Income and Wealth (Greenwood Guides to Business and Economics)

246 Pages·2006·1.13 MB·English

by  Alan Reynolds

Income and Wealth
Advisory Board
Alan L. Carsrud
ProfessorofIndustrialandSystemsEngineering,ClinicalProfessorofManagement,
and Executive Director of the Eugenio Pino and Family Global Entrepreneurship
Center Florida InternationalUniversity
Alan Reynolds
SeniorFellow
Cato Institute
Robert Spich
Senior Lecturer in the Global Economics and Management Group and Faculty
Program Director, Center for International Business Education and Research, An-
derson Graduate School ofManagement University ofCalifornia,Los Angeles
Wesley B.Truitt
Chairmanand Series Editor
Executive-in-Residence
CollegeofBusiness Administration
LoyolaMarymountUniversity
Walter E. Williams
John M. Olin Distinguished Professor ofEconomics
George Mason University
Charles Wolf Jr.
SeniorEconomicAdviserand CorporateFellowinInternational Economics
The RAND Corporation
Income and Wealth
ALAN REYNOLDS
GREENWOOD GUIDES TO BUSINESS AND ECONOMICS
Wesley B. Truitt, Series Editor
GREENWOOD PRESS
WESTPORT, CONNECTICUT (cid:1) LONDON
LibraryofCongressCataloging-in-Publication Data
Reynolds, Alan.
Incomeand wealth / Alan Reynolds.
p. cm. —(Greenwood guides to business and economics,
ISSN 1559–2367)
Includes bibliographical referencesand index.
ISBN 0–313–33688–1 (alk. paper)
1. Income—United States. 2. Wealth—United States. 3. Income
distribution—UnitedStates. I. Title.
HC110.I5R478 2006
339.2'20973—dc22 2006021343
British LibraryCataloguing-in-Publication Datais available.
Copyright # 2006 byAlanReynolds
All rights reserved. Noportion ofthis bookmay be
reproduced, by any process or technique,withoutthe
express written consentofthe publisher.
Library ofCongressCatalogCard Number: 2006021343
ISBN: 0–313–33688–1
ISSN:1559–2367
First publishedin2006
GreenwoodPress,88 Post RoadWest,Westport, CT 06881
Animprint ofGreenwoodPublishing Group, Inc.
www.greenwood.com
Printedinthe United States ofAmerica
The paper used inthis book complies with the
PermanentPaperStandardissuedby theNational
Information StandardsOrganization (Z39.48–1984).
10 9 8 7 6 5 4 3 2 1
Contents
Illustrations vii
Series Foreword by Wesley B. Truitt ix
Introduction 1
1. Concepts and Measures 9
2. Work Matters 25
3. A Vanishing Middle Class? 47
4. The Wage Stagnation Thesis 57
5. The Top 1 Percent 73
6. CEOs and Celebrities 115
7. Wealth Is Not Distributed 147
8. Consumption Inequality, Lifetime Income, and Mobility 161
9. Causes and Cures 183
Glossary 207
Online Resources 219
Index 225

Illustrations
TABLES
1.1 Distribution of Persons by Family Type 12
1.2 Census Bureau Gini Ratios for Pretax, Pretransfer
Money Income 18
1.3 Comparison of Income Distributions Producing the Same
Gini Index 19
1.4 Before-Tax Household Income (in 2004 Dollars) 20
2.1 Average Household Income by Quintile (and Top 5 Percent)
Census Bureau (Estimates in 2004 Dollars) 38
2.2 AverageAfter-TaxHouseholdIncomebyQuintile(andTop5
Percent)CongressionalBudgetOffice(Estimatesin2003Dollars) 39
4.1 Full-Time Wage and Salary Workers, 2004 60
4.2 Ownership of Consumer Goods 67
5.1 Estimated Income Share of Top 1 Percent 79
5.2 Dew-Becker and Gordon Estimates of Labor Income
(Billions in 2000 Dollars) 94
5.3 Distribution of Tax-Deferred Account Holders by Marginal
Tax Rates, 1998 101
5.4 Shares of Pretax Personal Income 106
7.1 Percent of Baby Boomers with Net Worth above $250,000
(in 2001 Dollars) 152
viii Illustrations
7.2 The Composition of Household Wealth in 1995 (Percent
of Gross Assets) 156
8.1 Alternative Measures of Inequality (Gini Coefficients) 164
8.2 Increase in Mean Disposable Income Needed to Move
to a Higher Group in 1992–1994 177
9.1 Number of Manufacturing Jobs (Thousands) 190
9.2 Average Hourly Earnings in December 2005 by Production
or Nonsupervisory Workers 191
9.3 Maximum Marginal Tax Rates on Individual Income 202
FIGURES
1.1 Real Median Income of 4-Person Families and Households,
1975–2003 14
1.2 Lorenz Curve for U.S. Households, Pretax and Pretransfer
Money Income, 2004 16
2.1 Mean Household Income by Number of Earners 30
3.1 Minimum Threshold for the Top 20 Percent and Mean
Income above That Threshold 53
4.1 Real Average Weekly Earnings of Private Nonfarm Production
and Nonsupervisory Workers 62
4.2 Average Weekly Wages Mislead When Weekly Hours Decline 63
4.3 Cumulative Annual Increases in Real Compensation
per Hour, Since 1973 65
4.4 Real Per Capita Consumption in 2000 dollars, 1929–2004 68
5.1 Business Income’s Share of Total Income of Top 1 Percent
and Top 0.1 Percent 83
6.1 Average CEO Compensation and the S&P 500 Stock Index 127
7.1 Average Real Net Worth of Households (Thousands in
2004 Dollars) 155
7.2 Share of ‘‘Augmented Wealth’’ Held by the Wealthiest
1 Percent of Households 157
Series Foreword
Scanning thepages of thenewspaperon anygivenday,you’llfindheadlines
like these:
‘‘OPEC Points to Supply Chains as Cause ofPriceHikes’’
‘‘Business Groups Warn of Danger of Takeover Proposals’’
‘‘U.S. DurableGoods Orders Jump 3.3%’’
‘‘Dollar HitsTwo-Year High Versus Yen’’
‘‘Credibility ofWTO at Stake in Trade Talks’’
‘‘U.S. GDPGrowth Slows WhileFed Fears Inflation Growth’’
If this seems like gibberish to you, then you are in good company. To most
people,thelanguageofeconomicsismysterious,intimidating,impenetrable.
But with economic forces profoundly influencing our daily lives, being fa-
miliarwiththeideasandprinciplesofbusinessandeconomicsisvitaltoour
welfare. From fluctuating interest rates to rising gasoline prices to corporate
misconduct to the vicissitudes of the stock market to the rippling effects of
protests and strikes overseas or natural disasters closer to home, ‘‘the econ-
omy’’ is not an abstraction. As Robert Duvall, president and CEO of the
National Council on Economic Education, has forcefully argued, ‘‘Young
people in our country need to know that economic education is not an
option. Economic literacy is a vital skill, just as vital as reading literacy.’’1
Understandingeconomicsisaskillthatwillhelpyouinterpretcurrentevents
that are playing out on a global scale, or in your checkbook, ultimately
helping you make wiser choices about how you manage your financial
resources—today and tomorrow.