Friday, October 19, 2012

Discussion board 10/17/2012
Do you think income gap in US has been widened recently? Why is that?
Put your thoughts as comments.


  1. Kalyan Kanakamedala:
    Study: CEO Pay Increased 127 Times Faster Than Worker Pay Over Last 30 Years

  2. Amine Bensaid:
    I think that the gap between the rich and the poor has been increasing in the US for a very long time and it will not be decreasing anytime soon. The debate is still going on on whether this spread is justified. In my opinion the spread has a logical explanation in most cases. For instance; numerous CEO's built their corporations from scratch, in this case their are entitled to to their bonuses due to the risky nature for their endeavor.

    To conclude, a lot of successful people today are self made, and I believe that a more in depth research has to be made before coming up with concrete conclusions for their successes. For example, CEO's in large investment banks receive millions of dollars as compensation, mainly because they produced billions of dollar in revenues. While we still hear frequently complains that those CEO's do not deserve such bonuses.

  3. Xiao Zhong:
    A good reference: Trends in income inequality-Percentage point changes in the Gini coefficient

    Per Kalyan's question of income equality disparity of different countries, I think tentative reasons can be:
    1. Stage of economic development-developed V.S.developing (differences in overall economy, social security, health care, etc.)
    2. Political ideology-Socialism V.S. Capitalism (government intervention and re-distribution in income)
    3. Cultural & demographic differences (race; increasing population; money & growth-driven V.S. humanitarian approach; urbanization)
    4. Education inequality (urban V.S. rural; coastal V.S. inland)

    In terms of US, I think main factors contributing to income inequality are:
    1. Changes brought by the financial crisis (high tech, increasing demand for highly-skilled workers, etc.)
    2. Education inequality (increasing tuitions makes it harder for the poor to finance their education)
    3. Race (disrimination in hiring)
    4. Aging population
    *Reference: Stats from US Census Bureau
    692 - Money Income of Households--Distribution by Income Level and Selected Characteristics: 2009
    693 - Money Income of Households--Number and Distribution by Race and Hispanic Origin: 2009

  4. gsalpert:
    Although this issue has been debated by philosophers over many centuries, history has shown that there has always been a gap between people at the top and people at the bottom.

    A key point for today's situation is that the growth rate of this gap in the US continues to accelerate (see the graphic called "bell curve") - the trend is that the curve is beginning to flatten, with the far right of the curve shifting further and further to the right. People on the left of the curve that are less well off are actually shifting leftward because of inflation.

    In other words, if you are staying in the same place, you are actually moving backwards... someone making $50,000 five years ago and making $50,000 today is actually making less money than they were five years ago. So, we have to take into account that CEO's making more money than ever before is relative, because of inflation... tying into Monday's call about QE3 and how previous QE rounds and monetary policy trends in the US have contributed to inflation.

    Business is becoming more and more concentrated and centralized, so one person today can be in charge of a global company with 100,000+ people. Years ago, it was unthinkable for a company of that size to exist, but technology has solved this problem. In economic theory, technology expands the Production Possibility Frontier (PPF) of an economy, which is evident in the case of the US, allowing individuals in charge of large firms to be awarded very generous compensation packages. Industries tend to become more consolidated over time, leaving those at the top in command of a corporate empire. For example, Apple has more cash than the reserves of many countries around the world.

  5. Tim Shoji:
    I think the income inequality in the U.S. is often exaggerated. Part of this has to do with the fact that income data is often reported as household income rather than individual income. Because the make-up of American households has evolved over the years, (more people noww loving by themselves) statistically it looks like income has been decreasing for the poor. However, if we look at individual income data, we see that the Gini coefficient Really hasn't had a meaningful change between 1994 and 2010.

    Furthermore, whenever we talk about income data over a period of time, it's very important to keep in mind that the data does not keep track of actual "flesh and blood" people. In other words, the data does not track the same individuals over time. For instance, Tim Shoji may have been on the bottom 25% of the income distribution in 1980, but in 2013, he may be in a totally different income group. So the same people that were considered "poor" 30 years ago are not necessarily the same people that are considered "poor" today. This is because as people age, and accumulate more skills and experiences, they tend to command a higher wage in the market place.

    Another important point to keep in mind, (especially given the election season) is that fresh immigrants often enter our country at the lowest income ladder, and gradually increase their incomes. Nevertheless, as long as there are new immigrants entering our country, there will always be people that occupy the lowest income-level group.

