Question about "obscene bonuses"

[ChocolateReignRemix]

Bill Gates's father is a famous and wealthy economist. Young Bill attended expensive private schools and went to Harvard. When he dropped out of college, his parents parents seeded his startup.

 

His mother was friends with the president of IBM. She sold him on this new OS that her college dropout son, whose little startup had up until that point had one product, was working on.

 

How, exactly, are the rest of us supposed to replicate that just with hard work?

 

Exactly. Oddly enough, Gates and Buffet both acknowledge that they have benefited from the stability and other advantages of the US, and support estate taxes on the wealthy.

[momma2three]

Exactly. Oddly enough, Gates and Buffet both acknowledge that they have benefited from the stability and other advantages of the US, and support estate taxes on the wealthy.

 

Yup.

 

I don't know anything about Warren Buffett's background, but Wikipedia is telling me that his father was a stockbroker and a US Congressman. Not exactly the humblest of roots either.

[ChocolateReignRemix]

I tend to agree that government manipulation in corporations - even to the extent they seem to help corporations - are not helpful in the big picture. This includes tax breaks, targeted credits, etc. Even if they create jobs, they do so at too much cost. It would make more sense to remove barriers that currently prevent companies from expanding. It's obvious that corporations create jobs - otherwise we'd all work for the government. There must be some good in there if we could only stop poking at it.

 

It isn't government manipulating corporations. Corporations ate using money to manipulate the government.

[cdrumm4448]

Bill Gates's father is a famous and wealthy economist. Young Bill attended expensive private schools and went to Harvard. When he dropped out of college, his parents parents seeded his startup.

 

His mother was friends with the president of IBM. She sold him on this new OS that her college dropout son, whose little startup had up until that point had one product, was working on.

 

How, exactly, are the rest of us supposed to replicate that just with hard work?

 

As I mentioned in a previous post, super successful people don't just work hard, they take advance of opportunitities that are presented to them.

[cdrumm4448]

Yup.

 

I don't know anything about Warren Buffett's background, but Wikipedia is telling me that his father was a stockbroker and a US Congressman. Not exactly the humblest of roots either.

 

Sometimes your background doesn't matter. In Buffett's case, he refuses to leave anything to his kids. He feels they should make their own way in the world. So, I wonder if Warren's parents did the same?

[momma2three]

As I mentioned in a previous post, super successful people don't just work hard, they take advance of opportunitities that are presented to them.

 

But how many of us have parents who are besties with the CEOs of major multinational corporations who our parents can sell our sub-par project to? That our millionaire parents have happily been funding? That's an "opportunity" that only a tiny sliver of the population has.

 

Sometimes your background doesn't matter. In Buffett's case, he refuses to leave anything to his kids. He feels they should make their own way in the world. So, I wonder if Warren's parents did the same?

 

LOL, what does his will have to do with his background?

 

I believe he's said that he's given them every advantage in life, so doesn't feel the need to give them a great deal of inherited wealth. They have had a very privileged background, which he has been open about. And things aren't quite so crystal clear: two of them, I think I read, are employed by their mother's foundation and earning a pretty salary over it.

 

Buffet had a very privileged background, and what he does with his money isn't "background." Also according to Wikipedia, the first company he invested in when he was in high school was his father's. That's not exactly an "opportunity" that comes to most people.

 

The idea that these people had opportunities that are open to any of us, if we just worked hard enough, is ludicrous and not at all backed by numbers.

[amy g.]

I agree with so many points that have been made here, such as no one in a failing company needs a bonus, and sometimes operations are so bare bones that there is no place to trim another 20 or 30 percent, and in a successful business, everyone who contributed to the company's success should get a bonus at some percentage.

 

There is just on point that Bill made that I can not completely get on board with. That is the idea that managers should not get big bonuses for just coming in and firing people.

 

I've seen situations where the only way to help a company become profitable was to come in and fire the people who were not contributing.

 

When my older kids were little, my husband made a small salary as a staff engineer, but he was offered a chance to run a project that should have had plenty of profit in it, but had always lost money. It turns out that workers were signing in, then going home for the day, and coming back at night to sign back out.

 

He had to start working 7 days a week to really supervise the project, so I made him take our toddler son with him on the weekends. It was funny when a truck load of field techs showed up at my son's 3rd birthday party. That is who he wanted to invite.

 

After about a year, my husband had hired some really good, honest, workers, and the project ran itself. 13 years later, it is still profitable for the company.

 

He was then offered a manager's job in another state because it had always lost money, but no one in the corporate office could figure out why. He really did not want to take it, but they were desperate for him, so we were able to negotiate a big raise, and for the company to pay for our housing plus the kids private school and our country club membership. The cost of living was higher there, and the schools were awful, and you had to belong to a club to swim there, so they agreed.

 

It turned out almost everyone in the office needed to be fired. It took 18 months of my husband working 20 hour days to get rid of all of the thieves and assorted crooks and replace them with responsible trustworthy workers. The office began to completely run itself.

 

I wish he had gotten a giant bonus for turning that office around. Instead, they rightfully decided that it was doing so well, it no longer even needed an onsite manager, so dh was free to transfer back and take a cut in perks and pay.

 

Fortunately, it only took him one interview to get a much better job, doing what he loves, with no one beneath him to manage. That job has come to an end after 12 years due to a buyout. He is again moving into a management role which is not his favorite job, although the bonuses might make it worthwhile.

 

I've seen him fight to help field people keep their jobs when they made mistakes because they were improperly trained, but I hope he is able to fire the people who are drunk at 9:00am (working from home) and the people who just gossip and play FaceBook games all day, and the people who are too lazy to take actually reading, so they just manufacture reports out of thin air.

