A new theory of economic inequality - Note for a lecture, "E Pluribus Unum? What Keeps the United States United"

washingtonpost.com

By Robert J. Samuelson  February 28 at 7:55 PM

Thumbing through the annual report of the White House’s Council of Economic Advisers (CEA) is always an education. This year’s 430-page edition is no exception. Crammed with tables and charts, it brims with useful facts and insights.

●On page 62, we learn that the growth of state and local government spending on services (schools, police, parks) has been the slowest of any recovery since World War II. One reason: Payments into underfunded pensions are draining money from services.

Robert J. Samuelson writes a weekly column on economics. View Archive

●The CEA says on page 72 that labor markets could tighten in 2016 even if job creation is well below last year’s monthly average of 228,000. A mere 78,000 new jobs a month would absorb new workers and keep the unemployment rate at 5 percent. With 141,000 new jobs a month, unemployment would drop to 4.5 percent (January’s actual rate: 4.9 percent).

●A chart on page 149 shows that U.S. exports have increased as a share of the economy (gross domestic product), from 10 percent of GDP in 2005 to 12.5 percent in late 2015. Unfortunately, slow economic growth abroad lately has dampened demand for American exports.

But the most fascinating discussion concerns economic inequality — a hot topic in the presidential campaign. To remind: The figures are stunning. From 1975 to 2014, the share of pretax income going to the “top 1 percent” grew from 8 percent to 18 percent. (Note: Counting fringe benefits, government transfers — say, Social Security — and taxes reduces the concentration.) We have a stock explanation for this. Corporate compensation committees overpay chief executives; hedge fund operators reap big windfalls from trading securities.

Although this undoubtedly occurs, the CEA modifies the standard portrait in two significant ways.

First — summarizing other studies — it attributes much inequality to differences between companies and not to individuals in the same firm. It’s not so much that the gap between the chief executive and the janitor at company A has widened; it’s that company A is falling behind company B, which is more profitable and pays both the CEO and the janitor better. Think General Motors (company A) and Google (B). The economy is splintering into increasingly and decreasingly profitable firms, argues CEA Chairman Jason Furman.

Next, the CEA emphasizes the role played by “economic rents,” enjoyed mostly by highly profitable firms. An economic rent is a price or wage premium above what’s necessary for a company to sell its product or a worker to take a job. A company selling its gizmo at $50 when $30 would earn a reasonable return has a $20 rent. 

Rents can result from market power (including monopolies), better products or technologies, favorable regulations and laws, import tariffs, corruption and much more. Rents earned by superior performance are defensible; rents created by preferential policies or industry consolidation are suspect.

The trouble is that rents are invisible and can only be inferred. In practice, they show up as strong profits and cash flows. However created, companies have to decide who should get them — top executives, workers, shareholders or some mix. A lot of the rents, the CEA suggests, go to top managers and investors. If a CEO is paid $5 million when she’d work for $3 million, she’s receiving a $2 million rent.

It’s also true that many middle-class workers have lost their ability, mostly through unions, to create their own rents — higher wages. In the 1950s and early 1960s, when roughly 30 percent of non-farm workers belonged to unions, this was possible. Companies could pass higher wage increases along to consumers, because many industries were dominated by a few large firms and competition was weak.

Even if today’s unionization rate exceeded 2015’s 11 percent, it would be hard to duplicate this feat. Competition has intensified in too many ways for too many firms: from foreign companies (autos, steel); from the Internet (retailers, movie studios); from deregulation (airlines, trucking and telecom firms). Companies with high labor costs that cannot be recovered in the market are likely to shrink or vanish.

What emerges is a complicated and exasperating picture of growing inequality. There’s a historic rearrangement of economic activity that’s generating more of it. It’s not just greed run amok via undeserved rents. Indeed, even greed is sometimes good, as the CEA says: “Large rewards can motivate innovators, entrepreneurs, and workers and compensate them for taking large personal risks — choices that, in some cases, can benefit households more broadly.” Put plainly: The prospect of striking it rich can inspire socially beneficial behavior. 

The CEA’s theory of inequality is admittedly incomplete. “The overall increase in income inequality in recent decades is large enough to accommodate many partial explanations,” it says. Poor schools, new technologies, family breakdown and immigration all play a role. Fear not: There will be plenty to write about in next year’s report.

Equality in Marriages Grows, and So Does Class Divide - Note for a lecture, "E Pluribus Unum? What Keeps the United States United"

By CLAIRE CAIN MILLER and QUOCTRUNG BUI FEB. 27, 2016, New York Times [Original article contains links and charts.]

