Americans do not like to talk about class. Many like to think
that there are no classes in the US and that sufficient hard work and one’s
socio-economic status can be raised. These days, discussions of the
disparity of wealth and income are acceptable ways to talk about class.
There are various studies that suggest such mobility is becoming more
difficult. A college degree no longer guarantees a secure middle-class living and lifestyle. Moreover, household income is a strong indicator of a
range of life opportunities. In addition to consumption patterns, the location of residence, and marriage
opportunities, income appears to also shape life
expectancy.
The above chart from Bloomberg, based on research it cites, shows that
50-year American men, whose income places them in the lowest 20%, are expected
to live just past 76 years. This
is six months less than the previous generation. On the other hand,
50-year old American men who are in highest quintile in terms of income live to nearly 89, which is seven years more
than the previous generation.
The research Bloomberg cites is
also interested in the impact of the divergence in life expectancy on the
distribution of social welfare. Previously, wealthier people would
get more from Social Security (actual payment plus length of collecting), while
poorer people would get more assistance from Social Security disability
insurance and Medicaid. Medicare did not differ much based on
income.
Research suggests the Social Security gap has widened considerably.
When Reagan was elected President, the wealthy 50-year male could anticipate
collected $103k more than his poorer neighbor. In 2010, the gap was
$173k. The researchers note that due to the widening life expectancy gap,
Social Security is becoming less progressive.
If all government benefits are included
and adjust for the taxes paid by American men after the age of 50, the lifetime
value of government benefits is less skewed. However, the boost to
middle and upper incomes is still significant.
The premature death of American men due to substance abuse, obesity and
suicide are well documented, even if the
underlying causes are debated.
To the extent that the scarcity of health care
is distributed by the price mechanism, economic inequality facilitates
inequalities in health and longevity.
The widening income and wealth disparities have far-reaching ramifications. Some economists link the
growing disparity to economic fragility and even as a contributing factor to
the Great Financial Crisis. The disparity has grown since the crisis as
equity investors, and homeowners have
done considerable better than those who have limited investments and do not own
a home. The disparity of income and wealth may also be both cause and
effect impact the participation rate in the labor market, the still elevated
levels of levels of those marginally attached to the labor force
(U-6).
The implications profound. A study by Stanford economists last
year showed that nearly every child born in 1940 (92%) had a higher pretax
income at the age of 30 than their parents at the same age. The two
key explanatory variables were strong economic growth and a more equitable sharing of that growing pie.
For Americans born in 1960, it had fallen to 62%, and for those born in
1980, 50%. Of note, the study found that if growth remains low, but the
disparity of income was at 1970s levels, the share of 1980 cohort would
out-earn their parents by 80% rather than 50%. If growth had returned to
its former levels, but the income disparity
remained only 62% of those born in 1980 would earn more than their parents.
Earlier post on class and longevity, click here.