9 ms·

Up to 70% of people in developed countries 'have seen incomes stagnate'

116 points by vmateixeira 10y ago

davidf18 10y ago
Economist Branko Milanovic ( https://twitter.com/BrankoMilan https://twitter.com/BrankoMilan ) wrote about this in a World Bank working paper in 2012. Here is a recent article which refers to his now famous "Elephant Curve." http://www.voxeu.org/article/greatest-reshuffle-individual-incomes-industrial-revolution#.V4eDRJepTrE.twitter http://www.voxeu.org/article/greatest-reshuffle-individual-i... His book published in April: https://www.amazon.com/dp/067473713X/ https://www.amazon.com/dp/067473713X/
- woodpanel 10y ago
  Not to diminish the suffering of the western middleclass (as I'm part of it) but what about the people in emerging markets? If I understand his thesis correctly our 1% raked in the profits of letting us compete against emerging market workers. To put it in startup lingo: we are the cab drivers, they are the uber drivers. It's not 'perfect' for us. But I have a hard time seeing only immorality at work here, while emerging markets getting a shot at having a middle class at all.
  - dv_dt 10y ago
    Maybe it's a hint the this model of capitalism is only good for increasing the wealth of societies within a certain range of development. What happens when emerging markets become developed middleclass markets - do they too stagnate, or does the whole economy decline except for the top 0.1% at that point? Is that an acceptable system?
    - vmateixeira 10y ago
      Interesting theory. Even more interesting if we consider the same top 0.1% to be present in every emerging market.
  - throwwit 10y ago
    Ideally globalization gives everyone a shot at a middle class, if everyone plays towards a larger market. Realistically, there's jockeying for trade and racing to the bottom via whatever measures can be taken (lower taxes, fewer regulations, or dumping product). Winners/losers is ok within a liquid self-balancing economy, not for the illiquid concept of countries.
  - davidf18 10y ago
    Well, the next 20 years are going to be really interesting. I predict automatic is going to make it so that manufacturing may well move back to the consuming countries (Foxconn that assembles iPhones recently replaced 60,000 employees with robots) and in fact some of that is already happening.
  - collyw 10y ago
    I would like to think that the case, but the rich seem to be getting way richer. https://www.theguardian.com/business/2015/apr/26/recession-rich-britains-wealthiest-double-net-worth-since-crisis https://www.theguardian.com/business/2015/apr/26/recession-r...
woodpanel 10y ago
I think if we want to understand the recent surge of populist movements in western countries, this study gives one good reason for it. Regardless of wether statements/positions of those groups are correct or outrageous. “In Sweden, for example, where the government intervened to preserve jobs, market incomes fell or were flat for only 20%, while disposable income advanced for almost everyone. In the United States, government taxes and transfers turned a decline in market incomes for 81% of income segments into an increase in disposable income for nearly all households.” So, protectionism works? At least it seems consequential to me, that for western workers came with globalization an increase in wage-competition from workers in emerging markets. That most western workers can afford much more from their flattened or fallen income than they could 10 years ago is the other part of the story that neither this data-point tells nor the populist movements.
- HillaryBriss 10y ago
  > ... most western workers can afford much more from their flattened or fallen income than they could 10 years ago ... Afford much more of what? It's probably easy to find evidence that computing power in a smartphone is more affordable. But, can people now afford more quality in their children's education or their family's health care? And what about food? Maybe the price per calorie has actually decreased in real terms, but what about the quality of those calories? Is a calorie of corn equivalent to a calorie of fresh fruits and vegetables? And housing? Is a condominium equivalent to a house with a yard? etc. It seems like a mixed picture. Some things are more affordable, but some other important things appear to be more expensive.
  - justin66 10y ago
    > Afford much more of what? Junk you can buy in a store. Education, health care and real estate are a totally different matter.
    - LesZedCB 10y ago
      > Education, health care and real estate are a totally different matter Yes, and totally inaccessible to the people that the folks in this thread are saying allegedly have a better quality of life because they can afford useless commodities.
HillaryBriss 10y ago
The article says that the causes of this stagnation were: 1. the deep slump and the weak recovery after the 2008 financial crisis 2. a decline in the number of people available for work 3. more part-time and temporary working 4. a decline in the influence of trade unions
Asooka 10y ago