Image from article: from text "Alena Taylor, 28, a management consultant, earns 40 percent more than her husband, Matt, 31, a nonprofit executive. "

The Don Drapers of the world used to marry their secretaries. Now they marry
fellow executives, who could very well earn more than they do.

With more marriages of equals, reflecting deep changes in American
families and society at large, the country is becoming more segregated by class.

“It’s this notion of this growing equality between husbands and wives
having this paradoxical effect of growing inequality across households,” said
Christine Schwartz, a sociologist who studies the topic at the University of
Wisconsin-­Madison.

From Cinderella to Kate Middleton, fictional and real-­life fairy tales have
told of women marrying up. But it has been a long time since women said they
went to college to earn a “Mrs. degree.” In more recent cultural touchstones —
like “The Intern,” with Anne Hathaway, and “Opening Belle,” the novel and
soon-­to­-be Reese Witherspoon movie — the protagonists are highly successful
women with husbands who don’t work. (Spoiler alert: Conflict ensues.)

These changes have been driven by women’s increasing education and
labor force participation, new gender roles, and the rise of what social
scientists call assortative mating.

Assortative mating is the idea that people marry people like themselves,
with similar education and earnings potential and the values and lifestyle that
come with them. It was common in the early 20th century, dipped in the
middle of the century and has sharply risen in recent years — a pattern that
roughly mirrors income inequality in the United States, according to research
by Robert Mare, a sociologist at the University of California, Los Angeles.
People are now more likely to marry people with similar educational
attainment — even after controlling for differences between men and women,
like the fact that women were once less likely to attend college.

Even though the typical husband still makes more than his wife, the
marital pay gap among opposite-­sex couples has shrunk significantly in the
decades since women started entering the work force en masse. Today, wives
over all make 78 percent of what their husbands make, according to an Upshot
analysis of annual survey data from the Census Bureau. That’s up from 52
percent in 1970.

In opposite­-sex marriages in which both spouses work some amount of
time, 29 percent of wives earn more than their husbands do, up from 23
percent in the 1990s and 18 percent in the 1980s, according to the Bureau of
Labor Statistics.

The marriage pay gap varies by education, profession and class. Husbands
who are dentists have the greatest pay difference with their working wives,
who earn 47 cents for every dollar their husbands earn. Generally, couples in
which men have high­-earning, white­-collar jobs have the largest marital pay
gap, while men in service jobs like bartending and child care earn less than
their wives.

These differences have to do with the nature of the jobs. Hourly workers
have a smaller gender pay gap in general. High­-paying jobs generally have the
least flexibility and the longest hours — which means someone has to pick up
the slack at home, and families can afford for one spouse to work less.

The marital pay gap still exists in part because women earn less than men
in the economy as a whole, making 79 cents for a man’s dollar.

It reflects the stickiness of gender roles at work and at home: Marriage
significantly depresses women’s earnings, and the arrival of children has an
even stronger effect. Men, meanwhile, tend to earn more after having children,
and studies show that’s because employers see mothers as less committed to
work and fathers as doubly committed to bread-winning.

The nature of marriage itself is changing. It used to be about the division
of labor: Men sought homemakers, and women sought breadwinners. But as
women’s roles changed, marriage became more about companionship,
according to research by two University of Michigan economists, Betsey
Stevenson and Justin Wolfers (who also contributes to The Upshot). Now,
people marry others they enjoy spending time with, and that tends to be
people like themselves.

“Husbands and wives had different roles in different spheres, so that was
the opposites­-attract view of marriage,” Mr. Wolfers said. “Today you want
people with shared passions, similar interests to you, similar career goals,
similar goals for the kids.”

Another reason people are finding mates like themselves is that they are
marrying later, so they know more about their partners’ prospects and
increasingly meet at work. People were least likely to marry those with similar
educational backgrounds around the 1950s, according to Mr. Mare’s research,
when people married very young. Americans are increasingly able to make
their own romantic choices based on personal preferences, free from family or
religious expectations, he found.

American society has also become more segregated geographically; people
tend to live near others with similar educations and earnings. Researchers
have linked the increase in so-­called power couples, in which both partners
have a college degree, to the fact that educated people are more likely now to
live in big cities — so the people they date tend to be educated, too.

Technology could also play a role: Dating apps and sites let people filter
their potential partners before they even have a conversation.

