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Tag Archives: Inequality

China’s Lockdowns Are Fueling Record Growth — in Inequality

Luo Meihan wrote . . . . . . . . .

As Shanghai emerged from lockdown in late May, many of the city’s wealthiest residents headed straight for the same store: the Hermès outlet at the exclusive Plaza 66 mall. Long lines formed outside the entrance, as people indulged in their first shopping spree in two months.

Mary Men’s experience was nothing like that.

The 34-year-old spent her first post-lockdown trip in a local supermarket — making some painful choices. For the first time in her life, she found herself studying the price tag of every item before adding it to her basket. She ended up spending just 15 yuan ($2.25) on a box of blueberries, whereas she used to like buying a whole selection of different fruits.

Like much of Shanghai’s middle class, Men struggled financially during the citywide lockdown in April and May. A marketing executive at an import-export firm, her 6,000 yuan after-tax monthly salary already barely covered her mortgage payments and other bills. Then, the shutdown sent food prices skyrocketing — and pushed her into the red.

The experience has forced Men to cut back. She no longer uses her credit card to shop online. Instead, she’s laser-focused on building up her savings, in case the city’s virus controls ramp up again.

“During crunch times, having money in your hands is the most important thing,” says Men. “You had to directly use money from your savings to buy pricey food (during the lockdown).”

Men is far from alone. As China tries to move on from a wave of spring lockdowns, there were hopes that consumers would kick-start the economy by indulging in the kind of “revenge spending” seen at Shanghai’s Hermès store. In reality, the opposite has happened.

Many consumers have emerged from lockdown in a pessimistic mood. Anxious about their personal finances, the precarious state of the economy, and the prospect of further lockdowns, they’re following Men’s example: making deep cuts to their household budgets and saving as much as they can.

That’s because — as has happened elsewhere — China’s lockdowns haven’t affected everyone equally. While wealthy Chinese have ridden out the pandemic with relative ease, a large number of working- and middle-class families have faced job losses and steep drops in income.

A recent survey offers a stark picture of rising inequality. China’s poorest households have seen their wealth decline every quarter since the pandemic began, according to the April report by the Southwestern University of Finance and Economics and Ant Group Research. The country’s wealthiest households, meanwhile, have gotten richer and richer during the crisis.

China’s consumption data reflects this trend. Sales of luxury goods have grown at double-digit levels year-over-year since 2020, according to consultants Bain & Company, putting China on track to become the world’s largest luxury market by 2025.

“The high-income group go for luxury goods partly with the aim of preserving and increasing their assets,” says Ye Min, an executive partner at consultancy PwC in China. “Their consumption is often for the purpose of investment.”

But from a wider perspective, things look very different. During the first five months of 2022, consumers spent more on daily necessities like food and beverages compared with last year, according to official data. But they cut back spending in many other areas, including cosmetics, jewelry, clothing, furniture, cars, and dining out. Total retail sales were down 1.5%.

Consumers’ reluctance to spend is a major headache for Chinese policymakers, threatening to drag down economic growth and fuel unemployment. But it’s also a tough problem to fix — especially as cases of the highly-infectious Omicron subvariant BA.5.2 have emerged in some Chinese cities, bringing the risk of more lockdowns.

Pinching pennies

Mu Cong, a Shanghai-based piano tutor, is one of many middle-class Chinese who have radically altered their spending habits this year.

After he was locked down at home in late March, Mu’s monthly income fell by 70%. Online piano classes were a tough sell, and he barely earned any class fees to supplement his 4,000 yuan basic salary.

“When I had a stable income, I preferred to enjoy myself,” says Mu, who spoke with Sixth Tone using a pseudonym for privacy reasons. “But as I spent more than I earned during the lockdown … I started to feel nervous, and felt the urgency to save more.”

The 22-year-old is now cutting down on non-essentials like coffee, home decorations, and new clothes. When he wants to buy something online, he first adds it to his shopping cart for a while — to allow himself to think twice before hitting buy.

“If you are thinking about whether you need it or not, it’s not essential,” says Mu. “For example, you wouldn’t hesitate to buy toilet paper. I’m giving up things I don’t actually need. It gives me a feeling of control over my life.”

Men, the marketing manager, has embraced a similar austerity drive. In late May, she took a higher-paying job and told herself she should save at least 30% of her salary each month.