That's not surprising. Infinite growth is physically impossible and we are just seeing the end of it. We have to shift our economy and planning from a growth driven mindset to a sustainability driven one.
- theseatoms 10y ago
  How is infinite growth physically impossible? Human demand for goods, services, experiences, etc is insatiable. And production will meet demand.
  - LesZedCB 10y ago
    just like the sun burns up all its hydrogen stores eventually, the earth will eventually give up the last of its natural resources. Sooner, rather than later if we keep up at this pace. Unlike the suns nuclear process, though, our use of resources is unnaturally accelerated.
    - jessaustin 10y ago
      That won't happen in the next several centuries. We will have accessed the resources of the solar system by then.
      - Grishnakh 10y ago
        No, we won't, not the way we're going now. We don't have the technology to extract offworld resources, and we're not doing anything right now to change that, except for some hot air from a few places. Most likely, our environment is going to become uninhabitable within 50-100 years, causing our population and societies to collapse, and while a few of us may persist in some domed cities for a bit, instead of building more technology to move offworld, we'll have a big religious war and then go extinct. Hopefully, some other species will eventually evolve to become intelligent and do much better than we did.
  - Asooka 10y ago
    The rate of production cannot be infinite since it's based on finite resources. As for your second point, I pretty much have all my basic needs met. I could take a 30% decrease in salary right now without any significant change in lifestyle.
drawkbox 10y ago
Since there is a smaller consumer spending pool to pull from, prices have risen faster on key products to make up for the lack of growth in wages. Housing/rent, healthcare, tuition, food and many other things have risen dramatically. Some products have come down in price but that is typical with technology/entertainment products over time. If you make products to sell to everyone, not just the wealthy, you have also probably noticed consumers having less money to spend. This is not good for the engine of the US that creates jobs, small to medium business. This is bad for both classes in the US: wealthy upper and lower plebs, the middle is just about gone. If we want growth across the board, wages also have to grow, else stagnation for all from lower to upper, when did we forget this?
- abakker 10y ago
  Has individual productivity gone up? Income needs to be justified by productivity, doesn't it?
  - drawkbox 10y ago
    What comes first, the productivity gains or a raise? If there is never a raise, or wages essentially do not grow, why would productivity rise? However, productivity has gone up and been helped by technology, wages have not followed.
    - abakker 10y ago
      assuming a Technology/Capital/Labor split (simplistic), if productivity has gone up due to technology, and the technology is primarily a function of capital (i.e. technology doesn't make me smarter, it makes my computer faster) then doesn't it follow that my wage doesn't go up, but the money spent on my computer does?
      - douche 10y ago
        You know, that would make a lot of sense, but it seems to be awfully hard to get management to sign off on time-saving tools, equipment, and software sometimes. It seems like it's pretty simple math: You're paying me X/day, tool which costs Y would save me Z days of time, over the course of the year. Is Y/Z >= X? Then get out the company Amex already.
josu 10y ago
"Our research finds that carefully targeted policy measures to boost productivity, GDP growth, and employment can make a significant difference." I don't buy. What their research found is that one country has fared better than the other 5. Everything else are assumptions of causality.
socialist_coder 10y ago
This is neoliberalism at work. Bernie Sanders challenges this, while Obama and Hillary seek to preserve it. Any chance at changing this in the 2016 election is dead. 4 or 8 more years of this and it's only going to get worse. My only hope is that a strong progressive movement can take off before the right wing Nationalists make it into power.
- _rpd 10y ago
  The past few decades of globalization have resulted in the greatest destruction of poverty in history. For every person experiencing stagnation in the developed world, ten people in the developing world have experienced double digit growth. Poverty destruction has massive benefits, and not only for those in poverty. Even from a purely self-interested point of view, developing nations are already seeing exports to developing markets rise, and that will only continue.
  - whenwillitstop 10y ago
    Rising a country out of poverty is close to zero sum. When they rise out, those incomes are coming from people in developed countries.
    - mistermann 10y ago
      When many millions of people go from being subsistence farmers to producing a massive amount of manufactured goods on the planet, how could you possibly come to the conclusion that it is a zero sum game?
