Friday, November 04, 2011

What happened to income of the top 1% from 2007-2009?

See The Rich Get Poorer by Greg Mankiw, Harvard economics professor. Here is his blog post:
"Here is a fact that you might not have heard from the Occupy Wall Street crowd: The incomes at the top of the income distribution have fallen substantially over the past few years.

According to the most recent IRS data, between 2007 and 2009, the 99th percentile income (AGI, not inflation-adjusted) fell from $410,096 to $343,927. The 99.9th percentile income fell from $2,155,365 to $1,432,890. During the same period, median income fell from $32,879 to $32,396."

That works out to a 1.5% drop in median income and a 16.1% drop in income for those in the top 1%.

Mankiw also mentions a paper that shows "that high-income households have riskier-than-average incomes." That is, incomes for the top earners fluctuate alot more than for everyone else. That paper is The Increase in Income Cyclicality of High-Income Households and its Relation to the Rise in Top Income Shares by Jonathan A. Parker and Annette Vissing-Jorgensen, both of Northwestern University. Here is the abstract:
"We document a large increase in the cyclicality of the incomes of high-income households, coinciding with the rise in their share of aggregate income. In the U.S., since top income shares began to rise rapidly in the early 1980s, incomes of those in the top 1 percent of the income distribution have averaged 14 times average income and been 2.4 times more cyclical. Before the early 1980s, incomes of the top 1 percent were slightly less cyclical than average. The increase in income cyclicality at the top is to a large extent due to increases in the share and the cyclicality of their earned income. The high cyclicality among top incomes is found for households without stock options; following the same households over time; for post-tax, post-transfer income; and for consumption. We study cyclicality throughout the income distribution and reconcile with earlier work. Furthermore, greater top income share is associated with greater top income cyclicality across recent decades, across subgroups of top income households, and, in changes, across countries. This suggests a common cause. We show theoretically that increases in the production scale of the most talented can raise both top incomes and their cyclicality."

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