Alums Return to Campus for Discussion of Income Inequality

Haverford welcomed back some of its own for the annual Economics Alumni Forum on Oct. 20. This year, the topic was income inequality, an especially timely subject given the recent events involving the Occupy Wall Street movement and the related demonstrations across the country.

Co-sponsored by the Center for Peace and Global Citizenship (CPGC) and the Economics Department, the event featured Rebecca Saxton-Fox '06 as moderator. Saxton-Fox is doing graduate work in the International Affairs program at Columbia University after spending several years as finance and administration manager for the ORBIS Flying Eye Hospital, a nonprofit that sends teams of doctors around the world.

The forum's two panelists were Jane Dokko '98, an economist with the Federal Reserve Board specializing in tax and housing policy, and Tim Taylor '82, the managing editor of The Journal of Economic Perspectives. Together they tried to tackle the reasons behind and the consequences of the growing trend of income inequality in the U.S. One marker of that trend: Since 1980, the richest 20 percent of American families has experienced a growth rate in income three times the growth rate of the second richest 20 percent and six times the growth rate of the bottom 20 percent.

Dokko began by painting a picture of the history of income inequality in America over the past century. After dropping dramatically during the Great Depression in the 1930s, it remained more or less constant until 1980. But for the last thirty years, she said, it has been growing back to pre-Depression levels.

Dokko gave three possible explanations for the backslide into wider income disparity, which began in the late '70s and early '80s.“The first is a skill-biased technical change, which started in the 1980s with the distribution of computers,” she said, referring to the increased need for skilled labor to work with new technologies. (This is a justification that she does not put much faith in, though, since countries, like France, under similar circumstances have not seen an increased income inequality.) The second is the decline of the value of minimum wage and labor unions. Finally, she pointed to the globalization of trade, and especially outsourcing, as one of the primary causes for increased income inequality in this country.

But while Dokko said that income inequality is growing, she maintained that its growth is driven by only the top-earning one percent of the workforce, which has experienced an explosion in compensation.

Taylor offered his own perspective on the trend.“When I graduated from Haverford in the early '80s, there were two major misconceptions about income inequality,” he said.“ The first was that it was fixed. The second was what is called Kuznets' Curve.”  This curve, created by Nobel Prize winner Simon Kuznets states that civilizations began with complete equality with a population comprised of poor farmers. Then, as people migrated to cities, income inequality grew. And finally, as the majority of the population moved to cities, income inequality would decrease again, returning to its earlier levels, which obviously has not happened.

According to Taylor, one of the reasons that the top one percent of earners have increased their income so drastically of late is related to the way technology solutions have changed companies' structures. Previously, corporations had many different levels of managers in between the salesmen and the head of the company. Today, those positions have been replaced by computers, which allows the head of the company to absorb what had previously been paid out in salaries.

Taylor also pointed to something called“assortative mating” as a cause.“It used to be that a high earner, say a doctor or a lawyer would marry a low earner, like a nurse or secretary, and then the low earner would drop out of the work force,” he said.“Today, you see doctor marrying doctor and lawyer marrying lawyer. This is assortative mating.”

Taylor ended his remarks by asking the audience,“is it the inequality that bothers you or the poverty?” He pointed out that there is a significant difference between the two. He asked if it would matter how much richer one person was than another if everyone lived relatively comfortably. In his opinion,“the greatest inequalities are not always wrapped up in income.” He thinks, instead, that the disparities that truly matter are those in the quality and availability of public facilities like schools, hospitals and libraries. These are generally determined by a number of factors, he said, only one of which is income inequality.

-Jack Hasler '15