The change is happening internationally, too. In 40 percent of couples in
which both partners work, they belong to the same or neighboring income
bracket, up from 33 percent two decades ago, according to 2011 data from the
Organization for Economic Cooperation and Development, which includes 34
countries. Two­-thirds have the same level of education.

Despite being more common, these marriages are a break from tradition,
and that can present problems.

Marriages in which the woman earns more are less likely to form in the
first place, which accounts for 23 percent of the overall decline in marriage
rates since 1970, according to a large study by the economists Marianne
Bertrand and Emir Kamenica of the University of Chicago and Jessica Pan of
the National University of Singapore. Using census data from 1970 to 2000,
they analyzed the choices people made in so­-called marriage markets, based
on age, education, race and where they lived.

When such marriages do form, the women become more likely to seek
jobs beneath their potential or to stop working entirely, and the marriages are
more likely to end in divorce. Paradoxically, wives who earn more also do
significantly more housework and child care than their husbands do, perhaps
to make their husbands feel less threatened, the economists said.

Bill Doherty, a marriage therapist and professor at the University of
Minnesota, said he had seen women who were more professionally successful
than their husbands compensate by building up their husbands’ careers and
playing down their own.

“It’s kind of like if he’s shorter than she is, she doesn’t wear heels,” he
said. “It’s in the cultural DNA that if anyone should be bigger, richer, more
successful, it should be the man.”

When these couples struggle, it is often over issues like sexual desire or
the division of housework and child care, Dr. Doherty said, particularly if the
woman loses respect for the man and the man feels insecure about his role in
the family.

Yet that dynamic seems to be changing, he and other researchers said,
because young people have more egalitarian views about marriage and the
division of labor.

Alena Taylor, 28, a management consultant, earns 40 percent more than
her husband, Matt, 31, a nonprofit executive. “It has felt like a nonissue,” Mr.
Taylor said.

They said they knew that conflict could arise over their division of labor
when they have children, including because she travels more and he has
greater flexibility. “Because my earnings potential is much higher than his,
over time we’ll have to figure that out,” she said.

Researchers say the rise in assortative mating is closely linked to income
inequality. The two have increased in tandem, Dr. Schwartz, the sociologist
from the University of Wisconsin, said: “People who are married tend to be
more advantaged, and on top of that, more advantaged people are marrying
people like themselves, so those people tend to be doubly advantaged.”

The effects could become more pronounced in future generations. Studies
tell us that parents’ income and education have an enormous effect on
children’s opportunities and achievements — and children today are more
likely to grow up in homes in which parents are more similar than different.

The Faces of American Power, Nearly as White as the Oscar Nominees - Note for a lecture, "E Pluribus Unum? What Keeps the United States United"

New York Times

By HAEYOUN PARK, JOSH KELLER and JOSH WILLIAMS FEB. 26, 2016

We reviewed 503 of the most powerful people in American culture, government, education and business, and found that just 44 are minorities. Any list of the powerful is subjective, but the people here have an outsize influence on the nation’s rules and culture.

Leaders of the Largest American Companies

After some years of progress, the diversity of the corporate elite has stalled in recent years, said Richard Zweigenhaft, a professor at Guilford College who studies executive diversity. “Once that barrier is broken, there may be a little less pressure to keep appointing people from that previous excluded category,” he said.

Minorities are highlighted in yellow.

The President and His Cabinet

Presidents Obama, George W. Bush and Bill Clinton all had at least six minority cabinet members at some point in their terms.

Minorities are highlighted in yellow.

Presidents of Ivy League Universities

Just two minorities have ever been presidents of Ivy League institutions. In 2001, Brown University appointed the first African-American leader, Ruth Simmons. Eight years later, Dartmouth appointed the first Asian-American leader, Jim Yong Kim. Both officials have since left those posts.

U.S. Senators

In the history of the Senate, there have been just 12 Republican and 14 Democratic senators who were not white. Six of them are now in office. Two of the three Hispanic senators – Marco Rubio of Florida and Ted Cruz of Texas – are running for president.

Minorities are highlighted in yellow.

Hollywood Executives Who
Choose Which Movies Are Made

We selected studio executives who decide which movie ideas come to fruition. All are white, with the exception of Kevin Tsujihara, the chief executive of Warner Bros. Entertainment. Minorities are also underrepresented among directors, writers and actors.

Minorities are highlighted in yellow.

