote to see if they want to go through all this social engineering.”

In recent weeks, the plan’s opponents have said it amounts to “hand-outs” for people with lower income that could result in Section 8 housing, decreased property values and increased crime. Supporters have lashed out at the opposition as bigoted, arguing that the plan would allow teachers, clergy and other employees to live in the community in which they work.

Some thoughts about these comments (which may or may not represent everything that was said at the meeting):

1. The first comment I included above is interesting in that it refers to a common understanding of affordable housing in suburbs: it is not about helping the disadvantaged in society but rather “young families,” “recent college graduates,” and often elderly residents of the community. While this may be a good goal for a community (particularly if residents want their own family members in these categories to live in the community), this is a different understanding of “affordable housing.” Perhaps this is what has to be done in many suburbs order to counter the plan’s opponents who are quoted as saying this is really about helping lower-income people. But overall, there are needs for cheaper housing in society beyond people who might fit a profile of a community but simply don’t have the money.

The plan seems to play to this more suburban understanding of affordable housing:

The proposed plan would apply to new developments, in which 15 percent of owner-occupied units must be affordable to households earning at least $75,000 per year, while 15 percent of rental units would be affordable to those earning at least $45,000. Current residents and senior citizens would receive priority, the plan says.

According to the Census, the 2009 median household income was $49,777 so the part of the plan for people making at least $45,000 is still drawing from near the top 50% of American incomes.

2. “Social engineering” is always an interesting term to think about. In finishing my taxes for this year, I was reminded that our tax code is riddled with all sorts of “social engineering” in terms of promoting or incentivizing certain activities. We as Americans value homeownership so we have a home mortgage interest deduction (which some argue should be taken away). We give deductions for giving money to charities. Is all social policy “social engineering” or just policies that some people don’t like?

New census findings on growing American income gap

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The United Census Bureau released 2009 income figures recently and the news is not good: the income gap between the richest and poorest is at its widest level since 1968.

The top-earning 20 percent of Americans — those making more than $100,000 each year — received 49.4 percent of all income generated in the U.S., compared with the 3.4 percent earned by those below the poverty line, according to newly released census figures. That ratio of 14.5-to-1 was an increase from 13.6 in 2008 and nearly double a low of 7.69 in 1968.

A different measure, the international Gini index, found U.S. income inequality at its highest level since the Census Bureau began tracking household income in 1967. The U.S. also has the greatest disparity among Western industrialized nations.

At the top, the wealthiest 5 percent of Americans, who earn more than $180,000, added slightly to their annual incomes last year, census data show. Families at the $50,000 median level slipped lower.

Several key things to note:

1. A complete historical perspective is not possible since the Census didn’t collect household income information before 1967. But this most recent data can still be compared to 40+ years.

2. The US has the largest Gini coefficient, a statistic used in a lot of international comparisons of income, of any “Western industrialized nation.”

3. Even with the recent economic troubles, the incomes of the wealthiest (the top 5%) went up while those around the median income (about $50,000), with 50% of American below this income level, went down.

These are statistics that still matter and have important societal consequences without having to get into a discussion about whether it is moral or immoral for people to earn a lot of money.

How much income one needs to be considered rich

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Americans tend to think of themselves as middle-class, even wealthy and poor Americans who objectively are in the upper or lower ranks of income. So this question occasionally arises: how much income does one have to be earn to be considered “rich”?

The current case in the news:

Todd Henderson feels like he’s barely making ends meet. He’s a law professor at the University of Chicago. His wife’s a doctor at the school’s hospital. Their combined income exceeds $250,000. They have a nice house, a nanny, kids in private school, a retirement account and a lawn guy…

“A quick look at our family budget, which I will happily share with the White House, will show him that, like many Americans, we are just getting by despite seeming to be rich. We aren’t,” Henderson wrote on the blog “Truth on the Market.”

While Henderson meant for his posting to encourage a debate about taxes, it turned into a public flogging, characterizing him as out of touch or arrogant. More broadly, it has provoked a discussion about what it means to be rich, particularly in an economy where many people are suffering.

Henderson’s no longer part of the conversation, though. The firestorm of online hostility compelled him to delete his essay and declare on Tuesday that he will no longer blog. He declined to comment Thursday. Even his wife is angry at him, he acknowledged in a follow-up blog post.

