Low income salaries actually experienced a higher increase than higher income salaries between 2014-2019 (basically pre-COVID) -> https://www.cbsnews.com/news/low-wage-workers-are-getting-bi...

And while Piketty's work is popular, he isn't gospel. The IMF was unable to reproduce Piketty's findings in empirical data -> https://www.imf.org/external/pubs/ft/wp/2016/wp16160.pdf, and then Auten & Splinter further refuted the findings by taking into account taxes & transfers -> http://davidsplinter.com/AutenSplinter-Tax_Data_and_Inequali...

> Low income salaries actually experienced a higher increase than higher income salaries

In percentage points. If someone gets a pay rise from $1/hr to $2/hr, they will experience a dizzying 100% wage growth, more than any CEO could ever hope for.

This is simply a mathematical property if small numbers, it doesn't contain any meaningful information on economic development or policy.

That's correct, but also not particularly relevant, as there's no society on the planet where low income salaries experience a higher absolute increase than higher income salaries.

The fundamental point is: there's a narrative that lower income salaries 1) don't increase at all, and 2) increase at a slower rate than higher income salaries, and both are false.

It's also important to remember that the increase in salaries at the lower income levels, do NOT necessarily represent a single earner's pay history. Those numbers show us the snapshot-in-time income numbers for everyone currently at that salary level, but does not account for people actually moving income levels as they progress in their career. The data isn't "here's the life of Joe over the last 5 years", it's "here's the life of people without college degrees that are X years old with Y years of experience with X & Y held constant over 5 years".

If low-end wages double and home prices double, the ratio remains the same but the poor person is still falling behind due to fixed expenses. You'd need disposable income to double for the effect to be neutral (probably a bit more because even poor people deserve a bit of indulgence now and then). As it is, poor people are more sensitive to housing inflation. Even if wages and home prices move up in lockstep (which they haven't) they'll take more years to save up enough for a down payment. That's why so many remain permanent renters, denied the equity and tax advantages of home ownership and putting them at even further disadvantage.

So yes, the point about inequality damn well is relevant. Anyone who wants to pretend they know about statistics should know that distributions matter as much as averages and medians.

What I’m suggesting is irrelevant is pointing out that percentage increases are lower in absolute terms, because that’s universally true everywhere.

If low-end wages double, you have to look at how low-end home prices did, not median home prices. Housing is a positional good.

> If wages and home prices move up in lockstep (which they haven’t)

These numbers are all inflation adjusted, and inflation calculation includes all of those costs:

https://twitter.com/jmhorp/status/1308799186301747200

https://www.bls.gov/cpi/tables/relative-importance/2019.txt

Even if housing costs have gone up more than overall inflation, other things have fallen, and OVERALL inflation rate is the best rough measure of "cost of living". Focusing just on home prices or healthcare is incomplete way of understanding purchasing power / cost of living. When we say that the median income has increased adjusted for inflation, it means that the real salary has increased even accounting for the increased prices of all of the stuff that needs to be bought.

And finally, re-iterating the point: these numbers don’t represent a single earner’s pay history. It doesn’t really make sense to compare a single individual’s fixed expense in the context of these distributions, because they represent different individuals at different snapshots in time. While the shape of the distribution may be (moderately) fixed, the composition of it changes dramatically.

Taking some vague numbers from that article, a low-income salary might be $20,000, which gets an increase of 5%, so $1000. Meanwhile a high-income salary of say $100,000 gets an increase of 2.5%, so $2500. Which one is the bigger increase?

Measuring these things in percentages hides the fact that the underlying numbers are immensely different. Perhaps if we reported numbers differently, we would say that the pay increase for the high-paid worker was 2.5x the pay increase for the low-paid worker.

In terms of what it'll do for you, an extra $1000 at $20,000 p.a. is definitely a bigger increase than $2500 when you're making six figures.

Alright, let's actually follow up on two of your links for once.

Regarding "The IMF was unable to reproduce":

"Piketty's response[54] noted, however, that Góes used measures of income inequality rather than wealth inequality, and inappropriately took the interest rate on sovereign debt as his index of the rate of return on capital, which makes his results not commensurate with those of Piketty's study."

Regarding "Auten & Splinter further refuted":

"There’s plenty of other literature, mentioned in the Auten-Splinter paper, the Economist articles and elsewhere, that challenges the methods used by Piketty and his collaborators. Such challenges are mainly possible because tax data draw an incomplete and often difficult-to-interpret picture of the income distribution. Tax systems are complex, different governments choose not to tax different kinds of income, and of course people, rich and poor, cheat on their tax returns. Measuring wealth inequality rises to a whole new level of difficulty: Since so few countries have wealth taxes these days, only guesstimates of the wealth distribution are possible.

So on Tuesday, Piketty, Saez, Zucman and a long list of other signatories issued a sweeping response to critics of the popular inequality narrative, pointing out that all the data-based arguments can be settled by making solid data available."

Unsurprisingly, these two doesn't seem to very convincing "refutations".

I'm not convinced you actually read through either of those sources, especially considering that none of your quotes actually ever appear in them.

First, and foremost, Piketty's findings are based on theoretical models, not empirical observations. The two fatal flaws Piketty makes are 1) he models a zero-sum world where wealth is fixed, and 2) doesn't take into account taxes & transfers.

