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The best sentence I reread this morning
While he is willing to attribute some of the rising wage inequality of the 1980s to trade with developing countries, the timing of the increase in profits since 2000 does not seem to fit very neatly with any globalization-related story.
That is from Dani Rodrik. Mark Thoma offers related material. Brad DeLong makes excellent points in one of his best posts.
Posted by Tyler Cowen on June 16, 2007 at 06:23 AM in Economics | Permalink
Comments
Could unabated mass immigration combined with an economic slowdown, be related to rising income inequality since 2000? I know this is heresy for the Open Borders crowd. But take a look at the following from Andrew Sum of Northeastern University
The Impact of New Immigrants on Young Native-Born Workers, 2000-2005
http://www.cis.org/articles/2006/back806.html
Over the 2000-2005 period, immigration levels remained very high and roughly half of new immigrant workers were illegal. This report finds that the arrival of new immigrants (legal and illegal) in a state results in a decline in employment among young native-born workers in that state. Our findings indicate that young native-born workers are being displaced in the labor market by the arrival of new immigrants.
Between 2000 and 2005, 4.1 million immigrant workers arrived from abroad, accounting for 86 percent of the net increase in the total number of employed persons (16 and older), the highest share ever recorded in the United States.
Of the 4.1 million new immigrant workers, between 1.4 and 2.7 million are estimated to be illegal immigrants. This means that illegal immigrants accounted for up to 56 percent of the net increase in civilian employment in the United States over the past five years.
Between 2000 and 2005, the number of young (16 to 34) native-born men who were employed declined by 1.7 million; at the same time, the number of new male immigrant workers increased by 1.9 million.
Multivariate statistical analyses show that the probability of teens and young adults (20-24) being employed was negatively affected by the number of new immigrant workers (legal and illegal) in their state.
The negative impacts tended to be larger for younger workers, for in-school youth compared to out-of-school youth, and for native-born black and Hispanic males compared to their white counterparts.
It appears that employers are substituting new immigrant workers for young native-born workers. The estimated sizes of these displacement effects were frequently quite large.
The increased hiring of new immigrant workers also has been accompanied by important changes in the structure of labor markets and employer-employee relationships. Fewer new workers, especially private-sector wage and salary workers, are ending up on the formal payrolls of employers, where they would be covered by unemployment insurance, health insurance, and worker protections.
Posted by: Peter Schaeffer at Jun 16, 2007 11:52:03 AM
So because there have been profits there has been no increase in inequality? These guys write like economists.
There are a number of factors (see Peter's work above) likely causing an increase in inequality including trade, outsourcing of manufacturing jobs specifically, uncontrolled immigration, poitical influence peddling, corporate and financial corruption, union busting and the hacks in the Bush administration who apparently get their economic theories from Kudlow and Limbaugh.
Even Dubya recognizes the problem, but could care less.
Take a look at the Ohio election of 2006. The losers from trade are coming to the polls, and they are not happy. 2008 shoudl be interesting.
Posted by: save_the_rustbelt at Jun 17, 2007 10:19:33 AM
From the comments to Brads blog:
http://www.nytimes.com/2007/06/16/business/16tax.html
June 16, 2007
Tax Gap Puts Private Equity Firms on Hot Seat
By JENNY ANDERSON and ANDREW ROSS SORKIN
This week, Goldman Sachs, Wall Street’s most profitable firm, reported that it earned about $3.4 billion for the second quarter. As always, it set aside a big chunk of money — $1.1 billion, or about 32 percent — to pay corporate income taxes on its healthy profits.
Then there’s the Blackstone Group — the first big-name private equity firm to proceed with plans to go public in the United States — whose business is similar in many ways to Goldman’s. In the first quarter, Blackstone, a privately run partnership dominated by Stephen A. Schwarzman, earned about $1.1 billion before taxes. Its tax bill? Just $14 million, or 1.3 percent.
Even after the Blackstone partners pay their share, the total should still come to less than half that of their Wall Street counterparts.
The gap is the latest example of an advantage that has existed for decades but gone largely unnoticed — until now. It has allowed private equity firms, like Blackstone, to operate as partnerships and to pay far lower tax rates than corporations, giving them an advantage that critics say is unfair.
Moreover, their partners generally pay no more than 15 percent in taxes on most of the money they earn from the firm, compared with the top individual rate of 35 percent....
As far I can figure out and according to my accountant the 15 percent dividend tax rate is not applicable to partnerships, s corp’s, or LLC’s. What does this article say about the New York times.
Posted by: Floccina at Jun 19, 2007 11:54:03 AM