 

I just can't see why a manager should not be rewarded for getting rid of those people. Seeing them go tremendously helps the morale of of the loyal hard workers, and opens the door for new hires, and helps the company make money, which, after all, is the entire point of their existence.

[LisaKinVA]

There is just on point that Bill made that I can not completely get on board with. That is the idea that managers should not get big bonuses for just coming in and firing people.

 

I don't think Bill would oppose justified firings in your example, those are firings that are made with the company's BEST interests (short and long-term in mind). The firings he'd be referring to are things like THIS scenario:

 

Circuit City circa 2001-2002 reorganized the whole sales staff, going from base+ commission to base with much lower commission. What did they do? They FIRED all of those making commissions over a certain dollar amount. Essentially, they fired all of their best salespeople, replacing them with young, inexperienced, knowledgeable kids who just wanted to punch a clock. Initially, profits were up...but when people could no longer get their questions answered by talking to knowledgeable sales people (all those people they fired), CC was no different from Best Buy...and if they had to go on-line to do all of the research themselves (which camera to buy), they may as well look for the lowest price.

 

Circuit City bean-counting managers...bean counted their way to insolvency. (There were other factors at play with their credit business, which was really struggling, too...but sales YOY in the store my dh was working in were down Christmas of 2002 vs. 2001. Thankfully in 2003, his temporary job became permanent, and he could stop working at CC to pay for COBRA.

[amy g.]

See, this is why I love this forum so much.

 

Now I understand what he is talking about. Twice, I went into Circuit City to buy something and had to leave without buying anything because the service was just awful.

 

Firing experienced, good salespeople is so short sighted and counterproductive.

[MrsBear]

Bill Gates's father is a famous and wealthy economist. Young Bill attended expensive private schools and went to Harvard. When he dropped out of college, his parents parents seeded his startup.

 

His mother was friends with the president of IBM. She sold him on this new OS that her college dropout son, whose little startup had up until that point had one product, was working on.

 

How, exactly, are the rest of us supposed to replicate that just with hard work?

 

Look at small businesses in the US - how many are there and how many were started by uber-wealthy people?

 

In the US more than half the GDP is from small businesses (<500 employees) and accounts for more than half the employment in the US. Someone is opening these businesses and running them.

 

Companies with less than 20 employees account for 20% of all US employment, if you look at the data, half of small companies employ less than 100 employees; 9-million of them in the US, employing 45-million people. If you include less than 101-500 employee firms, that's then 9.3 million employing 60-million people. So the vast majority employed by small business are within companies with 1-99 employees. Again, someone is starting these businesses and running them. Are they all wealthy at the start?

 

I, for one, have not stated all you need is hard work, you also need the the wherewithall to do it too, a plan, goals and actions matter.

 

Sam Walton (and I am certainly not a fan of Wal-Mart) grew up dirt poor in Missouri and founded WalMart; Colin Powell grew up in poverty in Harlem, and ascended to Secretary of State of the US; Joe Lacob, majority owned of NBA franchise grew up poor, yet turned each success he found into something bigger along the way; Ron Bowman grew up poor, put himself through school and started fixing up houses, now he owns commercial space he built himself and leases out and continues in the construction business (Bowman Construction); there are millions of examples in the US of individuals breaking free of circumstance and starting something on their own - some grow to be huge businesses (Walmart), others remain smaller, but hugely successful (Bowman Construction).

 

One can focus on all the reasons why outliers like Gates or Buffet don't count, but that doesn't account for the millions who aren't the outliers who have succeed in business and life, who started with little to no advantage whatsoever, yet managed to make it happen, whether their business grows to be big or it stays smaller, yet successful. With millions of small businesses in the US, someone is doing it and they're not all wealthy and privileged before they started.

[Crimson Wife]

I agree. We shouldn't have wages so low that people working for a living cannot afford to feed and clothe their families. Nice to see you on board!

 

Or perhaps the problem is not with wages, but with the cost of living being so high. Government policies often drive up this cost, especially when it comes to the biggie of housing. Many towns have zoning regulations that make it far easier for a builder to put up one 4500 sq. ft. McMansion on 2 acres than three 1500 sq. ft. houses on 2/3 acre each. Where's the outrage over that?

[ChocolateReignRemix]

Look at small businesses in the US - how many are there and how many were started by uber-wealthy people?

 

And the failure rate for small businesses in the first 3 years of operation is roughly 50%.

 

In the US more than half the GDP is from small businesses (<500 employees) and accounts for more than half the employment in the US. Someone is opening these businesses and running them.

 

Companies with less than 20 employees account for 20% of all US employment, if you look at the data, half of small companies employ less than 100 employees; 9-million of them in the US, employing 45-million people. If you include less than 101-500 employee firms, that's then 9.3 million employing 60-million people. So the vast majority employed by small business are within companies with 1-99 employees. Again, someone is starting these businesses and running them. Are they all wealthy at the start?

I don't believe anyone said they were. I can say that those that survive the early years of running a small business often have advantages others do not. Someone who comes from a more privileged background often has greater access to additional capital that others may not, giving them the ability to survive a business downturn. My sister is an example of this, as she was able to hold on to her business during the recent recession thanks to some of her family members being able to provide her loans that would not have been available from the banking industry at that time. Many of her competitors went out of business during the same time frame because they were not able to access the resources to stay afloat.

