The focus of people's discussions on inequality is often about the huge income gap between various classes of society, which is the so-called "not worrying about scarcity but worrying about inequality." However, as the global economy continues to slump and wealth and resources are increasingly concentrated in the hands of a few, the incomes of most people are declining or stagnating. Although this trend is as destructive as "inequality", few people pay attention to it.
In the period from the end of World War II to just before 2000, advanced economies experienced strong growth in gross domestic product (GDP) and employment, which meant that nearly all households saw their incomes rise, both before and after tax. Therefore, each generation believes that it will be richer than its parents' generation.
But new research from the McKinsey Global Institute shows that this may no longer be true. Income growth has stagnated for most households in developed countries over the past decade, with single mothers or young workers with lower education levels the hardest hit.
The report pointed out that between 1993 and 2005, less than 2% of households in these 25 advanced economies, or less than 10 million people, experienced a decline in their real income.
But between 2005 and 2014, 65% to 70% of households in 25 advanced economies, equivalent to more than 540 million people, saw their real incomes decline or stagnate.
If government transfer payments and tax rate reductions are taken into account, the negative impact of the above trends on residents' disposable income will be mitigated. But even so, between 2005 and 2014, 20% to 25% of households still experienced a decline or stagnation in disposable income.
After the 2008 financial crisis, the severe economic recession and sluggish recovery were the main reasons for this phenomenon. However, changes in the labor market, such as the decline in the proportion of wages in GDP, the trend of population aging, and the reduction of family size, are all behind it.
Laura Tyson, former chair of the White House Council of Economic Advisers, and Anu Madgavkar, a partner at the McKinsey Global Institute, wrote in Project Syndicate a week ago that before the recession, GDP expansion contributed an average of about 18 percentage points to median household income growth in the United States and Europe. In the seven years after the recession, the contribution to GDP dropped to 4 percentage points, and even this contribution will be eroded by changes in the labor market and demographics.
Demographic changes, including changes in family structure, low fertility rates and an aging population, have led to smaller families and a decline in the number of working-age people in the household. At the same time, labor market changes such as technological change, the globalization of low- and medium-skilled jobs, and the growth of part-time and temporary jobs have caused wages to decline as a share of national income. And none of these trends will improve anytime soon. On the contrary, some may become aggravated.
Long-term trends in demographics and the labor force will continue to pressure income growth. McKinsey's report predicts that even if developed economies return to a historically high growth trajectory in the next 10 years, if labor market changes accelerate (such as further automation of factories), 30% to 40% of income areas may not be able to achieve income growth.
If the slow economic growth between 2005 and 2012 continues, as many as 70% to 80% of income groups in developed economies may experience flat or declining market income in the next 10 years.
But there is good news recently. Data released by the U.S. Census Bureau on Tuesday showed that the country's median household income rose 5.2% year-on-year to $56,500 in 2015, the largest annual increase since records began in 1967. At the same time, the proportion of poor people in the total population also achieved the largest decline in decades.
Specific data also shows that more than 3 million new jobs were created in 2015, and the unemployment rate dropped to 5%. Hourly wages, adjusted for inflation, rose 2%.
Even so, the inflation-adjusted median household income in the United States is still 1.6% lower than in 2007 and 2.4% lower than the peak median income during the boom period of the late 1990s.
Jared Bernstein, an economist at the Center on Budget and Policy Priorities and a former adviser to Vice President Joseph R. Biden, said: "A good year cannot reverse the stagnation of the past decades." Middle class and low-income families need much more than a good year. We must keep this trend going. ”