      - st3v3r 10y ago
        Because many of the people in the developed world who used to be doing that manufacturing are now out of work. Unfortunately, at least here in the US, we've been pretty bad at retraining and helping those who get laid off because factories moved overseas.
    - wyager 10y ago
awinter-py 10y ago
These 'zero growth for bottom X%' headlines, even when mathematically valid, are deceiving because growth isn't randomly distributed across the income space, it's concentrated at the top. 'Zero for bottom 50' is usually code for 'positive for 40-50', 'neutral for 20-40', 'negative for 0-20'.
- jseliger 10y ago
  This is a great point. I also think that some people, especially in the media, feel more pinched than they did decades ago because we've systematically made housing dramatically more expensive through parochial zoning: http://jakeseliger.com/2015/09/24/do-millennials-have-a-future-in-seattle-do-millennials-have-a-future-in-any-superstar-cities/ http://jakeseliger.com/2015/09/24/do-millennials-have-a-futu... or http://object.cato.org/sites/cato.org/files/serials/files/regulation/2002/10/v25n3-7.pdf http://object.cato.org/sites/cato.org/files/serials/files/re.... Household consumption costs are dominated by housing, first of all, and transport, secondarily; in many coastal cities, strangling supply has led to higher prices that consume way more income, making people feel artificially poorer than they would in a freer market.
  - internaut 10y ago
    > we've systematically made housing dramatically more expensive through parochial zoning Surely this is a side effect of something else. This effect cannot be caused by population increases because most of the 20th century had large increases without this zoning pattern emerging. Additionally many European countries have declining populations and high rent/house prices. So what is it? Low interest rates? But then low interest rates are supposed to spur business development and new enterprise. More people should have more savings to spend on things, like houses. Why isn't this happening? And finally we're back to Peter Thiel's position = ex-computation technological progress has stalled and many people in the intelligentsia haven't noticed it due to their cocoon. Do you agree with this train of thought?
    - bufordsharkley 10y ago
      > Surely this is a side effect of something else. I recommend the writings of Prof. William Fischel (author of Zoning Rules![0]) to answer this question-- he uses a Coasian approach to identify that restrictive/exclusionary zoning policy is a rational response by homeowners when they are given undue entitlements. One entitlement that's especially relevant is low property taxes (Prop 13 in California/Measure 5 in Oregon)-- this drives up housing prices and incentivizes homeowners to hold on to housing stock and resist the increase of housing stock elsewhere in their community. [0] https://www.amazon.com/Zoning-Rules-Economics-Land-Regulation/dp/155844288X https://www.amazon.com/Zoning-Rules-Economics-Land-Regulatio...
spikels 10y ago
This is the cost of lifting more than a billion people out of abject poverty and is an exaggeration of the negative impact (for example, ignores transfer payments & quality of life improvements). It is part of what is overall a very good thing.
- danharaj 10y ago
  Do you have numbers to back that up?
  - spikels 10y ago
    Here are some but you should try to find numbers you trust. http://www.worldbank.org/en/topic/poverty/overview http://www.worldbank.org/en/topic/poverty/overview
    - danharaj 10y ago
      Those are only half of the numbers. Yes, poverty has been reduced, but the global wealthy have seen their ownership over the collective wealth of humanity increase much more drastically. Where are the numbers that demonstrate that the only way to raise people out of poverty was to sell their countries' resources to the highest bidder and turn them into markets for international capital? This question investigates a counterfactual claim. Could poverty be eliminated in a world without neoliberal politics determining the structure of the global economy?
- throwaway_xx9 10y ago
  > It is part of what is overall a very good thing. Speak for yourself. I'd rather train and purchase from my neighbors. I guarantee people in China and India are not thinking about your welfare whatsoever.
- siavosh 10y ago
  I think you have a point in the sense that from the studies I've seen in the news, the average human being on earth is doing a lot better today than before in terms of income and health. But that's not the whole story. Rapid income inequality is also happening and needs to be explained and judged in terms of whether it's a good or bad thing--most feeling it's the latter.
api 10y ago
It wouldn't be so bad if education, housing, health care, and energy hadn't inflated so much over the same time period.
andrewfong 10y ago
Original report available at: http://www.mckinsey.com/global-themes/employment-and-growth/poorer-than-their-parents-a-new-perspective-on-income-inequality http://www.mckinsey.com/global-themes/employment-and-growth/...