 

 

 

Sam Walton (and I am certainly not a fan of Wal-Mart) grew up dirt poor in Missouri and founded WalMart; Colin Powell grew up in poverty in Harlem, and ascended to Secretary of State of the US; Joe Lacob, majority owned of NBA franchise grew up poor, yet turned each success he found into something bigger along the way; Ron Bowman grew up poor, put himself through school and started fixing up houses, now he owns commercial space he built himself and leases out and continues in the construction business (Bowman Construction); there are millions of examples in the US of individuals breaking free of circumstance and starting something on their own - some grow to be huge businesses (Walmart), others remain smaller, but hugely successful (Bowman Construction).

One can focus on all the reasons why outliers like Gates or Buffet don't count, but that doesn't account for the millions who aren't the outliers who have succeed in business and life, who started with little to no advantage whatsoever, yet managed to make it happen, whether their business grows to be big or it stays smaller, yet successful. With millions of small businesses in the US, someone is doing it and they're not all wealthy and privileged before they started.

The point is that Gates and Buffet are NOT the outliers. Like I mentioned above, if you look up the statistics for income mobility in the United States over the past several decades, you will find the likelihood of someone moving into a new income group has decreased in the past 20-30 years. Edited April 29, 2012 by ChocolateReignRemix

[ChocolateReignRemix]

Or perhaps the problem is not with wages, but with the cost of living being so high. Government policies often drive up this cost, especially when it comes to the biggie of housing. Many towns have zoning regulations that make it far easier for a builder to put up one 4500 sq. ft. McMansion on 2 acres than three 1500 sq. ft. houses on 2/3 acre each. Where's the outrage over that?

 

While a problem, that has a minimal impact on the lowest income quintiles, which is where we have had the greatest income stagnation. I also believe you will find those government "policies" (if true) did not occur in a vacuum, and were pushed forward by local interest groups (we don't lower income housing nearby!) or construction interests (we can make a higher return on the larger homes).

[MrsBear]

 

The point is that Gates and Buffet are NOT the outliers. Like I mentioned above, if you look up the statistics for income mobility in the United States over the past several decades, you will find the likelihood of someone moving into a new income group has decreased in the past 20-30 years.

 

Interestingly, "42% of children born to parents in the bottom fifth of the income distribution ("quintile") remain in the bottom, while 39% born to parents in the top fifth remain at the top."

 

Source: Isaacs, Julia B. (November 2007). "Economic Mobility of Families Across Generations". Brookings Institution.

http://www.brookings.edu/papers/2007/11_generations_isaacs.aspx

 

Stated another way:

 

68% of children born in the bottom fifth move up and do better (majority)

 

61% of children born in the top fifth move down and do worse (majority)

 

One has a greater chance, statistically, of improving their lot compared to those born with the advantage of being born in a higher income family.

 

----------------

 

In another paper (Hertz, Tom (26 April 2006). Understanding Mobility in America. Washington, D.C.: Center for American Progress), it was noted that those born to wealthy families, 78% would not stay in the top 5%; of those born in the second to fourth quintiles, 57% stayed within their quintile born, with 22% moving up.

 

In one more (Income Mobility in the U.S. from 1996 to 2005. Department of the Treasury. 13 November 2007), it was noted that "There was considerable income mobility of individuals [within a single generation] in the U.S. economy during the 1996 through 2005 period as over half of taxpayers moved to a different income quintile over this period."

 

 

[ChocolateReignRemix]

Interestingly, "42% of children born to parents in the bottom fifth of the income distribution ("quintile") remain in the bottom, while 39% born to parents in the top fifth remain at the top."

 

Source: Isaacs, Julia B. (November 2007). "Economic Mobility of Families Across Generations". Brookings Institution.

http://www.brookings.edu/papers/2007/11_generations_isaacs.aspx

 

Stated another way:

 

68% of children born in the bottom fifth move up and do better (majority)

 

61% of children born in the top fifth move down and do worse (majority)

 

One has a greater chance, statistically, of improving their lot compared to those born with the advantage of being born in a higher income family.

 

----------------

 

In another paper (Hertz, Tom (26 April 2006). Understanding Mobility in America. Washington, D.C.: Center for American Progress), it was noted that those born to wealthy families, 78% would not stay in the top 5%; of those born in the second to fourth quintiles, 57% stayed within their quintile born, with 22% moving up.

 

In one more (Income Mobility in the U.S. from 1996 to 2005. Department of the Treasury. 13 November 2007), it was noted that "There was considerable income mobility of individuals [within a single generation] in the U.S. economy during the 1996 through 2005 period as over half of taxpayers moved to a different income quintile over this period."

 

 

 

You ignored a couple of parts.

 

1.)

 

The current generation of adults is better off than the previous one but their incomes are more unevenly distributed.

• Real income growth makes the current generation better off than the previous one. Median family income for adults who were children in the late 1960s and are now in their 30s or 40s increased 29 percent, from $55,600 for parents to $71,900 for their children, adjusting for inflation.2 Moreover, family sizes have shrunk over this same period (from 3.1 to 2.3 individuals between 1969 and 1998), so higher incomes are spread over fewer people.
  
• Income growth has not been evenly divided. The biggest gains have occurred at the top of the distribution and the smallest at the bottom.
  

2.)

.Contrary to American beliefs about equality of opportunity, a child’s economic position is heavily influenced by that of his or her parents.

 

• Forty-two percent of children born to parents in the bottom fifth of the income distribution remain in the bottom, while 39 percent born to parents in the top fifth remain at the top.
  
• Children of middle-income parents have a near-equal likelihood of ending up in any other quintile, presenting equal promise and peril for those born to middle-class parents.
  