“I didn’t worry much about money before,” says Men. “But now that I’m spending the money I have saved, every penny spent is a penny less.”

Adjusting to a new lifestyle hasn’t been easy, Men says. She has halved her living expenses to less than 1,000 yuan per month. She now rarely eats out or orders takeout, buys very little online, and commutes by subway instead of driving to the office.

“When I’m greedy for takeout, I scroll through several online food delivery platforms and look at different options many times, but don’t order anything,” says Men. “It is a bit painful at first to control yourself, and not spend the money you have.”

China’s migrant workers — who represent around one-third of the country’s workforce — have been hit even harder, as many of them fall outside the country’s welfare system.

A survey of migrant worker households by the nonprofit Beijing Social Work Development Center for Facilitators in April found that 73% had experienced salary cuts due to the recent outbreaks. Around 45% said their work had been affected even more than during China’s initial COVID-19 outbreak in 2020.

Li Tao, the founder of the Beijing-based nonprofit that published the survey, says many migrant worker households are having to cut back even on essentials, such as by adding fewer vegetables to their meals.

“They’ve largely run out of savings after the repeated outbreaks of the past two years,” says Li. “Plus, while the majority of respondents were optimistic about the COVID-19 situation in early 2020, now over 70% are anxious that the pandemic will continue to impact their household income.”

An uncertain future

Many middle-class Chinese share these concerns. The widespread expectation of more COVID-19 outbreaks — and lockdown restrictions — in the future is casting a longer shadow over consumer confidence than two years ago.

Mo Na, a self-employed headhunter, says that Shanghai’s monthslong lockdown has taken a heavy toll on her business — and her mental health. She used to spend thousands of yuan a year on cosmetics, but now she has stopped buying them completely.

“Being confined at home for months traumatized me psychologically and made me lose interest in cosmetic products,” says Mo, who also used a pseudonym for privacy reasons. “It’s meaningless consumption. It makes more sense to save money and invest it.”

Fearful of another lockdown, Mo also plans to shut down her business and apply for an in-house human resources job at a larger company. Although the salary would be far lower than what she earned as a headhunter, she feels she needs some stability.

“Since the outbreak, I’ve lacked a sense of security,” she says. “I don’t know if something worse will happen in the future. I don’t have the confidence to spend money — who knows if you’ll be locked up again for a few months?”

Mo is far from alone. Chinese financial authorities are witnessing record surges in household savings, as consumers adopt a defensive crouch.

A June survey of urban Chinese bank depositors by China’s central bank found that people’s confidence in their future earning potential was at its lowest level since early 2020. And a record number of respondents — 58.3% — said they intended to increase their savings, rather than their spending or investments.

The central bank’s financial data shows the same trend. During the first half of the year, China’s household savings rose by 10.3 trillion yuan — also a record — while new household loans fell to a seven-year low.

Gu Yue, a Shanghai-based new media editor, was planning to buy an apartment last year. But she has now ditched the plan, after the lockdown made her fear tying up her money in a mortgage.

“It could easily cost over 1,000 yuan to buy just a few things (during the lockdown) … It was like having your money flushed away every day,” Gu says. “Buying a house is not necessary. Having money in your hands is.”

Fixing the problem

For Chinese policymakers, stimulating sluggish consumer spending is an urgent priority. However, it’s also proving challenging as the country continues to implement tough virus-control measures.

So far, China’s stimulus policies have been relatively restrained. Unlike some major economies, it has avoided giving cash directly to consumers. Instead, it has focused on supporting embattled businesses and boosting the economy through massive investment in infrastructure projects, and hoping this trickles down to the consumption sector.

Some local governments, including the capital Beijing, have issued “consumption vouchers” to residents to fuel spending. But experts say handing out cash subsidies to ordinary consumers — especially those in low-income groups — will have a greater effect.

Economists, however, stress that much will also depend on the government’s COVID-19 policies. Dan Wang, chief economist at Hang Seng Bank (China), says consumption in Shanghai is likely to rebound to similar levels seen in 2021 by the end of the year — as long as the city can avoid further lockdowns.

“The key to ensuring income sources for low-income people is to find a targeted and long-term mechanism to cope with COVID-19 outbreaks,” says Wang. “A citywide lockdown must not happen again.”

