Wednesday, February 01, 2006

The Poor Get Richer and the Rich Get Poorer

It seems like lately there have been many people complaining about the rich getting richer and the poor getting poorer. They often cite amazing statistics about the "income gap". However, in reality, poverty is getting to be less of a problem in the US than it used to be. People like to use statistics much like bible verses. They site whichever ones support their current argument the best and don't use them in context. They like to show amazing numbers that will stir people to act in support of their agenda.

The University of Michigan did a panel study of income dynamics data that tracked more than 50,000 individual families since 1968. This study found that only five percent of families in the lowest 20 % in 1975 were still there in 1991. Three-quarters of these families had moved into the three highest income brackets. During the same period, 70 % of those in the second lowest income bracket moved to a higher one, with 25 % of them moving to the top income bracket. The Bureau of Census reports that the poverty rate hasn't changed from one decade to the next; however, this does not mean that the same people are stuck at poverty level with no hope for working their way up.

In a 1992 U.S. Treasury Department study that used income tax returns, it was shown that 85.8 % of tax filers in the bottom income quintile in 1979 had moved up to a higher quintile by 1988. This 85.8 % includes 66 % that moved to the second and third quintiles and 15 % to the top quintile.

Not only are the poor not getting poorer, the rich are not getting richer. The U.S. Treasury Department also found that over half (52.7%) of the people who were in the top 1% of income earners in 1979, had fallen by 1988. Less than 10% of Americans are permanently poor or rich.

The 1995 Annual Report of the Federal Reserve Bank of Dallas found that "Average income tends to rise quickly in life as workers gain work experience and knowledge. Households headed by someone under age 25 average $15,197 a year in income. Average income more than doubles to $33,124 for 25- to 34-year-olds. For those 35 to 44, the figure jumps to $43,923. It takes time for learning, hard work and saving to bear fruit." This may seem obvious, but few people take into consideration the fact that many of the "poverty level" individuals are recent high school graduates or dropouts. I can't think of more than a couple people I knew in college who had much money (hence all the ramen noodles), but I never considered any of us to be "in poverty" because that's how things are in college, and we had much potential to earn a ton more than we were making at the time. When most people hear that 12 % of Americans live "in poverty" they picture 35.5 million people living under bridges and on street corners. This is what many people who like to quote statistics are hoping you will see. Any sensible American would not feel that this should be happening in the richest country in the world (again statistics can be skewed - see CIA World Factbook)and will support whatever cause is being promoted.

The Federal Reserve Bank report also gave several common ways for individuals to move up in the income range:

Get a Full Time Job

Households in the top income bracket average 2.1 workers; those in the bottom average 0.6 workers. In the lowest income bracket, 84 % only worked part time while in the highest income bracket, 80 % worked full time.

Get Married

Only 7 % of top income earners live in a "nonfamily" household compared to 37 % of the bottom income category.

If You Can't Find a Job, Move

At the time of the study, the unemployment rate in McAllen, Texas, was 17.5 percent, while in Austin, Texas, it was 3.5 percent.

The report concludes, "Little on this list should come as a surprise. Taken as a whole, it's what most Americans have been told since they were kids — by society, by their parents, by their teachers." The issue seems to be not that "the rich are getting richer, and the poor are getting poorer", but that people don't like to consider the source of or possible reasons for many statistics.

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