Wednesday, May 04, 2011

depression news

In a new report, the Paris-based Organisation for Economic Co-operation and Development (OECD) finds that since the mid-1980s income inequality has increased in 77 percent, or 17 of the 22 surveyed countries. Across all OECD countries, the report found, the average income of the richest tenth of the population is now nine times that of the poorest tenth. In Chile and Mexico the income ratio is 27 to 1. It is around 14 to 1 in Israel and the U.S.

In America between 2002 and 2007, the top 1% of earners, those currently making more than $378,000 a year, captured a whopping 65% of economy-wide income gains. Those in the top 1% now take home around 20% of the nation's total income, and control over one-third of all wealth in the country.
The top 0.00013% -- the 400 richest Americans could fit in a 747, with room to spare. Not a lot of people. Their share of all national income has tripled, from 0.52% in 1992 to 1.59% in 2007. Their share of interest income more than quadrupled, from 0.85% in 1992 to 4.04% in 2007. Dividends weren't close behind, rising from 1.4% to 4.14%. Capital gains merely doubling from 5.71% to 10.07%. Still, think about that. Four hundred people earn 10% of all capital gains. The share of wages actually fell from 0.17% to 0.15%. Why? Income increasingly came from dividends and interest. In dollar terms, average income increased from $46.8 million in 1992 to $344.8 million in 2007, or from about a million a week to about a million a day. If you look at the period from 2000-2007, total income of the 400 richest Americans increased by $68 billion, while GDP of the entire economy increased by $4 trillion. Almost 2% of all the economic growth during that period, then, went to just 400 people. In the U.S., nearly 50% of someone's earnings can be explained by his or her fathers' income. As Warren Buffett remarked earlier this year, financiers "don't work that much harder and aren't much brighter than someone building a dam and a whole lot of other talents." As Benjamin Graham wrote in 1949, shareholders, "show neither intelligence nor alertness ... and vote in sheep-like fashion for whatever the management recommends no matter how poor the management's record of accomplishment may be." That's still as true today, if not more so.

As lower-paid workers have seen their incomes stagnate or even fall, the highest-paid workers have gotten steep raises. Besides outright layoffs, there have also been cuts in work hours (sometimes voluntary, sometimes not), disproportionately affecting lower-paid employees. Regulatory changes, like loosening protections for temporary (and less-skilled) workers and lower unemployment benefits, may have also had an effect. "Employment protection legislation for workers with temporary contracts also became more lenient in many countries. Minimum wages, relative to average wages, have also declined in a number of countries since the 1980s. Wage-setting mechanisms have also changed; the share of union members among workers has fallen across most countries" says the report

Even changing marriage patterns may also be contributing to the widening income gap. Over the years people have become more and more likely to marry mates who have similar incomes. If poor marry poor and rich marry rich, that magnifies the income gap effect.

Britons are working more hours per week than when Thatcher was in Number Ten. The former Tory prime minister’s success at cracking down on unions we work much harder than we used to. Meanwhile, across Europe, people now work fewer hours than they did in the 1980s. Since the mid-1980s, average income has risen by around 1.9 per cent after inflation is taken into account. But while the richest fifth of the population saw their incomes increase by 2.1 per cent, the poorest fifth saw theirs go up by only 0.9 per cent. Food prices are surging again, fuelling what analysts describe as the biggest squeeze on household budgets for 130 years. The rise in the cost of food has now been running well ahead of wage increases for most of the past four years. As a result, many families have cut down on the amount of food they buy and are switching to cheaper ingredients. Research published by Deloitte this week shows living standards have been squeezed for four years in a row by rising prices and low or no wage growth. It will be the first time since the 1870s that ‘real’ wages, the sum you earn after inflation has been taken into account, have fallen for four successive years. The report said average earnings will rise by 2.4 per cent this year and inflation is expected to be 4.4 per cent. Deloitte economic adviser Roger Bootle said households’ disposable incomes will fall by £780 this year. "Consumers may therefore have little choice but to cut their spending."

In wages are rising much less than the cost of living, with high prices for food and fuel hitting household budgets, a union group says. Council of Trade Unions economist Bill Rosenberg said wages fell behind price increases in the last three months for most people, while at the same time top executives were getting pay rises in the double digits. For the full year, wages rose much less than the cost of living increased, he said.

Wage rises were seen as "modest" by bank economists and were lower than expected by the Reserve Bank. "It appears that high unemployment has left workers without bargaining power," according to Westpac Bank economists. ANZ Bank economists said the bargaining power was "still on the side of employers..."

The unemployment rate was 6.8 per cent in December.

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