“The recovery of the consumption sector depends on how the epidemic evolves … and when residents’ future expectations for job security, income, and the ease of travel improve,” says Tommy Xie, head of Greater China research at OCBC Bank.

Men, the marketing professional, agrees. For now, she feels she has no choice but to save as aggressively as she can. Her employer is already showing signs of financial strain. And she has a mortgage, health care costs, and aging parents to think about.

“I need to give myself some security,” she says. “No one knows what will happen tomorrow. Things can change at any time.”

Source : Sixth Tone

Inequality, Interest Rates, Aging, and the Role of Central Banks

Matthew C. Klein wrote . . . . . . . . .

Here are three facts about the recent history of the world:

  • Income has become more concentrated within societies. Both the shares of household income going to the top 1% and corporate profit shares have increased dramatically since the 1970s.
  • Inflation-adjusted interest rates are much lower now across much of the world than they were in the early 1980s. That’s contributed to a surge in asset values relative to incomes—and likely means that future investment returns will be much lower than in the past.
  • The human population has aged rapidly, with the global median age rising by about ten years since the early 1980s. The share of the population aged 65 and older in the high-income countries and China, which together account for the vast majority of global economic output, has already jumped from less than 7% in the 1970s to 13% today—and the United Nations projects that share will rise to 25% by 2060.

    New research suggests that these facts are directly connected: the drop in interest rates has been caused by changes in population structure and by shifts in the distribution of income. Lower expected returns on investment are just another consequence of deeper forces holding back economic dynamism.

    Two recent papers provide complementary explanations of the mechanisms at work. Adrien Auclert, Hannes Malmberg, Frédéric Martenet, and Matthew Rognlie focused on the demographic angle, while Atif Mian, Ludwig Straub, and Amir Sufi focused on income inequality. Before digging into their specific arguments, a brief refresher on the basics.

    What are interest rates, anyway?

    For most of history, humanity faced a harsh tradeoff: we could produce goods and services that could be enjoyed today, or we could invest in the production of capital goods and research that would hopefully support higher living standards in the future. But we couldn’t do both. Until relatively recently, simply securing enough food to prevent starvation was a major challenge.

    That constraint isn’t nearly as binding now as it was when we lived as subsistence farmers. In fact, our big problem for the past few decades has been a glut of capacity that we’ve refused to put to work. We’ve been living below our means and have been actively discouraging new investment. Nevertheless, we still retain many of the social institutions that we invented to endure the long era of scarcity.

    One of those social institutions is “interest”: a reward that society pays to those who voluntarily sacrifice spending power today in exchange for the promise of more spending power later. That sacrifice frees up resources so that others can spend more than they earn now. In exchange, the borrowers agree to either spend less later (if they are borrowing to buy consumer goods and services) or to produce more later (if they are borrowing to invest in expanding society’s productive capacity). Whether this is good or bad—and therefore deserving of reward or punishment—depends on each society’s circumstances.

    In theory, interest rates are supposed to encourage or discourage spending according to each society’s needs at different points in time. If there is too much demand for goods and services relative to current production, high interest rates can potentially help by making it more expensive to borrow and by raising the rewards for those who abstain from spending.

    But if nobody is consuming or investing, then it’s pointless to get people to spend even less. Thus inflation-adjusted interest rates tend to be higher when the economy is growing rapidly and lower (or negative) during downturns and periods of slow growth. From this perspective, the relentless decline in interest rates is a signal of serious social problems.

    The search for “neutral”

    In most economies, baseline interest rates are “set” by central banks. Private investors and traders then set the borrowing costs for businesses, households, and governments on top of those baselines according to duration, credit risk, and other factors.

    Central banks can impose any level of (local currency) borrowing costs on the economy that they want, which is why some say that “interest rates are a policy variable.” But central banks generally avoid exercising that power arbitrarily—and for good reason. Interest rates that are too high or too low relative to what makes sense can lead to undesirable consequences ranging from mass unemployment to currency collapse.6 That’s why most central banks instead try to meet the economy and financial system where it is.