• The "rags to riches" story is much more common in Hollywood than on Main Street. Only 6 percent of children born to parents with family income at the very bottom move to the very top.
  

3.)

 

• "Upwardly mobile"-One third (34 percent) of Americans are “upwardly mobile,†surpassing their parents’ income and their parents’ economic ranking (by one or more quintiles). This means that of the 67 percent of families who make more money than their parents, only half move ahead enough to place them in a new position on the income ladder.
  
• "Riding the tide"—About one quarter (27 percent) are "riding the tide", making more than their parents’, but remaining in the same economic position as their parents.
  
• "Falling despite the tide"—A small group of individuals (5 percent) surpass their parents’ income, yet fall behind their parents in economic standing, and are "falling despite the tide."
  
• "Downwardly mobile"—Another third of Americans (33 percent) are "downwardly mobile," making less than their parents and failing to rise above their parents’ economic position.
  

I suggest you dig a bit deeper, and see what those numbers looked like in previous generations. You may also want to take a peek and see what some of the European numbers look like now as well.

[ChocolateReignRemix]

The link to the PDF for your second citation is:

http://www.americanprogress.org/issues/2006/04/Hertz_MobilityAnalysis.pdf

 

A couple of tidbits:

--Children previously from lower-income families had only a 1% chance of having an income that ranks in the top 5%

--On the other hand, the children of wealthy families have a 22% chance of reaching the top 5%

 

Regarding your 3rd citation, I find it interesting that you didn't look into it fully, as it does not support you side of the argument. The full PDF is available here:

http://www.brookings.edu/~/media/Files/rc/papers/2007/05useconomics_morton/05useconomics_morton.pdf

 

From that report:

The real after-tax income for the poorest one fifth of Americans grew by 9%, that of the richest one fifth by 69%, and that of the top 1 percent by 176%.

 

"Data on relative mobility suggest that people in the United States have experienced less relative mobility than is commonly believed. Most studies find that, in America about half of the advantages of having a parent with a high income are passed on to the next generation. This means that one of the biggest predictors of an American child’s future economic success — the identity and characteristics of his or her parents — is predetermined and outside that child’s control."

 

The study compares generational mobility, and while I cannot quote it all here, you will find that as I have stated, we now have less upward income mobility than in previous generations, and that Canada and others have significantly more upward mobility than we do. They also include data on income relative to productivity, and you will find the gap between income and productivity per hour is widening (productivity increasing while wages are stagnating) so "working harder" is not increasing the likelihood of success.

[LisaKinVA]

Or perhaps the problem is not with wages, but with the cost of living being so high. Government policies often drive up this cost, especially when it comes to the biggie of housing. Many towns have zoning regulations that make it far easier for a builder to put up one 4500 sq. ft. McMansion on 2 acres than three 1500 sq. ft. houses on 2/3 acre each. Where's the outrage over that?

 

You must be talking about where we live ;). Our county commissioners have been pushing fees for homebuilders, the most recent push was for an additional $55,000 in fees for a 4BR house. Our county also decided it wanted to push 3 acre lots, because it felt the costs to expand roads were too much. Oh, and the NEXT bright idea? Increase shopping centers, so they can get more revenue through sales taxes and commercial property. Sooo, they eliminate higher-density housing and increase shopping centers (anyone notice the disconnect?) We have a HUGE site (they cleared about 11 acres of trees) to create pad sites for retail. Before that, they cleared 20 acres of trees...which is now populated by mostly empty pad sites... and more empty retail space. Ruby Tuesday's owns one of those pad sites, and has been attempting to sell it for 5 years. And the nightmare continues....

 

The cost of a 2300 sq. ft. house on .12 acre? $375,000 (with the most basic of finishes). Put that 2300 sq. ft. house on 3 acres (minimum lot size) and it is now $450,000

[MrsBear]

You ignored a couple of parts.

 

1.)

 

The current generation of adults is better off than the previous one but their incomes are more unevenly distributed.

 

• Real income growth makes the current generation better off than the previous one. Median family income for adults who were children in the late 1960s and are now in their 30s or 40s increased 29 percent, from $55,600 for parents to $71,900 for their children, adjusting for inflation.2 Moreover, family sizes have shrunk over this same period (from 3.1 to 2.3 individuals between 1969 and 1998), so higher incomes are spread over fewer people.

• Income growth has not been evenly divided. The biggest gains have occurred at the top of the distribution and the smallest at the bottom.

 

2.)

.Contrary to American beliefs about equality of opportunity, a child’s economic position is heavily influenced by that of his or her parents.

 

 

• Forty-two percent of children born to parents in the bottom fifth of the income distribution remain in the bottom, while 39 percent born to parents in the top fifth remain at the top.

• Children of middle-income parents have a near-equal likelihood of ending up in any other quintile, presenting equal promise and peril for those born to middle-class parents.

• The "rags to riches" story is much more common in Hollywood than on Main Street. Only 6 percent of children born to parents with family income at the very bottom move to the very top.

 

3.)

 

 

• "Upwardly mobile"-One third (34 percent) of Americans are “upwardly mobile,†surpassing their parents’ income and their parents’ economic ranking (by one or more quintiles). This means that of the 67 percent of families who make more money than their parents, only half move ahead enough to place them in a new position on the income ladder.

• "Riding the tide"—About one quarter (27 percent) are "riding the tide", making more than their parents’, but remaining in the same economic position as their parents.

• "Falling despite the tide"—A small group of individuals (5 percent) surpass their parents’ income, yet fall behind their parents in economic standing, and are "falling despite the tide."

