The wealthiest quintile’s total wages income are down 8.3% after taxes? That counter-inutitive statement is shown in the chart below from today’s WSJ.

My own experience has been that the cut in Capital Gains tax (from 20% to 15%) had an impact, but most especially, the slashing of the Dividends Tax (from as high as 39% top bracket down to 15%) has had a huge, after tax impact.

Down 8.3% over 5 years doesn’t ring true to me (Source is CBO):

Wages_vs_productivity_20060326_1

Here’s the WSJ discussion on the subject:

Since the end of 2000, gross domestic product per person in the U.S. has expanded 8.4%, adjusted for inflation, but the average weekly wage has edged down 0.3%.

That contrast goes a long way in explaining why many Americans tell pollsters they don’t believe the Bush administration when it trumpets the economy’s strength. What is behind the divergence? And what will change it?

Some factors aren’t in dispute. Since the end of the recession of 2001, a lot of the growth in GDP per person — that is, productivity — has gone to profits, not wages. This reflects workers’ lack of bargaining power in the face of high unemployment and companies’ use of cost-cutting technology. Since 2000, labor’s share of GDP, or the total value of goods and services produced in the nation, has fallen to 57% from 58% while profits’ share has risen to almost 9% from 6%. (The remainder goes to interest, rent and other items.)

The author, Greg Ip, concludes that "History suggests that with unemployment low and growth steady, the typical family will see its income rise noticeably. As that happens, Americans’ spirits will rise, as well."

That is more likely to be true if the factors impacting wage disparity and employment mobility attenuate: technology and globalization. At the moment, the odds of that happening look pretty slim . . .

The rest of the article is available to non-subscribers free . . .

Source:
Wages Fail to Keep Pace With Productivity
Increases, Aggravating Income Inequality

GREG IP
WSJ, March 27, 2006; Page A2
http://tinyurl.com/pfubj

Category: Economy, Politics, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “GDP versus Wages”

  1. Anybody says:

    Perhaps it’s a typo but the first chart deals with stats b/t 2000 and 2003 while the second uses data from 2000 to 2005. That seems a little missleading to me, esp when they don’t point out the difference in the excerpt you posted.

  2. excellent point! That would explaint he dividend and cap gains issue — which took place after 2003

  3. matt wilbert says:

    I would assume pre-tax cap gains dropped a lot after 2000 too. That should be included in total income.

  4. anonimousse says:

    The article rings true to me personally.

    I’m a well-paid upper level engineer in a large high-tech firm, and my income is in the top 1% nationwide, which places me well below CEO territory.

    Since 2000 I’ve seen my income from stock option exercises fall off a cliff, and I’ve seen my medical insurance premiums increase. I estimate that my income today is only 1/2 to 2/3 of what it was in 2000.

    Given that my family expenses were set years ago by purchasing a house with a 30-year mortgage in a good neighborhood and starting a family, I’m now feeling house-poor and my savings rate has fallen to zero.

    Sure, I’m not hurting. But I’ve lowered my expectations.

  5. thecynic says:

    where’s the discussion of the supply-side/trickle down policy that Bush has implemented since he took office? that’s really what we are talking about here, but no one wants to say it. Bush has given us a great cases study of this famous conservative economic theory. there should be no surprise that the classes have widened as the policy is inherently inflationary which hits working class disposable income harder (see negative savings rate). we always hear from policy makers that wages will catch up as the benefits of lower tax rates drives investment and hiring. if that is the case why are corporations sitting on record amounts of cash?
    if we all remember Charles Scwhab was the brains behind the dividend tax cut as a way to stop the bear market (note high beta-no dividend stocks outperformed after the tax cut). he happens to own quite a bit of his own stock that pays him dividend. was that an appropriate allocation of resources at the time? history will decide but it doesn’t look like it.
    sure Clinton saw a huge benefit from the Y2K replacement cycle but he also kept a more disciplined book which kept commodity prices low and the class gap narrowed.. Bush has done the opposite. i think the government’s tax cut and spending policies have as much to do with the rise in commodities as the war or supposed demand from China… deficits are inflationary because they hurt the dollar’s purchasing power which drive up commodity prices.. thus real wages decline. betting on corporations to make up the difference with some capex binge is unlikely in the face of slowing profits and economic growth.
    mr ip unfortunately leaves this out of the discussion.

  6. royce says:

    “The wealthiest quintile’s total wages are down 8.3% after taxes? ”

    Barry,

    The chart says total income, including cap gains, were down 8.3% post-tax, not total wages.

  7. KL2005 says:

    Lots of tax loss selling in 2003 would explain the graph to me. 2003 was a great year to dump old loossers and buy into new sectors.

    WSJ’s position about not trusting info from the administration seems like bias or a lack of understanding about investor behavior.

  8. GRL says:

    The article rings true to me personally.

    I’m sure I am not as wealthy as “anonimousse,” but the statistic showing a drop in after tax income rings true for me too.

    We are a two income couple, probably in the top 10% income-wise. My nominal income has risen modestly with small yearly “cost of living” increases. My wife, who is represented by a union, has not gotten a raise in years.

    Our taxes have gone absolutely through the roof, as has the cost of insurance (homeowners and auto). Taxes are our largest single expense by a factor of at least two, and probably more like three.

    Our other costs are fixed (house payments) or increasing (food, fuel, and incidentals). Like anonimousse, we are not eligible for welfare by any means, but we are not “living large” either.

    BTW, I recently saw a statistic stating that, with the poverty leval at about $23,000 a year, at least 25% of the population is “poor” or “near poor.”

    I would be very curious to see a chart showing how government tax receipts have fared over the last 5 years. My guess is that such a chart would show a sharp increase, outpaced only by the increase in government spending . . .

  9. algernon says:

    “I would be very curious to see a chart showing how government tax receipts have fared over the last 5 years. My guess is that such a chart would show a sharp increase, outpaced only by the increase in government spending . . .”

    I agree. Unmentioned is the power of the Alternative Minimum Tax which erases much of the Fed. tax cut. Or the relentless increase in state taxes

  10. Anon says:

    Wow, that total income chart is misleading. There was a 20% drop in total income for the highest quintile during a single year, 2000-2001 — all the mega bonuses disappeared after the dot com bust, plus capital losses from the market itself.

    And after (and before) that, the top quintile is of course up-up-up. If they had started their charting in 2001 instead of 2000, would have had very different results.

  11. cm says:

    GRL: Can you disclose which taxes went through the roof for you? Property taxes would be an obvious thought, but what else? Have you lost deductions and if so which? Perhaps kids leaving the household?