    However, central bankers have an incredibly hard time estimating the “neutral” level of interest rates because there are so many countervailing forces at play. Here are just a few factors that aren’t being discussed in the recent batch of papers, but that clearly matter:

    • Governments’ willingness to spend, borrow, and tax
    • The state of consumer and “macroprudential” financial regulation
    • Perceptions of crisis risk and the need to self-insure against those risks by nonfinancial corporations, pension plans, and foreign reserve managers
    • Globalization and changes in openness to cross-border trade and finance
    • The rate of technological innovation, which in turn is affected by research productivity and by businesses’ success at commercialization and development
    • Attitudes towards debt, consumption, entrepreneurship, etc. by ordinary people and business executives

    No model can capture all of the relevant mechanisms, which is probably why every model that’s produced estimates of “neutral” (or “natural”) interest rates generates extremely strange results at least some of the time. In practice, the best that central bankers can hope for is to get reasonably close with trial and error. As Richard Clarida, the Federal Reserve’s Vice Chairman, put it at the end of 2018, the “key parameters that describe the long-run destination of the economy are unknown”—and the only solution is to constantly update your estimates as new data come in.

    Among other things, Clarida was referring to the relentless decline in estimates of the “neutral” rate over the past few decades. In fact, Fed officials’ estimate of “neutral” dropped another 0.5 percentage point just between Clarida’s 2018 speech and the end of 2019. The Fed’s new framework and the European Central Bank’s updated monetary policy strategy were both responses to this phenomenon.

    But even though it’s more or less impossible to know the level of “neutral” at any point in time, it’s easier to track changes in “neutral” over time. And that’s where the new research is particularly helpful.

    Demographics and interest rates

    Auclert et al argue that population aging—and slowing population growth—is partly responsible for the global drop in interest rates because slower population growth reduces investment. There is less reason to reward those who put off spending when there are fewer people trying to build factories, houses, or other types of capital.

    This effect should only get bigger if the United Nations’ forecasts pan out:

    There will be no great demographic reversal: through the twenty-first century, population aging will continue to push down global rates of return, with our central estimate being -123bp, and push up global wealth-to-GDP, with our central estimate being a 10% increase, or 47pp in levels.

    In the 1960s, total population growth in the major global economies (the “high-income countries” plus China) averaged almost 2% a year. That slowed to just 1.2% a year by the 1980s, 0.9% a year by the 1990s, 0.6% a year by the 2000s, and just 0.4% by the eve of the pandemic. The combined population of these economies is projected to shrink starting in the 2030s, eventually falling nearly 20% from the projected 2030 peak by the end of the century.

    Put another way, the number of children aged 0-14 in these economies fell from a peak of more than 600 million in the mid-1970s to about 465 million now. The number of children is projected to plunge almost 30% from current levels to just 335 million by 2100.

    That pushes down interest rates, according to Auclert et al, because fewer people means there is less need to provide for the desires of future generations. This effect outweighs the fact that older people have much lower saving rates than everyone else. An aging society might produce less, but demand falls even further and faster. The process began in the 1980s and could continue for decades to come.

    That’s consistent with what I noted almost six years ago when writing about Japan. There, population aging in the 1990s and 2000s pushed the household saving rate to zero during a period of sustained government budget deficits—yet interest rates went down. The reason was that households are only one piece of the broader economy. In Japan’s case, the decline in business investment and the rise in corporate profitability (which in turn was partly attributable to lower pay for workers) were more than enough to offset what was happening in the rest of the economy.

    Inequality and interest rates

    Mian, Straub, and Sufi, in a paper presented at the Federal Reserve Bank of Kansas City’s Jackson Hole Economic Symposium, focus on how changes in the income distribution affect saving rates, borrowing, and consumer spending.

    The key insight is that the ultra-rich are different from you and me: they have much higher saving rates regardless of their age. No matter how expensive your tastes, there’s a limit to how much you can consume, which means any income above that threshold has to get saved. The ultra-rich therefore spend relatively small shares of their income on goods and services that directly provide jobs and incomes to others, instead accumulating stocks, bonds, art, trophy real estate, and other assets.

    The ultra-rich need no encouragement to refrain from buying goods and services, so any increase in income concentration should put downward pressure on interest rates. Another way to look at it is that an increase in income concentration boosts the demand for financial assets, which should push up prices and push down yields.

    But that effect can be offset by the fact that rising income concentration pushes everyone else to borrow more to finance their own consumption or investment, either directly or through the government budget deficit. The supply of financial assets can rise at the same that demand is also rising. The net impact on interest rates is therefore a function of how the extra borrowing (asset sales) relates to the extra lending (asset demand).