• "Downwardly mobile"—Another third of Americans (33 percent) are "downwardly mobile," making less than their parents and failing to rise above their parents’ economic position.

 

I suggest you dig a bit deeper, and see what those numbers looked like in previous generations. You may also want to take a peek and see what some of the European numbers look like now as well.

 

Comparing Europe to the US is apples to oranges; different approaches to the economy, different tax structures, and different standards of living.

 

It's easy to say wages and such are 'stagnant'; but words have meaning, and another valid word would be 'comparable' or 'similar' to the past.

 

Just looking at say, the minimum wage - while it's low, it's pretty much exactly what it was in 1967 in adjusted dollars....in 1967 it was $1.00 an hour, today it's $7.25 - adjusted for inflation, the $1.00 an hour is equivalent to $6.87 today, so minimum wage is slightly higher today than it was in 1967.

 

Expectations have changed, to me that's clear - in 1967 the range of gadgets, services and things people wanted was much less than today. TV was free, cable costs money; homes had one TV, not 2+, computer games were non-existent; a landline was the only option, cell phones cost money; there was no public internet, today access costs money; homes didn't have computers, they cost money; credit cards were rare, household debt even moreso, so "carrying cost" to a household was lower as significantly fewer financed and paid interest on loans and debt, they paid cash.

 

This begs the question, when expectations exceed ability, is that the fault of those who have higher incomes?

 

I'm not suggesting that the fact that there are more households making less isn't an issue, it is; but the fact remains that one isn't within a caste in the US and while it's not easy to do better, it's certainly not impossible, in fact, it's probable - even the stats you posted support that position.

[Crimson Wife]

In one more (Income Mobility in the U.S. from 1996 to 2005. Department of the Treasury. 13 November 2007), it was noted that "There was considerable income mobility of individuals [within a single generation] in the U.S. economy during the 1996 through 2005 period as over half of taxpayers moved to a different income quintile over this period."

 

Using IRS returns is misleading because of career trajectories. A medical resident might be making $30k in his/her 20's and then 10x that a decade later as a specialist physician. But it's not really changing from working-class to upper-middle-class. Lots of upper-middle-class folks are relatively broke in their 20's because that's the normal income trajectory in those fields.

 

I think a more realistic picture of income mobility would be to compare the average income between 35-40 vs. between 45-50. How many of those in the top 20% in their late 30's are still in the top 20% in their late 40's?

[ChocolateReignRemix]

Comparing Europe to the US is apples to oranges; different approaches to the economy, different tax structures, and different standards of living.

 

How can we claim the "American Dream" of the rags to riches stories and use that to defend our lack of a social safety net, when the nations we call "socialist" have more upward class movement than we do? Our arch conservatives (especially on this board) like to claim that providing benefits to the poor just encourages them to stay where they are, yet many European nations offer more benefits and have *more* children advance out of their lowest income group than we do.

 

It's easy to say wages and such are 'stagnant'; but words have meaning, and another valid word would be 'comparable' or 'similar' to the past.

Frankly, that is a ridiculous answer, and smells of desperation. American workers are producing more per hour and earning the same (or less) than before. That is not "similar to the past".

 

Just looking at say, the minimum wage - while it's low, it's pretty much exactly what it was in 1967 in adjusted dollars....in 1967 it was $1.00 an hour, today it's $7.25 - adjusted for inflation, the $1.00 an hour is equivalent to $6.87 today, so minimum wage is slightly higher today than it was in 1967.

And? So over a generation, our lowest wage workers have broken even (meanwhile productivity per hour for the nation has increased), yet our top wage earners saw increases as high as 179%. Do you believe that our top wage earners became 179% more productive during that time period? Do you not see a potential glaring problem as we become a nation where incomes continue to gap at that rate?

 

 

Expectations have changed, to me that's clear - in 1967 the range of gadgets, services and things people wanted was much less than today. TV was free, cable costs money; homes had one TV, not 2+, computer games were non-existent; a landline was the only option, cell phones cost money; there was no public internet, today access costs money; homes didn't have computers, they cost money; credit cards were rare, household debt even moreso, so "carrying cost" to a household was lower as significantly fewer financed and paid interest on loans and debt, they paid cash.

 

This begs the question, when expectations exceed ability, is that the fault of those who have higher incomes?

If we want a healthy economy and society, shouldn't we hope to have incomes where people can actually buy what is produced? Take a look at the nations that now produce many of the gadgets you listed. Can their workers actually buy those products? Isn't there an economic issue looming if wages cannot grow and more and more of us cannot purchase those goods?

I know you think you made some kind of point with what you posted, but for the life of me I can't understand what it is.

 

I'm not suggesting that the fact that there are more households making less isn't an issue, it is; but the fact remains that one isn't within a caste in the US and while it's not easy to do better, it's certainly not impossible, in fact, it's probable - even the stats you posted support that position.

No it is not. The only group likely to do better is the lowest income quintile, and almost half of them stay in that group. (FYI, it is generally accepted the lowest quintile will always have the most upward mobility for fairly obvious reasons.) Go back and read it again - those in the middle income quintile are as likely to move up as they are to move down. And going back to my original point, the best indicator of where you end up is where your parents are. We can, and should, strive to have a society that is better than that. When American workers are working harder and are more productive, yet are NOT seeing the gains, then the American Dream is not living up to the hype. THAT is my point.

[ChocolateReignRemix]

Using IRS returns is misleading because of career trajectories. A medical resident might be making $30k in his/her 20's and then 10x that a decade later as a specialist physician. But it's not really changing from working-class to upper-middle-class. Lots of upper-middle-class folks are relatively broke in their 20's because that's the normal income trajectory in those fields.