116 points by vmateixeira 10y ago

Economist Branko Milanovic ( https://twitter.com/BrankoMilan https://twitter.com/BrankoMilan ) wrote about this in a World Bank working paper in 2012. Here is a recent article which refers to his now famous "Elephant Curve." http://www.voxeu.org/article/greatest-reshuffle-individual-incomes-industrial-revolution#.V4eDRJepTrE.twitter http://www.voxeu.org/article/greatest-reshuffle-individual-i... His book published in April: https://www.amazon.com/dp/067473713X/ https://www.amazon.com/dp/067473713X/

woodpanel 10y ago
Not to diminish the suffering of the western middleclass (as I'm part of it) but what about the people in emerging markets? If I understand his thesis correctly our 1% raked in the profits of letting us compete against emerging market workers. To put it in startup lingo: we are the cab drivers, they are the uber drivers. It's not 'perfect' for us. But I have a hard time seeing only immorality at work here, while emerging markets getting a shot at having a middle class at all.
- dv_dt 10y ago
  Maybe it's a hint the this model of capitalism is only good for increasing the wealth of societies within a certain range of development. What happens when emerging markets become developed middleclass markets - do they too stagnate, or does the whole economy decline except for the top 0.1% at that point? Is that an acceptable system?
  - vmateixeira 10y ago
    Interesting theory. Even more interesting if we consider the same top 0.1% to be present in every emerging market.
- throwwit 10y ago
  Ideally globalization gives everyone a shot at a middle class, if everyone plays towards a larger market. Realistically, there's jockeying for trade and racing to the bottom via whatever measures can be taken (lower taxes, fewer regulations, or dumping product). Winners/losers is ok within a liquid self-balancing economy, not for the illiquid concept of countries.
- davidf18 10y ago
  Well, the next 20 years are going to be really interesting. I predict automatic is going to make it so that manufacturing may well move back to the consuming countries (Foxconn that assembles iPhones recently replaced 60,000 employees with robots) and in fact some of that is already happening.
- collyw 10y ago
  I would like to think that the case, but the rich seem to be getting way richer. https://www.theguardian.com/business/2015/apr/26/recession-rich-britains-wealthiest-double-net-worth-since-crisis https://www.theguardian.com/business/2015/apr/26/recession-r...

woodpanel 10y ago

I think if we want to understand the recent surge of populist movements in western countries, this study gives one good reason for it. Regardless of wether statements/positions of those groups are correct or outrageous. “In Sweden, for example, where the government intervened to preserve jobs, market incomes fell or were flat for only 20%, while disposable income advanced for almost everyone. In the United States, government taxes and transfers turned a decline in market incomes for 81% of income segments into an increase in disposable income for nearly all households.” So, protectionism works? At least it seems consequential to me, that for western workers came with globalization an increase in wage-competition from workers in emerging markets. That most western workers can afford much more from their flattened or fallen income than they could 10 years ago is the other part of the story that neither this data-point tells nor the populist movements.

HillaryBriss 10y ago
> ... most western workers can afford much more from their flattened or fallen income than they could 10 years ago ... Afford much more of what? It's probably easy to find evidence that computing power in a smartphone is more affordable. But, can people now afford more quality in their children's education or their family's health care? And what about food? Maybe the price per calorie has actually decreased in real terms, but what about the quality of those calories? Is a calorie of corn equivalent to a calorie of fresh fruits and vegetables? And housing? Is a condominium equivalent to a house with a yard? etc. It seems like a mixed picture. Some things are more affordable, but some other important things appear to be more expensive.
- justin66 10y ago
  > Afford much more of what? Junk you can buy in a store. Education, health care and real estate are a totally different matter.
  - LesZedCB 10y ago
    > Education, health care and real estate are a totally different matter Yes, and totally inaccessible to the people that the folks in this thread are saying allegedly have a better quality of life because they can afford useless commodities.