    While there are several ways this can play out in the short-term, rising income inequality leads to some combination of higher indebtedness and weaker consumer spending.9 To simplify only slightly, in a highly-unequal global economy, the ultra-rich lend everyone else the money they need to buy the goods and services sold by the businesses the ultra-rich own. Their profits depend on the ongoing growth of these circular financial flows.

    As Mian et al put it, the increase in saving by America’s high earners was offset by everyone else saving less.

    But that’s inherently unstable. Consumers getting paid less and less relative to national income can’t keep spending more and more unless they also borrow more and more. And the only way consumers can keep taking on more and more debt relative to income is if interest rates keep falling. That dynamic also makes new investments in productive capacity less attractive: indebted consumers with minimal income growth aren’t going to be great for sales growth. All of that should push interest rates down.

    Thus the real estate, junk bond, and consumer debt bubbles of the 1980s were followed by a big decline in interest rates in the early 1990s, the EM and corporate debt bubbles of the 1990s were followed by a big decline in interest rates in the early 2000s (and the inflation of new EM and real estate debt bubbles), and the excesses of the 2000s were then followed by the collision of interest rates into the “effective lower bound.”

    All of this has happened before.

    Here’s how Marriner Eccles put it in his testimony to the U.S. Senate Finance Committee in February 1933:

    The debt structure has obtained its present astronomical proportions due to an unbalanced distribution of wealth production as measured in buying power during our years of prosperity…The time came when we seemed to reach a point of saturation in the credit structure where, generally speaking, additional credit was no longer available, with the result that debtors were forced to curtail their consumption in an effort to create a margin to apply on the reduction of debts.

    This naturally reduced the demand for goods of all kinds, bringing about what appeared to be overproduction, but what in reality was underconsumption measured in terms of the real world and not the money world…There must be a more equitable distribution of wealth production in order to keep purchasing power in a more even balance with production.

    The Great Depression didn’t really end until wartime mobilization caused a surge in incomes and production that wiped out old debts, leveled the wealth distribution, and gave people confidence in the future. The end of the war also kicked off a baby boom after a long drought of births. Not coincidentally, interest rates marched up for decades until the early 1980s.

    Since then, we’ve endured a great reversal in the trends underlying the postwar prosperity, capped off by a global financial crisis that bore many similarities to the Depression. In fact, even though the 2007-10 downturn was shallower, the subsequent recovery was so much weaker that the net effect is that GDP per American grew less in 2007-2019 than in 1929-1940.

    But there are reasons to hope that things can improve.

    The U.S. government’s response to the pandemic—and the attendant impact on household balance sheets—in some ways resembles the wartime mobilization of the 1940s, albeit at a much smaller scale. And while population aging will be tough to reverse, the trends in inequality that have retarded growth and have pushed down interest rates were choices that can be changed.

    Let’s get to work.

    1. There is also the argument that central banks are causing the increase in inequality by lowering interest rates. Lower rates lift asset prices and create a bias in favor of those who can borrow the most to buy the riskiest collateral: leveraged buyout shops, hedge funds, and real estate investors. Ordinary savers ostensibly pay the price in the form of lower returns on liquid assets.

      There’s something to this mechanism, but I think it’s more accurate to say that “the political and economic forces that put central banks in charge of responding to downturns and that require consistent declines in interest rates” increase inequality. If rising income concentration is itself one of those forces—and I think it is—then higher inequality is self-reinforcing with a normal central bank.