 

I think a more realistic picture of income mobility would be to compare the average income between 35-40 vs. between 45-50. How many of those in the top 20% in their late 30's are still in the top 20% in their late 40's?

 

IRS returns were not used.

[MrsBear]

The link to the PDF for your second citation is:

http://www.americanprogress.org/issues/2006/04/Hertz_MobilityAnalysis.pdf

 

A couple of tidbits:

--Children previously from lower-income families had only a 1% chance of having an income that ranks in the top 5%

--On the other hand, the children of wealthy families have a 22% chance of reaching the top 5%

 

Regarding your 3rd citation, I find it interesting that you didn't look into it fully, as it does not support you side of the argument. The full PDF is available here:

http://www.brookings.edu/~/media/Files/rc/papers/2007/05useconomics_morton/05useconomics_morton.pdf

 

From that report:

The real after-tax income for the poorest one fifth of Americans grew by 9%, that of the richest one fifth by 69%, and that of the top 1 percent by 176%.

 

"Data on relative mobility suggest that people in the United States have experienced less relative mobility than is commonly believed. Most studies find that, in America about half of the advantages of having a parent with a high income are passed on to the next generation. This means that one of the biggest predictors of an American child’s future economic success — the identity and characteristics of his or her parents — is predetermined and outside that child’s control."

 

The study compares generational mobility, and while I cannot quote it all here, you will find that as I have stated, we now have less upward income mobility than in previous generations, and that Canada and others have significantly more upward mobility than we do. They also include data on income relative to productivity, and you will find the gap between income and productivity per hour is widening (productivity increasing while wages are stagnating) so "working harder" is not increasing the likelihood of success.

 

Let's look at income, in adjusted dollars, 1967-2009 - it does show that the top 20% is making more, but also shows the middle and bottom are making similar or more.

 

In 1967 the bottom 20% averaged (in 2009 dollars, data available) $18,989 a year (in 2009 dollars), in 2009 that was $20,453. The top 5% earned an average $106,684 (in 2009 dollars), in 2009 that was $180,001. Those in the middle, the 50th mark, made $47,982 (in 2009 dollars), in 2009 that was $49,777.

 

More interesting, if you ask me, is the fact that across all income levels, income has sputtered along in the last decade. The bottom 20% in 2003 averaged (in 2009 dollars) $20,974, the top 5% in 2003 averaged $179,740 (in 2009 dollars).....in 2009 those same groups were averaging $20,453 and $180,001 - no significant difference.

[ChocolateReignRemix]

Let's look at income, in adjusted dollars, 1967-2009 - it does show that the top 20% is making more, but also shows the middle and bottom are making similar or more.

In 1967 the bottom 20% averaged (in 2009 dollars, data available) $18,989 a year (in 2009 dollars), in 2009 that was $20,453. The top 5% earned an average $106,684 (in 2009 dollars), in 2009 that was $180,001. Those in the middle, the 50th mark, made $47,982 (in 2009 dollars), in 2009 that was $49,777.

 

So again, worker productivity has increased, yet few of the gains from that productivity have been transferred to anyone except the top end. We are seeing a widening income gap that correlates with a widening productivity to wage gap. The two run hand-in-hand, are exactly the problem I ahve been highlighting.

 

More interesting, if you ask me, is the fact that across all income levels, income has sputtered along in the last decade. The bottom 20% in 2003 averaged (in 2009 dollars) $20,974, the top 5% in 2003 averaged $179,740 (in 2009 dollars).....in 2009 those same groups were averaging $20,453 and $180,001 - no significant difference.

 

That would be expected when the beginning data point is at the start of a recovery and the end data point includes a severe recession. Nothing particularly interesting or surprising there.

[ChocolateReignRemix]

Let's look at income, in adjusted dollars, 1967-2009 - it does show that the top 20% is making more, but also shows the middle and bottom are making similar or more.

In 1967 the bottom 20% averaged (in 2009 dollars, data available) $18,989 a year (in 2009 dollars), in 2009 that was $20,453. The top 5% earned an average $106,684 (in 2009 dollars), in 2009 that was $180,001. Those in the middle, the 50th mark, made $47,982 (in 2009 dollars), in 2009 that was $49,777.

 

So again, worker productivity has increased, yet few of the gains from that productivity have been transferred to anyone except the top end. We are seeing a widening income gap that correlates with a widening productivity to wage gap. The two run hand-in-hand, are exactly the problem I have been highlighting.

 

More interesting, if you ask me, is the fact that across all income levels, income has sputtered along in the last decade. The bottom 20% in 2003 averaged (in 2009 dollars) $20,974, the top 5% in 2003 averaged $179,740 (in 2009 dollars).....in 2009 those same groups were averaging $20,453 and $180,001 - no significant difference.

 

That would be expected when the beginning data point is at the start of a recovery and the end data point includes a severe recession. Nothing particularly interesting or surprising there.

[MrsBear]

 

No it is not. The only group likely to do better is the lowest income quintile, and almost half of them stay in that group. (FYI, it is generally accepted the lowest quintile will always have the most upward mobility for fairly obvious reasons.) Go back and read it again - those in the middle income quintile are as likely to move up as they are to move down. And going back to my original point, the best indicator of where you end up is where your parents are. We can, and should, strive to have a society that is better than that. When American workers are working harder and are more productive, yet are NOT seeing the gains, then the American Dream is not living up to the hype. THAT is my point.

