The Rich Get Richer and the Poor Get Poorer. Or Do They?
Evidence from The Fourth Great Awakening and the Future of Egalitarianism by Robert W. Fogel
The New York Times, "Economic Scene" , August 08, 2002
The rich are getting richer, and the poor are getting poorer, right? You'll hear that riff plenty this election year, if not from the major party candidates then from Ralph Nader and Pat Buchanan. It's a populist truism, Exhibit A in the case against the economy's recent dynamism.
But what if increasing inequality is mostly a myth -- an artifact of misleading data and changing lifestyles? What if just about everyone is getting richer?
In his new book, The Fourth Great Awakening and the Future of Egalitarianism
What he finds is good news indeed: a century of stunning material progress and improved physical well-being in the United States and the rest of the industrialized world. Poorer people have been the big winners. ''In every measure that we have bearing on the standard of living, such as real income, homelessness, life expectancy, and height, the gains of the lower classes have been far greater than those experienced by the population as a whole, whose overall standard of living has also improved,'' Professor Fogel writes.
Most strikingly, technical and economic progress has bought us more time; we live longer, healthier lives and enjoy much more time to do what we want rather than what we must. In this, he notes, the poor have gained the most. A century ago, the lower your income, the more hours a year you worked to earn it -- a depressing prospect. Today, it's just the opposite.
Nowadays, the basics cost very little time. In 1880, for instance, covering a typical household's annual food bills cost 1,405 hours of labor, or about a half-year's wages back then, and those hours didn't include substantial unpaid time in the kitchen. A year's worth of food now costs a mere 260 hours of labor, and that price buys much greater variety and convenience, including a lot of restaurant meals.
One result is that Americans work many fewer hours each year. The free time of a typical working man has tripled over the last century. He now spends more time at leisure (not including sleeping, eating, commuting, chores and other basic activities) than at work. Women have enjoyed similar gains in leisure, mostly because they have a lot less housework.
Life expectancy, meanwhile, has increased 10 years just since 1950, mostly because people over 65 are living much longer. The age at which chronic problems like heart disease and arthritis set in keeps occurring later, and those ailments are less debilitating. This trend means many more active retirement years, which further adds to the huge increase in free time.
So what about the rising inequality we hear so much about? Professor Fogel argues that what looks like bad news over the last couple of decades mostly reflects individuals' different choices about how to use all this free time.
Take two men in the same occupation. One chooses to work long hours during middle age -- earning lots of overtime, advancing to the top corporate or partnership ranks or making it big in the start-up game -- so he can retire at 55. Another takes a more laid-back approach, avoiding the time commitments that would maximize his income and spending more time with his family and hobbies. He works until he's 65. Over the course of their lives, they may make about the same income. But in any given year, their incomes will be significantly different because of their choices about when to take their free time. This pattern intensifies when you add spouses pursuing similarly divergent choices.
In an appendix to Professor Fogel's book, Chulhee Lee, a former research associate at the University of Chicago and now an assistant professor at Seoul National University, presents evidence that increases in these sorts of variations account for much of what looks like a rise in income inequality from 1969 to 1989. Changes in how many heads of households and their spouses worked and how many hours they worked accounted for 54 percent of the rise in the spread between the highest 10 percent of household incomes and the lowest 10 percent. Changing wages, by contrast, accounted for less than 6 percent of the increase in the gap.
You might think these are signs of widespread, permanent unemployment among lower-income people. But Professor Lee found evidence to the contrary. As of 1994, 80 percent of those in the bottom 10 percent of incomes were spending more than they earned, an increase from about 53 percent in 1972-73. And the amount that 80 percent spent was about twice their incomes. Incomes look more lopsided, but the ratio of spending between the richest and poorest deciles has barely budged over time.
How can poor people spend significantly more than they earn? ''You don't go to a bank and say, 'I'm very poor but worthy -- please give me some money,' '' Professor Fogel said in an interview. Most likely, he said, they are using savings to finance either transient unemployment, which may be voluntary, or early retirement. Only a few of the poorest people stay poor over time, and the same is true for the richest, who tend to be at the peak of their earning years.
This evidence suggests that the apparent increase in inequality exists because more people with financial assets are taking breaks from work. That doesn't mean poverty has disappeared, of course, though its material hardships have lessened significantly. But it does suggest that identifying the real problems of the poor -- as most people understand that term -- requires a lot more nuance than aggregated income statistics provide. Focusing on snapshot inequality rather than on long-term life opportunities leads us to underestimate the country's enormous material progress and to overemphasize money as the solution to hard-core poverty.
Rather than worry about material inequality, Professor Fogel says, we should concern ourselves with the alienation that keeps a minority of the statistically poor from enjoying the self-realization our abundant time makes possible. Deciding what to do with that time, he argues, is something Americans of all income levels now face.
Today, he said: ''People have the same problem that only the rich had, and that is, what do you do with your life? What is the good life? That was, from Socrates' time until the beginning of the 20th century, only an issue for the rich. Now it's becoming an issue for ordinary people. If you worked 3,000 hours a year, you didn't have a lot of time to wonder what to do with your life.''