    2. While Mian et al frame their research as being partly opposed to Auclert et al, my reading of the two papers is that they are complementary. Auclert et al looked at the impact of aging on investment, while Mian et al looked at the impact of rising inequality on consumer spending and saving. All of those things affect interest rates.
    3. For more on this, I would recommend reading Trade Wars Are Class Wars—just released in paperback with a new preface!—especially chapter 3.
    4. There are some who argue that high interest rates are harmful in this situation because they discourage both current demand as well as investment in additional capacity that could help meet that demand.
    5. Some central banks instead manage the exchange rate and let interest rates move accordingly. Ecuador, El Salvador, and Panama all use the U.S. dollar as their currency and therefore have no direct control over domestic interest rates. Hong Kong’s Monetary Authority maintains a strict peg between the Hong Kong dollar and the U.S. dollar, with interest rates following the Federal Reserve. The Monetary Authority of Singapore manages the level of the Singapore dollar against a basket of foreign currencies, with interest rates often lower than in the U.S.
    6. Big gaps between government policy and whatever makes the most sense for the economy as a whole can show up in a variety of ways, including credit rationing and black-market exchange rates. See, for example, the Argentinian mortgage market.
    7. The downward trend in rates arguably goes back a lot further, although not from the perspective of anyone currently alive. One study from the Bank of England recently found that interest rates have been falling at least since the Renaissance.
    8. It gets even more complicated if you look at how these forces interact in individual countries within the larger context of the global economy, as Michael Pettis and I did in Trade Wars Are Class Wars.
    9. In theory, an increase in income concentration could lead to more financial asset sales by businesses, rather than consumers, which could support additional capex. That could make sense in poorer countries where resources are scarcer. But squeezing ordinary people to finance additional investments in productive capacity makes no sense in an advanced economy. Who would buy the extra goods and services once they’re available? In practice you would end up with higher indebtedness as the result of the bad investment.
    10. David Levy memorably called this the “bubble or nothing” economy.

    Source : The Overshoot

  • Report: How to Fix Economic Inequality?

    For decades, a gap has been growing between the rich and poor in advanced economies, especially the United States. Then the coronavirus pandemic struck, costing over a million lives globally by the end of October 2020 and setting off the worst global recession in nearly a century. The people most vulnerable to a health and economic shock have been hit the hardest.

    Now at a time of acute health and economic crisis, widening divisions are raising moral, social, economic, and political challenges. Many experts argue that longstanding US policies that widened inequality have also exacerbated the pandemic’s impact. As the United States and other countries strive to rebuild their economies, governments have an opening to alleviate unfair economic disparities and improve access to opportunities.

    This guide draws together research from the world’s leading experts on inequality trends and causes within countries and a list of available policy options to mitigate the growing gap (mostly for the United States, with lessons applicable to other advanced countries).


    Section 1: Inequality is rising within countries
    Section 2: What drives inequality?
    Section 3: Why care about inequality?
    Section 4: American beliefs and perceptions on inequality
    Section 5: The coronavirus crisis
    Section 6: How much have governments slowed the rise of inequality?
    Section 7: Policy recommendations
    Section 8: We already have the tools needed to combat inequality

    [ . . . . . . . ]

    Read the report at Peterson Institute for International Economics . . . . .

    Sign of Inequality: US Salaries Recover Even As Jobs Haven’t

    Christopher Rugaber wrote . . . . . . . . .

    In a stark sign of the economic inequality that has marked the pandemic recession and recovery, Americans as a whole are now earning the same amount in wages and salaries that they did before the virus struck — even with nearly 9 million fewer people working.

    The turnaround in total wages underscores how disproportionately America’s job losses have afflicted workers in lower-income occupations rather than in higher-paying industries, where employees have actually gained jobs as well as income since early last year.

    In February 2020, Americans earned $9.66 trillion in wages and salaries, at a seasonally adjusted annual rate, according to the Commerce Department data. By April, after the virus had flattened the U.S. economy, that figure had shrunk by 10%. It then gradually recovered before reaching $9.67 trillion in December, the latest period for which data is available.

    Those dollar figures include only wages and salaries that people earned from jobs. They don’t include money that tens of millions of Americans have received from unemployment benefits or the Social Security and other aid that goes to many other households. The figures also don’t include investment income.

    A separate measure tracked by the Labor Department shows the same result: Total labor income, excluding government workers, was 0.6% higher in January than it was a year earlier.

    That is “pretty remarkable,” given the sharp drop in employment, said Michael Feroli, an economist at JPMorgan Chase.

    The figures document that the vanished earnings from 8.9 million Americans who have lost jobs to the pandemic remain less than the combined salaries of new hires and the pay raises that the 150 million Americans who have kept their jobs have received.

    The job cuts resulting from the pandemic recession have fallen heavily on lower-income workers across the service sector — from restaurants and hotels to retail stores and entertainment venues. By contrast, tens of millions of higher-income Americans, especially those able to work from home, have managed to keep or acquire jobs and continue to receive pay increases.

    “We’ve never seen anything like that before,” said Richard Deitz, a senior economist at the Federal Reserve Bank of New York, referring to the concentration of job losses. “It’s a totally different kind of downturn than we’ve experienced in modern times.”

