WHO ARE THE JOB CREATORS?
Introduction
In an earlier work[1] I noted that Republican politicians are no longer allowed by party rules to speak of “the rich” or even “the wealthy”, but must say “job creators”. Apparently that strategy is meant to justify the extreme, and growing, income and wealth inequality in the U.S. They seem to believe that repetition is a sufficient substitute for truth. Herein we will examine the truth.
Inequality in the U.S
I have previously picked out 26 countries that I consider “First World” countries[2]: they are all the OECD countries with $20000 or more GDP/capita in 2017. Figure 1 shows these 26 countries and their Gini indices[3], which measure income inequality (higher index values indicate more inequality).
FIGURE 1
It can be seen that the U.S. has the worst income inequality among First World countries.
Furthermore it has been getting worse. Figure 2 shows the income share[4] of the top centile: it has been steadily growing since 1980, and as the share of income for the top 1% grows, the share for the other 99% must be shrinking.
FIGURE 2
Changes may look exaggerated because the vertical scales are greatly expanded to show the variation, but the upward trend since 1980 is quite clear. From 2004 onward, the top centile share has been greater than at any time since 1950.
Not just the income share, but also the wealth share for the top centile[5] has been growing just as relentlessly since 1980 as illustrated by Figure 3. In this case, the top centile wealth share since 1997 has been greater than at any time from 1950 to 1996.
FIGURE 3
I should note here that the average income[6] for the top centile in 2018 was $1,490,051, and the average wealth[7] was $13,540,318.
For the poorer half of the population, the story is much the opposite. Figure 4 shows the history of the bottom 50% income share[8] since 1962 (the table data do not extend farther back). Their income share has been dropping steadily since 1980.
Figure 5 shows the wealth share[9] of the bottom 50%. Their wealth share increased in the 80’s, but has fallen since 1991, with a precipitous drop into negative territory in the Great Bush Recession of 2006 to 2009. From 2008 to 2015, the bottom 50% had more debt than assets resulting in a negative share of the nation’s wealth. This wealth share has recovered somewhat since then, but not back to 1%, which it was above from 1962 to 2005.
FIGURE 4
FIGURE 5
But conservatives argue that it is precisely this inequality that produces the “capital accumulation” that creates jobs. They claim that when the rich accumulate a lot of capital they then use it to start new businesses or expand ones they already own, thereby creating new jobs. Their argument is not illogical, just wrong, belied by real world facts.
A Dose of Reality
If putting more of the nation’s income and wealth into the hands of the Big Rich (the top 1%) did create jobs, then we would expect to see a long-term, statistically significant, positive correlation between income (or wealth) share of the top centile and job growth rate. Results from the real world are decidedly different from that expectation.
The correlation coefficient between job growth rate[10] and top centile income share for the last 69 years is only r = -0.11, not significantly different from zero at the 0.05 level (about 11% probability the variables are unrelated, well above the usual 5% threshold). Furthermore the correlation is negative, not positive. Figure 6 illustrates.
FIGURE 6
What about top centile wealth share? The results are: r = -0.19, nearly statistically significant at the 0.05 level (about 5.4% probability the variables are unrelated). But if they are related, the relationship is negative: more wealth for the Big Rich, worse job growth! Figure 7 shows the scatterplot and regression line.
FIGURE 7
These two results make it clear that the Big Rich are not job creators. If their increasing share of national income or wealth has any effect on job growth at all, it is most likely a negative one.
We can look at the lower half again. The correlation between job growth rate and income share of the bottom 50% of earners is positive: r = 0.22. Although this value is not statistically significant at the 0.05 level, it is very close to being so. The probability that the two variables are unrelated is 5.2%. Figure 8 shows the scatterplot and regression line.
The relationship between job growth and the wealth share of the lower half is even more impressive. In this case r = 0.29 and this is significantly different from zero at the 0.05 level. There is only a 1.5% probability that the two are unrelated. Figure 9 illustrates.
FIGURE 8
FIGURE 9
Conclusion
The empirical evidence over more than the last half-century indicates that if you want better job growth, take money from the 1% and give it to the poorer half of the population. Perhaps the poor spend money quickly after receiving it because they have to, and that spending creates demand and that demand creates jobs. But I will leave spinning economic theories to the conservatives; they are much better at it. However at the very least we can, and should, demand that their theories not be contradicted by quantitative empirical evidence.
Gary Waldman
December 2019
[1] Gary Waldman – The Reagan Revolution – Oct. 2017, www.garywald.net
[2] Gary Waldman – Guns and Death – June 2019, www.garywald.net
[3] Use the search function in the upper right-hand corner to search “Gini” at www.oecd.org webpage
[4] www.taxjusticenow.org. Click on “More” in the upper right of the opening page, and pick “Technical Appendix”. On the ensuing page click on “Supplementary tables underlying statistics presented in the book”. I used column G of Table TA1.
[5] Ibid, column P
[6] Ibid, table TA2, column G
[7] Ibid, column P
[8] Ibid, table TA1, column C
[9] Ibid, column L
[10] U.S. Bureau of Labor Statistics – www.bls.gov series report CES0500000001 (all private sector employees). I used the December 12-month percentage change for annual job growth rate.
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