 

On an indivudal basis, age 25+, range of earnings per quintile:

 

$0-12,500 first quintile, 0-20%

$12,501-22,500 second quintile, 21-40%

$22,501-40,000 third (middle) quintile, 41-60%

$40,001-60,000 fourth quintile, 61-80%

$60,001+ fifth quintile, 81-100%

 

75% average less than $50,000

25% average more than $50,000

 

It's well known that education can influence one's income; in the US, 13.2% are drop-outs and lack a high school diploma or GED; 86.8% have at least a high school degree or GED; 55% have some college; 38.5% have an associates or bachelor's degree; 7.6% have a master's and less than 3% have a doctorate or professional degree. Does that not correlate with income? Absolutely! And so does the reality that not all degrees are created equal - one with a degree in art isn't on the same path as someone with a degree in chemistry, their earning potential, degree-for-degree, are different despite each holding a bachelor's, or master's, or higher. Even without a degree, some careers simply have higher potential than those with, plumbers can make more than nurses, sometimes even more than doctors; at the end of the day, where you fall in the income distribution is often based on decisions you make, or don't make.

[ChocolateReignRemix]

On an indivudal basis, age 25+, range of earnings per quintile:

 

$0-12,500 first quintile, 0-20%

$12,501-22,500 second quintile, 21-40%

$22,501-40,000 third (middle) quintile, 41-60%

$40,001-60,000 fourth quintile, 61-80%

$60,001+ fifth quintile, 81-100%

 

75% average less than $50,000

25% average more than $50,000

 

It's well known that education can influence one's income; in the US, 13.2% are drop-outs and lack a high school diploma or GED; 86.8% have at least a high school degree or GED; 55% have some college; 38.5% have an associates or bachelor's degree; 7.6% have a master's and less than 3% have a doctorate or professional degree. Does that not correlate with income? Absolutely! And so does the reality that not all degrees are created equal - one with a degree in art isn't on the same path as someone with a degree in chemistry, their earning potential, degree-for-degree, are different despite each holding a bachelor's, or master's, or higher. Even without a degree, some careers simply have higher potential than those with, plumbers can make more than nurses, sometimes even more than doctors; at the end of the day, where you fall in the income distribution is often based on decisions you make, or don't make.

 

Again, I know you believe you are making a point, but as explained in the sources above (all of which you cited yourself), the #1 factor in determining future income is which income group your parents are in.

 

None of what you posted above explains why in the time period where incomes increased at a lower rate than productivity for most workers, the top 5% saw their incomes almost double.

 

With the widening income gap, stagnant wages most workers, and ever increasing costs for a college education, the difficulty of achieving success equal to or better than one's parents will become even more difficult for most children.

[mommymilkies]

Again, I know you believe you are making a point, but as explained in the sources above (all of which you cited yourself), the #1 factor in determining future income is which income group your parents are in.

 

None of what you posted above explains why in the time period where incomes increased at a lower rate than productivity for most workers, the top 5% saw their incomes almost double.

 

With the widening income gap, stagnant wages most workers, and ever increasing costs for a college education, the difficulty of achieving success equal to or better than one's parents will become even more difficult for most children.

 

I agree. My dh has a M.S. in Chemistry and is a professor. Trust me, our income is not even to middle class eligibility. Unless he became a pharmacist or PhD, his earning potential is not high. My BIL has a high school diploma and works at a factory. He made FAR more than dh before he was laid off (dh was almost laid off the year before-education fields are not secure right now!).

[SKL]

Kids who are raised to think "you can" generally can.

 

Kids who are raised to think "you can't" generally can't/don't.

 

Insisting that there's minimal opportunity for large populations of people is only hurting those people. Heard of the self-fulfilling prophecy?

 

Who's going to do their homework diligently if they think it doesn't matter in the long run? Who's going to save a college fund over engaging in immediate pleasures if they think delayed gratification (future life success) is a myth?

 

And yet folks who go on harping about the "limitations" think they are the compassionate ones.

 

When I was a kid, I had literally less materially than the kids on welfare. But my mom told me about Abraham Lincoln and made me believe that I could become something. She didn't point out that most presidents were born privileged and most kids born without much end up without much. That turns out to be IRRELEVANT. The reason it happens that way is that the majority is midguided. Statistics are just statistics. Most women in history could not read, therefore discourage your daughter from trying, right? That used to be common sense. (Same with educating blacks.) It was also wrong and its effects were oppressive. What I'm seeing in some comments above is the same thing.

[SailorMom]

Here is a very personal perspective on "can do" vs "can't".

 

My sister and I were raised the same way. Our parents were on the verge of being middle class, but by the time I graduated high school, they were probably below the poverty line. My sister - let's just say she has never held a job for more than a year, is always on disability or unemployment, or trying to get a "new man" to pay for her. She claims she is the 'victim' of everything under the sun, and always wants people to feel sorry for her.

Well - I certainly didn't turn out that way, and personally can't stand the victim mentality I see in her.

 

DH - has 4 siblings. Parents were a little better off, but not by a lot. The two brothers both have graduate degrees. DH paid for his, his brother did have some help, but not a lot. Both are doing well and we're all solidly middle class. All very "can do" people.

One sister, eh - kinda in the middle.

Other two younger sisters? Both being almost completely supported by mom and dad. Constantly complain about how unfair the economy is, how they just don't have enough chances.

 

Obviously there are people who legitimately really didn't have opportunities. Sadly, it's usually because their parents.

 

But, as you can see, in our cases, it's been A LOT about attitude....

[MrsBear]

Again, I know you believe you are making a point, but as explained in the sources above (all of which you cited yourself), the #1 factor in determining future income is which income group your parents are in.