    Of the nearly 10 million jobs that have been eliminated by the pandemic, 40% have been in restaurants, bars, hotels, arts, and entertainment. Retailers have lost nearly 400,000 jobs and many low-paying health care workers, such as nursing home attendants and home health care aides, have also been laid off.

    On average, restaurant workers make just below $13 an hour, according to Labor Department data. Retail cashier pay is about the same. That’s less than half the economy-wide average of nearly $30 an hour.

    “It tells the story of an economy that has really tanked for the most vulnerable,” said Elise Gould, an economist at the liberal Economic Policy Institute. “It’s shocking how small a dent that has made in the aggregate.”

    The figures also underscore the unusually accelerated nature of this recession. As a whole, both the job losses that struck early last spring and the initial rebound in hiring that followed have happened much faster than they did in previous recessions and recoveries. After the Great Recession, for example, it took nearly 2 1/2 years for wages and salaries to regain their pre-recession levels.

    “This is one of the worst recessions we’ve ever had — compressed into one-tenth of the time that a normal recession would take,” said Ernie Tedeschi, policy economist at the investment bank Evercore ISI. “Hopefully, the recovery will continue to be compressed as well. That’s where the fears are and where the debate is.”

    One reason why the job losses have had relatively little impact on the nation’s total pay is that so many of the affected employees worked part time. The average work week in the industry that includes hotels, restaurants and bars is just below 26 hours. That’s the shortest such figure among 13 major industries tracked by the government. The next shortest is retail, at about 31 hours. The average for all industries is nearly 35 hours.

    The recovery in wages and salaries helps explain why some states haven’t suffered as sharp a drop in tax revenue as many had feared. That is especially true for states that rely on progressive taxes that fall more heavily on the rich. California, for example, said last month that it has a $15 billion budget surplus. Yet many cities are still struggling, and local transit agencies, such as New York City’s subway, have been hammered by the pandemic.

    The wage and salary data also helps explain the steady gains in the stock market, which have been led by high-tech companies whose products are being heavily purchased and used by higher-income Americans, such as Apple iPads, Peloton bikes, or Amazon’s online shopping.

    This week, the New York Fed released research that underscored how focused the job losses have been. For people making less than $30,000 a year, employment has fallen 14% as of December. For those earning more than $85,000, it has actually risen slightly. For those in-between, employment has fallen 4%.

    By contrast, job losses were much more widespread in the Great Recession of 2008-2009. Relatively higher-paying blue collar jobs in manufacturing and construction were hit worst: Construction lost 20% of its jobs, manufacturing 15%. Even a decade later, neither sector had fully recovered those jobs by the time the pandemic hit. Financial services lost 6% of its jobs in the previous recession, compared with 1% this time.

    Some companies have cut wages in this recession, but on the whole the many millions of Americans fortunate enough to keep their jobs have generally received pay raises at largely pre-recession rates. Some of those income gains likely reflect cost-of-living raises; the Commerce Department’s wage and salary data isn’t adjusted for inflation.

    Tedeschi calculates that the typical — or median — hourly pay for employed workers has risen about 3.5% in the past year, roughly the same pace as before the pandemic. That’s a sign of what some economists refer to as the “sticky wages” concept: Some employers prefer to lay off workers while leaving pay largely unchanged for their remaining employees.

    Truman Bewley, a retired Yale University economist who wrote a book about the concept of sticky wages, said that most companies have a key core of workers they rely on through hard times and are reluctant to cut pay for them.

    And there’s another reason, Bewley said, why many companies cut jobs instead of pay. While researching his book, he said a factory manager told him why his company did so: “It gets the misery out the door.”

    Source : AP

    Inequality in U.S. and the World

    Real Income of the 1% vs the 99% Since 1913

    Income Share of the Top 10%

    Enlarge chart ….

    2,915 Richest Americans Earned 36% More Than Over 23 Millions Poorest

    Change of Average Income of the U.S. Riches and Poors Between 2002 and 2012

    Share of Net Wealth Held by Bottom 50% and Top 10% in Developed Countries

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    Income Share of Top 1%, 0.1% and 0.01% in Canada and U.S. Since 1920

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    Income Distribution in Canada, 1976-2010

    Income Inequality in Canada, 1920-2011