For Richer or Poorer: Concentrating Wealth in the American EconomyJerry Paytas, Ph.D.

GOVERNMENT IS KILLING JOBS

Every day we hear about how taxes, regulations and Obamacare are killing jobs and stifling growth in the American economy. The prescription is to cut government, stop whining about the winners and pull up your own bootstraps!

If regulation kills jobs, then how do you explain the growth of a heavily regulated industry life Life Sciences?

Life Science Jobs Life Science Wages ($B)

2001 2002 2003 2004 2005 2006 2007 2008 2009 201010,500,000

11,000,000

11,500,000

12,000,000

12,500,000

13,000,000

13,500,000

14,000,000

14,500,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 $-

$100

$200

$300

$400

$500

$600

$700

$800

So why were 3.5 million domestic jobs were lost from 2005-2010 – two of the top three declines since 1945!

2nd largest absolute loss

19451950

19551960

19651970

19751980

19851990

19952000

20052010

-

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

Domestic Employment, 1945 - 2010

Source: National Income and Product Acconts, Bureau of Economic Analysis

3rd largest percentage loss

1945

-195

0

1950

-195

5

1955

-196

0

1960

-196

5

1965

-197

0

1970

-197

5

1975

-198

0

1980

-198

5

1985

-199

0

1990

-199

5

1995

-200

0

2000

-200

5

2005

-201

0

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Percent Change

Source: National Income and Product Acconts, Bureau of Economic Analysis

2

1

3312

THERE MUST BE MORE GOING ON

Two of the largest employment reversals in the past 65 years have occurred in the past 20 years? Why are we getting such severe events with increasing frequency?

1950 to 1990 we had a run of job growth interrupted by only minor reversals

1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 -

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

Domestic Employment, 1945 - 2010

Source: National Income and Product Acconts, Bureau of Economic Analysis

The profits of American corporations, even after we adjust for inflation, have continued to rise, even now while jobs are vanishing

1945 1955 1965 1975 1985 1995 2005 2010 2011 $-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

Adjusted Domestic Profits ($1 M) Jobs (1,000)

Source: National Income and Product Accounts, Bureau of Economic Analysis

The gap becomes even more stark if we index profits and jobs to 1945 levels

1945 1955 1965 1975 1985 1995 2005 2010 2011Q2 -

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Domestic Profit (Adjusted) Domestic Employment

Inde

x (1

945

= 1.

0)

U.S. Corporations are using some of the money to create jobs outside the U.S.

Source: http://online.wsj.com/article/SB10001424052970203710704577052220096932832.html

WHAT COULD YOU DO WITH $53 BILLION

Companies are also sitting on record amounts of cash. Microsoft held $53 billion in cash in June 2011, up from $21 billion in December 2008.

Money has to flow to stimulate demand, but when it is stuffed in corporate mattresses it reduces the liquidity that oils the gears of our economy until the engine locks up

Profits are not creating jobs for Americans

WHERE HAS THE MONEY GONE?

If profits have continued to rise, despite taxes, regulations and Obamacare… and U.S. Corporations added jobs in high tax, high regulation nations like France and Germany, why can’t they invest here?

It has gone to the 1%. The only group to increase its share of Market Income.

Lowest Quintile Second Quintile Middle Quintile Fourth Quintile 81st - 99th Percentiles

Top 1 Percent0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Share of Market Income 1979Share of Market Income 2007

Source: Office of Management and Budget

REDISTRIBUTION PREVENTS WEALTH FROM CREATING JOBS

But isn’t it true that the rich pay almost 40% of all federal taxes? If we cut taxes, then we should have more investment that creates jobs.

But after taxes and transfers, the richest 20 percent (actually the top 1%) still got all the marbles!

Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Fifth Quintile

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Adjusted Income 1979-2007

Adjusted Income 1979-2007

QUINTILES DISTORT

When we look at income distribution between the top and bottom, we can’t forget that population growth changes how many people are affected -

Each quintile added 15.3 million people from 1979 to 2007, but only one increased its share of income

Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Fifth Quintile

(0.30)

(0.20)

(0.10)

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Income Change Relative to Population Change

GDP DOES NOT EQUAL JOBS

Severe inequality kills jobs. When wealth is highly concentrated, the market for goods and services dries up. $1M spent on luxury goods has the same impact on GDP as $1M spent on necessities, but the job impacts are very different.

The Maybach Landaulet model costs $1 million

Ford employs more than 30 people for every car sold versus less than 12 for luxury maker Mercedes-Benz, which makes the Maybach

Ford

Mercedes-Benz

0 5 10 15 20 25 30 35

Jobs per Car

Mercedes-Benz sold 1.1M vehicles with 96,000 employees in 2010

Ford sold 5M vehicles with 164,000 employees in 2010

$1M to buy 40 Fords sustains 100 times the jobs of one Maybach

YOU CAN BE TOO RICH!

Productivity gains reduce employment only in the short term. But shifting production from mass market goods to luxury items might not affect GDP but it does impact jobs. The question is whether the concentration of wealth has short-circuited the link between rising productivity and job creation….