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Thursday, March 18, 2010

How to Double Incomes for Millions of Workers

Raising Living Standards in America
by Ben Leet, March 2010

In my last essay I claimed to have found a way to double the incomes of 94 million out of 155 million workers. Like pouring water from a very full glass into a partially full glass, my plan is essentially an adjustment of water levels, not a creation or destruction of new income or wealth. I claimed that 1) a reinstatement of the 90% marginal income tax rate on very high yearly incomes over $400,000 combined with 2) a federal jobs program creating 18 million new jobs would be enough to double the incomes of 60% of the workforce. I claimed that just these two measures would be sufficient. (See my essay “We Can Double Incomes . . .” at this blog, or This was simplistic. This essay will try to fill out a more comprehensive strategy for raising the incomes of the lower income earning majority.

Presently 60% of households receive just 20.3% of the national income, and that means that 40% at the top receive about 80%. The top 1% of households receives 23.5% of pre-tax national income, more than the bottom 60%. These are the two metaphorical water glasses I’m dealing with. The average yearly income for the bottom 60% of households was around $36,000 in 2005, and for the top 1% the average income was over $1,000,000. As for wealth, not yearly income, the imbalance is even greater: the bottom 50% of U.S. households own 2.5% of the national household net worth, the top 10% holds approximately 70% of wealth, with the top one percent holding 33.4%. The average wealth of the bottom 50% (60 million households) is below $23,000 per household, the average for the top ten percent (12 million households) is over $3,000,000, and for the top 1% the average household wealth is over $14,500,000.
(Most of this data is referenced at the end of “We Can Double . . .” essay)

Apparently something breaks down in the distribution of income at the very top level. Our unconscious assumption is that markets determine automatically and fairly the prices for labor, goods and services. A $800 dollar hammer will be bought only by the Pentagon. A $400 dollar an hour plumber will not find work. And the gradual sloping curve of rising incomes holds true for most jobs and professions, but at the highest level the curve breaks down, reason and logic no longer apply. I submit that the income distribution system is broken at the highest end, and it will take an exogenous force such as taxation to bring the highest incomes into line with fairness. Naturally fairness is in the eye of the beholder, so this level will be endlessly debatable. See for a graphic of wealth distribution.

How to Lift Wages
The obvious economic challenge for the nation is to create a sea change in wages; but this is like defying gravity. To counter the downward pressure on wages we have already enacted minimum wage laws, and the Earned Income Tax Credit. One boosts wages, the other boosts income. Other methods include: a tight labor market such as at the end of the 1990s, a federal jobs program such as in the 1930s and ‘40s, federal subsidies to employers to hire new employees, an Employee Free Choice Act facilitating employee unions, a legislative fix of the National Labor Relations Board enabling unions, a restructuring of corporate charters that empower workers on corporate boards as prevails in Europe, more cooperatives and joint ownership enterprises. A national manufacturing strategy, and trade agreements that insist on higher income growth among foreign export workers would recapture lost manufacturing employment. Increasing wages is an international problem. Increasing research and development credits to business would propel new technologies. There is a long list of options that would create jobs and increase wages.

The changes in corporate charters enacted in Germany allow German workers to create a GDP/capita of $44,600 a year vs. the U.S.’s $47,500 a year, while the German worker works 360 hours (or 9 weeks or 2 months) less every year. (See Germany’s Economic Engine, Eamonn Fingleton, American Prospect magazine, March, 2010) Most economists know that U.S. household income has increased by 15% over the past 30 years only because women in households are working 3 months more every year. Where the wife has not entered the workforce household income has not grown at all over 30 years.

For 40 very positive years, 1942 to 1983, the top marginal income tax rate held at 90% and 70% for two twenty year periods. The top ten percent of households never earned more than 35% of the national income. Today they earn almost 50%. This shift of 17% (1976 to 2007) could be reversed through taxation (the metaphorical glasses of water) combined with a jobs program and other measures to reduce necessary expenses, towards the goal of raising living standards for the majority of low-earning workers. That’s the basic program. If wage gains from 1976 to the present had matched the gains in worker productivity, then incomes of 94 million non-supervisory workers would be double what they are today. (See Les Leopold’s argument in The Looting of America, page 16, or my previous essay “We Must Transfer Wealth, Again.”)

Measures of Social Health
In short, all measures of social health --- the rate of poverty, of childhood poverty, of homelessness, of households living in sub-standard housing, of the population not owning assets, of inequality, of population not receiving regular health care, of functional illiteracy, of high school dropouts, of not attending nor graduating from college, of drug abuse, of incarceration, of teen-pregnancy, of non-marital birth, of divorce, --- would improve across the board with higher incomes and lower expenses for workers at the bottom of the income slope. The national happiness quotient would also jump. This proposal is based on an economics of cooperation that curtails competition. Competition is fine for sports, but for the exigencies of life and death, intelligent cooperation is superior. To think otherwise is to be a pessimist and perhaps a Scrooge.

The real question is not is it doable, because it has been done before. Nor is the question, “Is it a good idea?” The question is how do we effect a sea change in wages and income? How do we double the incomes of 94 million workers? I’ve listed briefly above the various means to address the problem.

Today’s Great Recession is ongoing, there are signs that it will double-dip into a full-blown Depression. Many economists in March, 2010, are viewing darkening clouds on the horizon. Many business men and women, as well as economists and politicians, investors and financial advisors are waiting for the “self-sustaining expansion,” the expansion that “gains traction” that causes employers to hire and consumers to spend. It’s like waiting for Godot. Towards the end of the Great Depression and during the World War II mobilization we did transfer wealth to workers’ paychecks, and we should do so again.

We do need a federal jobs program creating 18 million jobs (see Rutgers University professor Phillip Harvey's essay “Learning from the New Deal” at Last year about 140 million workers worked each day creating a product worth $14 trillion a year; each worker produces on average $100,000 a year. But half the workers earn less than $33,500, no where near the average $100,000 each worker produces. It is time to bring up the median worker income from below $33,500 a year. From the book State of Working America, 2006/2007, page 121, we see that average hourly wages for the the following percentiles: 10th = $7.20, 20th = $8.84, 30th = $10.21, 40th = $12.12, 50th percentile worker $14.29 an hour. The average of those percentiles is $10.53 an hour, which is less than $22,000 a year for half of America’s non-supervisory workers who make up 80% of the workforce.

The U.S. ranks 78th among 140 reporting nations on the United Nations’ index of income inequality. Seventy-seven nations distribute their incomes more equally. The U.S. also ranks #37 in probability of living to age 60. You, your family, your children and your neighbors are entitled as citizens to a fairer system. We can literally double the incomes of millions।

These are sources I use and recommend:

Drive for Decent Work, http://fullemployment।
National Jobs for All Coalition at
Warren Brussee’s blog,
Brussee is the author of The Second
Great Depression
Robert Kuttner’s articles in The American Prospect magazine
Robert Pollin’s essays in The Nation or at
The Levy Economics Institute,
The Economic Policy Institute, http://www।

See previous essay or essays for complete source documentation

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