A few thoughts on this:

1. The Chicago Tribune article cites someone saying earning $250,000 a year is in the top 3 percent of American incomes.

2. At the same time, incomes can vary in their purchasing power in different areas. A $150,000 income living in Manhattan can lead to different things than living with that income in Atlanta.

3. Is this a microcosm of how Internet “discussion” works? It seems like a perfect storm of bad economic times plus widespread attention leads to a bad outcome for having made this argument.

4. Perhaps the real issue is whether people making $250,000 feel like they can live the lifestyle that is associated with such income levels. If they feel like they have to pinch pennies or a lot of the money is taken out in taxes, they might not “feel rich.” From those with lower incomes, this seems absurd: just think what could be done with that money. But having certain incomes leads to certain ideas about what that level of income looks like or how it is to be experienced.

UPDATE 9/24/10 3:36 PM: A piece from the Wall Street Journal fits in with my idea about the income and lifestyle not matching up. The overall idea seems to be that people who make this kind of money may not think they have to or don’t want to reign in their spending.

Median income falls in the 2000s, poverty rate up

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Recently released figures from the Census Bureau show troubling news with two oft-cited measures of income:

The bureau’s annual snapshot of American living standards also found that the fraction of Americans living in poverty rose sharply to 14.3% from 13.2% in 2008—the highest since 1994. Some 43.6 million Americans were living below the official poverty threshold, but the measure doesn’t fully capture the panoply of government antipoverty measures.

The inflation-adjusted income of the median household—smack in the middle of the populace—fell 4.8% between 2000 and 2009, even worse than the 1970s, when median income rose 1.9% despite high unemployment and inflation. Between 2007 and 2009, incomes fell 4.2%.

While the poverty figures have drawn a lot of media attention, they are now at 1994 levels (also around the time of a recession). It is not good news that the poverty rate is up but this isn’t catastrophic compared to recent historical figures.

Perhaps more troubling is the decrease in the median income over the course of an entire decade. This suggests that the economic problems aren’t just limited to those at the bottom of the economic ladder; it is affecting many more Americans who saw no real income growth over a ten year stretch. Figures like these are also used by some as evidence of the growing income gap in America.

Untangling the effects of income on happiness

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Examining the relationship between income and happiness can be tricky. A recent research study, conducted by two Princeton researchers and summarized by LiveScience, is illustrative of some of the issues in this research field:

-The researchers were working with a large dataset that is built around a daily survey of Americans: “they analyzed more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 U.S. residents conducted by the Gallup Organization.”

-Changes in income were measured in terms of percentages rather than absolute numbers. This was done to reflect the fact that a percentage change in income would be better for comparisons across income types. As the researchers note: ““In the context of income, a $100 raise does not have the same significance for a financial services executive as for an individual earning the minimum wage, but a doubling of their respective incomes might have a similar impact on both.”

-Survey respondents answered questions related to two measures of happiness: overall life satisfaction and what their emotions were the day before. According to the LiveScience article: “For life evaluation, participants indicated on a scale from zero to 10, from worst to best possible, how they would rate their lives. For emotional well-being, participants answered yes/no questions about whether they had experienced various positive and negative emotions a lot during the prior day.” Having both of these dimensions is critical as a general question about happiness might be interpreted differently (do the reseachers mean happy right now or overall?) by respondents.

-Some of the findings: having a “Low income seemed to magnify the emotional pain of life’s misfortunes, including divorce, illness and loneliness.” However, there was a tipping point of $75,000 where having more money didn’t help improve one’s well-being:

The researchers suggest that making anything more than $75,000 no longer improves a person’s ability to spend time with friends, avoid pain and disease and enjoy leisure time – all factors involved in emotional well-being.

“It also is likely that when income rises beyond this value, the increased ability to purchase positive experiences is balanced, on average, by some negative effects,” they write. For instance, a past study revealed a link between high income and a reduced ability to savor small pleasures, the researchers noted.

This tipping point of $75,000 is above the median income in the United States. I would be curious to know if individuals feel this tipping point when their income does rise to this level – are they cognizant of this point? Or once they reach $75,000, are they still locked into a mindset that having more money will lead to increasing levels of well-being?

Also, this $75,000 point could be quite fluid. Over time, this point would change based on economic conditions and cultural understandings of what is a “good income.”