HillaryBriss 10y ago

The article says that the causes of this stagnation were: 1. the deep slump and the weak recovery after the 2008 financial crisis 2. a decline in the number of people available for work 3. more part-time and temporary working 4. a decline in the influence of trade unions

Asooka 10y ago

That's not surprising. Infinite growth is physically impossible and we are just seeing the end of it. We have to shift our economy and planning from a growth driven mindset to a sustainability driven one.

theseatoms 10y ago
How is infinite growth physically impossible? Human demand for goods, services, experiences, etc is insatiable. And production will meet demand.
- LesZedCB 10y ago
  just like the sun burns up all its hydrogen stores eventually, the earth will eventually give up the last of its natural resources. Sooner, rather than later if we keep up at this pace. Unlike the suns nuclear process, though, our use of resources is unnaturally accelerated.
  - jessaustin 10y ago
    That won't happen in the next several centuries. We will have accessed the resources of the solar system by then.
    - Grishnakh 10y ago
      No, we won't, not the way we're going now. We don't have the technology to extract offworld resources, and we're not doing anything right now to change that, except for some hot air from a few places. Most likely, our environment is going to become uninhabitable within 50-100 years, causing our population and societies to collapse, and while a few of us may persist in some domed cities for a bit, instead of building more technology to move offworld, we'll have a big religious war and then go extinct. Hopefully, some other species will eventually evolve to become intelligent and do much better than we did.
- Asooka 10y ago
  The rate of production cannot be infinite since it's based on finite resources. As for your second point, I pretty much have all my basic needs met. I could take a 30% decrease in salary right now without any significant change in lifestyle.

drawkbox 10y ago

Since there is a smaller consumer spending pool to pull from, prices have risen faster on key products to make up for the lack of growth in wages. Housing/rent, healthcare, tuition, food and many other things have risen dramatically. Some products have come down in price but that is typical with technology/entertainment products over time. If you make products to sell to everyone, not just the wealthy, you have also probably noticed consumers having less money to spend. This is not good for the engine of the US that creates jobs, small to medium business. This is bad for both classes in the US: wealthy upper and lower plebs, the middle is just about gone. If we want growth across the board, wages also have to grow, else stagnation for all from lower to upper, when did we forget this?

abakker 10y ago
Has individual productivity gone up? Income needs to be justified by productivity, doesn't it?
- drawkbox 10y ago
  What comes first, the productivity gains or a raise? If there is never a raise, or wages essentially do not grow, why would productivity rise? However, productivity has gone up and been helped by technology, wages have not followed.
  - abakker 10y ago
    assuming a Technology/Capital/Labor split (simplistic), if productivity has gone up due to technology, and the technology is primarily a function of capital (i.e. technology doesn't make me smarter, it makes my computer faster) then doesn't it follow that my wage doesn't go up, but the money spent on my computer does?
    - douche 10y ago
      You know, that would make a lot of sense, but it seems to be awfully hard to get management to sign off on time-saving tools, equipment, and software sometimes. It seems like it's pretty simple math: You're paying me X/day, tool which costs Y would save me Z days of time, over the course of the year. Is Y/Z >= X? Then get out the company Amex already.

josu 10y ago

"Our research finds that carefully targeted policy measures to boost productivity, GDP growth, and employment can make a significant difference." I don't buy. What their research found is that one country has fared better than the other 5. Everything else are assumptions of causality.

socialist_coder 10y ago

This is neoliberalism at work. Bernie Sanders challenges this, while Obama and Hillary seek to preserve it. Any chance at changing this in the 2016 election is dead. 4 or 8 more years of this and it's only going to get worse. My only hope is that a strong progressive movement can take off before the right wing Nationalists make it into power.

_rpd 10y ago
The past few decades of globalization have resulted in the greatest destruction of poverty in history. For every person experiencing stagnation in the developed world, ten people in the developing world have experienced double digit growth. Poverty destruction has massive benefits, and not only for those in poverty. Even from a purely self-interested point of view, developing nations are already seeing exports to developing markets rise, and that will only continue.
- whenwillitstop 10y ago
  Rising a country out of poverty is close to zero sum. When they rise out, those incomes are coming from people in developed countries.
  - mistermann 10y ago
    When many millions of people go from being subsistence farmers to producing a massive amount of manufactured goods on the planet, how could you possibly come to the conclusion that it is a zero sum game?
    - st3v3r 10y ago
      Because many of the people in the developed world who used to be doing that manufacturing are now out of work. Unfortunately, at least here in the US, we've been pretty bad at retraining and helping those who get laid off because factories moved overseas.
  - wyager 10y ago

awinter-py 10y ago

These 'zero growth for bottom X%' headlines, even when mathematically valid, are deceiving because growth isn't randomly distributed across the income space, it's concentrated at the top. 'Zero for bottom 50' is usually code for 'positive for 40-50', 'neutral for 20-40', 'negative for 0-20'.