 

None of what you posted above explains why in the time period where incomes increased at a lower rate than productivity for most workers, the top 5% saw their incomes almost double.

 

With the widening income gap, stagnant wages most workers, and ever increasing costs for a college education, the difficulty of achieving success equal to or better than one's parents will become even more difficult for most children.

 

The problem with studies we're arguing is they only take statistical, bracket snapshots of household income and fail to follow the growth of individual income over that same period of time, let alone measure the constant individual movement between the brackets. As pointed out in Economic Facts and Fallacies; there is a huge difference between measuring household, individual and categorical data and our focus should instead be on the movement of individuals, not bracket growth.

 

Despite the conventional wisdom, a 2007 IRS, Treasury report studied individual tax returns rather than income brackets. It found between the years 1996 and 2005, those individuals whose income were in the top 1% and 5% in 1996 actually saw a decline in their income by 2005. On the flip side, the IRS and Treasury found that the individual income for those in the bottom 20% in 1996 had an average income increase of 91% by 2005, almost doubling their income. They also found “roughly half of taxpayers who began in the bottom income quintile in 1996 moved up to a higher income group by 2005.â€

 

Yes, when you start at the bottom, it's expected you should go up; but the idea that WAGE income has doubled in the top 5% is a myth, it hasn't. What has increased is "income" from non-wage earnings (interest, dividends, capital gains, etc.)....there is a huge difference between income and wealth. Outcomes between individuals is not equal.

[Crimson Wife]

How can we claim the "American Dream" of the rags to riches stories and use that to defend our lack of a social safety net, when the nations we call "socialist" have more upward class movement than we do?

 

The bolded is untrue. There has been a large "brain drain" out of socialist European countries to Anglo-Saxon (and increasingly Asian) ones that offer more economic opportunity to the most talented. DH has a bunch of friends and colleagues who grew up in continental Europe but came to the U.S. to take advantage of our more dynamic economy. There's a reason why people do more start-ups in Silicon Valley rather than Sweden...

[Crimson Wife]

IRS returns were not used.

 

So how does the U.S. Treasury get income figures if they are not from tax returns????

[cdrumm4448]

LOL, what does his will have to do with his background?

 

I mentioned it as background information, while asking if Warren's parents treated him the same way he treats his kids. Meaning, did Warren Buffet's parents tell him he was on his own? Did he then make his own success in the world?

[cdrumm4448]

The point is that Gates and Buffet are NOT the outliers.

 

They are specifically and extensively described as outliers in the book Outliers.

[cdrumm4448]

Kids who are raised to think "you can" generally can.

 

Kids who are raised to think "you can't" generally can't/don't.

 

Insisting that there's minimal opportunity for large populations of people is only hurting those people. Heard of the self-fulfilling prophecy?

 

Who's going to do their homework diligently if they think it doesn't matter in the long run? Who's going to save a college fund over engaging in immediate pleasures if they think delayed gratification (future life success) is a myth?

 

And yet folks who go on harping about the "limitations" think they are the compassionate ones.

 

When I was a kid, I had literally less materially than the kids on welfare. But my mom told me about Abraham Lincoln and made me believe that I could become something. She didn't point out that most presidents were born privileged and most kids born without much end up without much. That turns out to be IRRELEVANT. The reason it happens that way is that the majority is midguided. Statistics are just statistics. Most women in history could not read, therefore discourage your daughter from trying, right? That used to be common sense. (Same with educating blacks.) It was also wrong and its effects were oppressive. What I'm seeing in some comments above is the same thing.

 

:iagree:

[Bluegoat]

No, what people here are arguing is that anybody has the OPPORTUNITY to be successful. Whether you are or not is not guaranteed.

 

And yet you've said that not everyone has the same opportunity to be successful. In this thread it has been argued that people who are offered unfair wages by employers should just take their gumption and make use of those opportunities to get a different job. If, in fact, people do not all have access to, or the ability to create, these opportunities, that doesn't really help their situation.

 

So it comes down to saying that if people find themselves being exploited by employers and can't figure a way to make a living some other way, it is ok for employers to do it.

 

It is totally bizarre to me that exploiting workers by refusing to remunerate them fairly could be excused at all.

 

We know that worker productivity is higher overall today than it used to be, but workers are not being remunerated to a greater degree, and they often have less job security as well. Where is the profit from their extra productivity going? Well, the top earners in those companies are receiving a lot more than they were - that might be a clue who is getting that missing bit of profit.

[Bootsie]

We know that worker productivity is higher overall today than it used to be, but workers are not being remunerated to a greater degree, and they often have less job security as well. Where is the profit from their extra productivity going? Well, the top earners in those companies are receiving a lot more than they were - that might be a clue who is getting that missing bit of profit.

 

 

In 2011 nonfarm worker productivity grew only 0.4%; however, hourly compensation grew 2.5%. This indicates that the wages of workers increased much more than did their productivity.

 

Even if it were true that worker productivity were growing faster than wages, most increases in productivity are not due to workers working harder or faster; most increases in productivity come from investments in capital. So, should the returns go to those investing in capital?

[cdrumm4448]

And yet you've said that not everyone has the same opportunity to be successful.

 

Where have I said that?

[stripe]

In Buffett's case, he refuses to leave anything to his kids.

 

Actually he is planning to leave about 85% of his money to charity, not 100%. (He's also given each of his children $1 billion to distribute. Sounds rather like setting them up with a job.) One of his sons inherited $ 90,000 when he was 19, from the grandfather. So the family is not leaving zero inheritance.

 

Gates will leave each child $10 million.