From the IMF research:

Using a sample of 19 advanced economies spanning over 30 years, I find no empirical evidence that dynamics move in the way Piketty suggests. Results are robust to several alternative estimates of r-g.

I find no empirical evidence that the dynamics move in the way Piketty suggests. In fact, for at least 75% of the countries examined, inequality responds negatively to r − g shocks, which is in line with previous single-equation estimates by Acemoglu and Robinson (2015). The results also suggest that changes in the savings rate, which Piketty takes as relatively stable over time, are likely to offset most of the impact of r − g shocks on the capital share of the national income. Thus, it provides empirical evidence to the model developed by Krusell and A. Smith (2015), who say Piketty relies on flawed theory of savings. The conclusions are robust to alternative estimates of r − g and to the exclusion or inclusion of tax rates in the calculation of the real return on capital.

From Auten & Splinter

Our estimates also differ for the bottom half of the distribution. PSZ estimated that the bottom 50 percent share of pre-tax and after-tax shares decreased by about 7.5 and 6.2 percentage points since 1979. In contrast, we estimate that pre-tax and after-tax income shares decreased by 5.6 and 2.2 percentage points over this period. Our estimates suggest that taxes and transfers offset most of the recent changes in both bottom and top income shares. In contrast with the PSZ estimate that average real pre-tax incomes of the bottom 50 percent remained virtually unchanged, we estimate that they increased by nearly one-third.

For pre-tax/after-transfer income (which includes Social Security benefits) and after-tax income, we estimate a real increase for the bottom half of the distribution of nearly two-thirds

> I'm not convinced you actually read through either of those sources, especially considering that none of your quotes actually ever appear in them.

Of course I didn't? That would require me to spend several hours to go through those reports, hence I refer to other who have.

Why don't you answer the replies to each report instead - of people that have actually had the time to go through them and reply?

I see, you suggest that there exists refutations to the refutations I've cited. Great! Why haven't you linked them?

Uhm? It's a google away

> mostly as an effect of big tax cuts to the wealthy

Maybe partially so, particularly capital gains taxes. But I'd wager globalization likely had a much more pronounced impact on American inequality by pushing labor out to Asia

Something big happened in 1971 that affected the core of the economy: we unhitched the US Dollar from gold.

https://wtfhappenedin1971.com/

Thomas Sowell makes an interesting point that very few people stay in the same categories of rich or poor in their lifetimes. Young people make up the majority of the poor, but after working and gaining experience the vast majority move out of that category.

I am pretty sure I am an example of that. Graduated in the dot com bust in 2001 and was unemployed for a year and a half. Apparently my partner and I are now in the top 10% of household earnings for our country. (Household earnings being another very misleading statistic - as people become paid better they move out of shared houses, making things look worse when they are actually getting better).

It’s actually been quantified -> https://journals.plos.org/plosone/article?id=10.1371/journal...

Based on the empirical tax analysis, 12% of the population found themselves in the top 1% of the income distribution for at least one year. 39% of Americans spent a year in the top 5% of the income distribution, 56% found themselves in the top 10%, and a whopping 73% spent a year in the top 20% of the income distribution.

Interesting. Is that from windfalls like inheritances or big insurance payouts?

> inheritances

No, because this study analyzes historical tax filings, and inheritances are not counted as taxable income.

> big insurance payouts

On average, probably not, because big insurance payouts are (by definition) actuarial anomalies. They're tail-risk events.

I don't see how so many people can be in the top 5% unless selling your house counts as income and you are counting the econonic activity when someone sells the family home to downsize in their senior years. At any rate without an illustration of how the claims about income works in practice I don't know what to make of this article. Most people aren't going to spend a year as high level executives.

> Most people aren't going to spend a year as high level executives.

I think you might be over-estimating what it takes to be in the top 5%

Here are the numbers -> https://dqydj.com/income-percentile-calculator/

If you earn $170,000, you're in the top 5%. That's absolutely attainable within 5 years of graduating into a high-skill job.

That's also attainable within one's lifetime if they end up doing any sort of management or decision-making (as opposed to just manual labor all their lives).

It's my understanding that 170,000 per year is more than most managers will ever make in most parts of the country. However I can maybe see 170,000 making sense if it's based on household income and a household may have two manager class employees making 90,000 a year.

That said i'm still having a hard time believing the claim that a large number of households will have top 5% earnings. I'd love to see a blog post or something along those lines contexualizing that journal article.

Sure thing! I typically like to only link to primary source so as to avoid accusations of bias.

Here are some articles that summarize the primary source:

https://web.archive.org/web/20160327182251/https://taxfounda...

https://www.aei.org/carpe-diem/evidence-shows-significant-in...

Thanks. That first link makes more modest claims than the second one. They also appear to use different methodology (surveys vs tax returns). I appreciate the different links.

aren't household earnings calculated using the tax definition of household? if I live with three other engineers as roommates, that's not a $400k household; it's four $100k "households", despite the fact that we share the same roof.

I dont think that describes accurately the economy. Socioeconomic mobility is declining too, people who were born to rich families become rich and those where were born in poor families become poor.

It is not all young people who will earn a lot of money later.