    As far as comparing different races, there is in fact some evidence that certain races make more (or less) than others. However, these differences are actually much less if we control for age, gender and level of education.

  6. Tian Tan:
    Tim and Glenn made great comments! I especially agree on Tim's point of "flesh and blood" people. One of the beauties of United States Society is that people have great chance to live a decent life through their education and hardworking. In general, people are paid based on their capabilities, which are not necessarily the case in many other countries. Many students from abroad come to US every year and want to stay after graduated from school. Why? Because although it's very tough to find a job, but if you do find a job, the pay is decent and it's not hard to become a middle class using their skill set learned from US universities.

    The main reasons I think that caused the widen gap is economic change. USA is loosing her manufacturing power during the past ten years and many inter-national companies are outsourcing their manufacturing overseas, which caused many middle class workers lost their jobs and have to do those low paying jobs. Further, as American are becoming more and more lazy on manufacturing, they also become more and more entrepreneurial on new industries such as internet, high-tech and other virtue economy. Some can become millionaire, while most can not. And these industries do not demand large labor cost, thus will not help creating jobs and decrease income gap.

    To turnaround?
    1. Bring back manufacturing jobs to US.
    2. Retrain workforce to put more workers in new industries.
    3. Cut tax on small business an middle class household and increase tax rate for high income class.

  7. mkong8:
    I didn’t see the income inequality is a problem at all. Like Glenn mentioned the apple thing.
    First of all, how could we value Steve jobs in Apple? Without Steve, Apple is just probably still fruit. However, with him, apple is the biggest market cap company in the world though this was achieved after he passed away. However, I still believe that at this point, Apple rely on so much on Steve’s design and I have the doubts that whether Apple spirit is already inherited by the Apple team, in another way to say this, is Steve duplicable? My answer is no. Look the stuff we have after he died, iPhone 4S, with Siri comes out, a huge step by Apple and we all know that Steve always pursue people and machine talk directly. Gazillion people think this is still Steve’s idea. But iPhone 5 and iPad 3, it is still good. However, we could the discrepancy of iPhone and other smart phone is shrunk. And Apple is lack of a new boost point. Each generation of Apple products is like wow, however, they are doing to make things faster, thinner, and lighter. That is not Apple.
    Second, if this CEO truly brings the most profit to the companies, then I think they still didn’t get what they deserve. Only small amounts of people make the pie bigger, but everyone get a slice. Those who didn’t contribute that much, they shouldn’t get even a little piece.
    Third, here raised the question, most of the banks’ CEO, when the income statement is ugly still gets lots of bonus. We all know the bankers especially investment bankers rely on deals and bonus. If they make a deal with in this year, they would get paid, however, a couple of deals this year won’t affect the income statement that much. However, I did realize if the CEO take too much advantage of their positions, it would turn to an unfair inequality income problem.
    In general, I still believe in that the income distribution highly relies on how much you contribute and the scarcity of your personal intelligence.

  8. Pian Li:
    The following is my opinion.

    First of all, I agree with the view that in US, people can earn money with their capabilities, background and education. The reason we want to further our study in JHU is to get better education and to find a better job. To be honest, in countries like China, relying on education solely may not bring you that much.

    Secondly, the gap between the rich and poor in US is widened. The increases in income of CEO indicate a great rise of income in the upper level of the society. However, the lower end of society remains the same. So the gap is widened. What’s important, US taxes more on the rich. President Obama called for “millionaires and billionaires” to “pay their fair share”: introduce a minimum tax rate on millionaires and return the top income-tax rate to 39.6% from 35%, and the other 98% of Americans would not have to pay more.(

    However, this does not mean the gap will be smaller. Though both the rich and the poor are taxed, the amount the rich are taxed won’t cause many problems to the rich since they are so rich... But the influence of the taxes of poor people is much larger. Thus, the gap seems to be larger and larger.

  9. Jason Zhang:
    It seems logical to see a widen gap between the rich and the poor, and I think it will always be that way in the long-run. After all, only small portion of the people are doing revolutionary work that can change the world. I like the example provided by Ford. The people who bring highest value should get highest compensation. Especially the case when technology is improving. For example, the top executives of a company make crucial decisions, on the other hand, hundreds and thousands of normal employees are doing the work that can practically replaced by machine at some point in the future. In the end of the day, its the critical decisions that make the differences. These executives should be rewarded much more than the normal employees whose job is simply typing information into the computer. I think the gap is actually an incentive for people to become the people that bring high value.

    However, there should be a restriction towards gap, because the middle class will be reduced if the gap continue to widen in that speed.