People Who Decide What
Music Gets Produced

Shown here are the top 20 people on Billboard’s Power 100 list. Except for Eddy Cue of Apple, who is Cuban-American, they are all white. The industry relies heavily on black talent, but few of the industry’s most elite decision makers are black.

Minorities are highlighted in yellow.

Mayors of America’s Largest Cities

The diversity of mayors in America’s 20 most populous cities is closer to that of the United States population than most of the other groups presented here.

Minorities are highlighted in yellow.

People Who Wield the Most Influence
Over Which Books Americans Read

There’s no single authority for identifying the most powerful people in publishing, but we selected 20 who are among the most influential in deciding which books get published, which ones break out and what Americans read. Among those included are publishing executives who say “yes” or “no” to book proposals, and powerful agents and celebrities who influence which books become best sellers.

A recent survey of workers at publishing houses found that the industry remains overwhelmingly white. Nearly 90 percent of respondents identified themselves as white, and only 20 percent said strides had been made to diversity the work force.

Minorities are highlighted in yellow.

People Who Decide Which
Television Shows Americans See

The people pictured here are among the most powerful players in the television industry. The group is not exhaustive, but we included the top producers and executives at major networks and streaming services.Channing Dungey, head of ABC entertainment, became the first black network president in February.

Minorities are highlighted in yellow.

People Who Decide
What News Gets Covered

We selected top leaders of newspapers and networks who decide which stories to cover and how to do so. In 2014 Dean Baquet became the first black executive editor of The New York Times.

Minorities are highlighted in yellow.

United States Supreme Court Justices

Thurgood Marshall became the first African-American justice on the Supreme Court in 1967. When he retired in 1991, he was succeeded by Clarence Thomas, who is also African-American.

Minorities are highlighted in yellow.

American Governors

In 1989, L. Douglas Wilder of Virginia, a grandson of slaves, became the nation’s first African-American to be elected governor by popular vote. Most minority governors have held office in states with larger minority populations. New Mexico, which is 46 percent Hispanic, has elected six Hispanic governors, including its last two.

Minorities are highlighted in yellow.

America’s Top Military Advisers

In 1989, Gen. Colin L. Powell became the first African-American chairman of the Joint Chiefs of Staff. He resigned in 1993.

Owners of Men’s Professional
Basketball Teams

About 75 percent of players are black, but Michael Jordan is the only black majority owner among the N.B.A.’s 30 teams. While teams often have multiple owners, we show the ones representing the teams at league meetings.

Minorities are highlighted in yellow.

Owners of Men’s Pro Football Teams

There isn’t a single black owner in the N.F.L., and only one who is a minority, even though 70 percent of players are black. With teams selling for well over $1 billion, only the ultra-wealthy find ownership within reach.

Minorities are highlighted in yellow.

Owners of Men’s Pro Baseball Teams

In more than a century of professional baseball, teams’ owners have mirrored the makeup of corporate America. Decades ago, newspaper publishers, beer barons and mining titans owned teams. These days, owners come from high finance and real estate.

Minorities are highlighted in yellow.

Join us for candid conversations about race and the Race/Related newsletter. Sign up here.

Note: Race is given according to census definitions, which classify people from Europe, the Middle East and North Africa as white. 102 chief executives are shown. Oracle has two CEOs. After the Fortune 500 list was released, HP split into two companies, and both are shown. Oscar Munoz is on medical leave, but he is shown here instead of the acting chief executive. Six individuals appear in more than one category. Basketball, football and baseball teams often have multiple or corporate owners. The owners shown are the people chosen by the teams to represent them at league meetings, according to each league. The Green Bay Packers are owned by shareholders; their president and C.E.O., Mark Murphy, is shown.

Sources: United States Senate (senators); Billboard Power 100 (music industry); Richard Zweigenhaft, Guilford College and Fortune (Fortune 100); John E. Fage (Joint Chiefs); National Governors Association and Christopher Z. Mooney, Institute of Government and Public Affairs (governors); Paul Light, New York University (cabinet); Tides Foundation (team owners); Major League Baseball; National Football League; National Basketball Association; company and university websites; socialexplorer.com.

Additional work by Sarah Almukhtar, Ken Belson, Sarah Booth, David Braun, Andy Chen, Amanda Cordero, Tanner Curtis, Sandi Daniel, Alicia Desantis, Alex Garces, Rebecca Haliscelik, Laura Kaltman, K.K. Rebecca Lai, Chris O'Brien, Yuliya Parshina-Kottas, Andrew Rodriguez, Karl Russell, Venus Tong, Derek Watkins and Jessica White