jseliger 10y ago
This is a great point. I also think that some people, especially in the media, feel more pinched than they did decades ago because we've systematically made housing dramatically more expensive through parochial zoning: http://jakeseliger.com/2015/09/24/do-millennials-have-a-future-in-seattle-do-millennials-have-a-future-in-any-superstar-cities/ http://jakeseliger.com/2015/09/24/do-millennials-have-a-futu... or http://object.cato.org/sites/cato.org/files/serials/files/regulation/2002/10/v25n3-7.pdf http://object.cato.org/sites/cato.org/files/serials/files/re.... Household consumption costs are dominated by housing, first of all, and transport, secondarily; in many coastal cities, strangling supply has led to higher prices that consume way more income, making people feel artificially poorer than they would in a freer market.
- internaut 10y ago
  > we've systematically made housing dramatically more expensive through parochial zoning Surely this is a side effect of something else. This effect cannot be caused by population increases because most of the 20th century had large increases without this zoning pattern emerging. Additionally many European countries have declining populations and high rent/house prices. So what is it? Low interest rates? But then low interest rates are supposed to spur business development and new enterprise. More people should have more savings to spend on things, like houses. Why isn't this happening? And finally we're back to Peter Thiel's position = ex-computation technological progress has stalled and many people in the intelligentsia haven't noticed it due to their cocoon. Do you agree with this train of thought?
  - bufordsharkley 10y ago
    > Surely this is a side effect of something else. I recommend the writings of Prof. William Fischel (author of Zoning Rules![0]) to answer this question-- he uses a Coasian approach to identify that restrictive/exclusionary zoning policy is a rational response by homeowners when they are given undue entitlements. One entitlement that's especially relevant is low property taxes (Prop 13 in California/Measure 5 in Oregon)-- this drives up housing prices and incentivizes homeowners to hold on to housing stock and resist the increase of housing stock elsewhere in their community. [0] https://www.amazon.com/Zoning-Rules-Economics-Land-Regulation/dp/155844288X https://www.amazon.com/Zoning-Rules-Economics-Land-Regulatio...

spikels 10y ago

This is the cost of lifting more than a billion people out of abject poverty and is an exaggeration of the negative impact (for example, ignores transfer payments & quality of life improvements). It is part of what is overall a very good thing.

danharaj 10y ago
Do you have numbers to back that up?
- spikels 10y ago
  Here are some but you should try to find numbers you trust. http://www.worldbank.org/en/topic/poverty/overview http://www.worldbank.org/en/topic/poverty/overview
  - danharaj 10y ago
    Those are only half of the numbers. Yes, poverty has been reduced, but the global wealthy have seen their ownership over the collective wealth of humanity increase much more drastically. Where are the numbers that demonstrate that the only way to raise people out of poverty was to sell their countries' resources to the highest bidder and turn them into markets for international capital? This question investigates a counterfactual claim. Could poverty be eliminated in a world without neoliberal politics determining the structure of the global economy?
throwaway_xx9 10y ago
> It is part of what is overall a very good thing. Speak for yourself. I'd rather train and purchase from my neighbors. I guarantee people in China and India are not thinking about your welfare whatsoever.
siavosh 10y ago
I think you have a point in the sense that from the studies I've seen in the news, the average human being on earth is doing a lot better today than before in terms of income and health. But that's not the whole story. Rapid income inequality is also happening and needs to be explained and judged in terms of whether it's a good or bad thing--most feeling it's the latter.

api 10y ago

It wouldn't be so bad if education, housing, health care, and energy hadn't inflated so much over the same time period.

andrewfong 10y ago

Original report available at: http://www.mckinsey.com/global-themes/employment-and-growth/poorer-than-their-parents-a-new-perspective-on-income-inequality http://www.mckinsey.com/global-themes/employment-and-growth/...