Gap between rich and poor is getting wider

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Source: "Distributional National Accounts: Methods and Estimates for the United States" by Thomas Piketty, Emmanuel Saez and Gabriel Zucman.

Eve Kucharski.

Source: “Distributional National Accounts: Methods and Estimates for the United States” by Thomas Piketty, Emmanuel Saez and Gabriel Zucman.

Your chances of beating out mom and dad financially are lower than you think.

Americans born in the 1940s had a 92 percent chance of earning more money than their parents. By the 1960s, that number had dropped by almost a third, to 62 percent. And by the 1980s, the chances were only 50 percent, according to The Equality of Opportunity Project.

Today, the wealth gap – a term that describes as “the unequal distribution of assets within a population” – is growing. In 1980, the top 1 percent of adults earned 27 times more than the bottom 50 percent, according to a 2016 study on this topic by economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman found

Today, the top 1 percent makes 81 times more than the bottom half of earners. This means that jumping to a higher income class, or maintaining your current one could be more difficult than it was in previous years.

But how did the wealth gap get so big? And what does it mean for Michigan?

We spoke with Andrei Simonov, associate professor of finance at the Eli Broad College of Business at Michigan State University, to answer some of these questions.

Professor of Finance at Michigan State University Professor of Finance Andrei Simonov.

Eve Kucharski

Professor of Finance at Michigan State University Professor of Finance Andrei Simonov.

When do you think that the public started paying attention to the wealth gap?
It was like a very big topic of discussion a few years back. There is a French guy named Piketty who is now a professor in London who wrote a book which I believe is called “Capital in the Twenty-First Century.” His major idea is that through whatever means, the wealth of the wealthy tends to grow faster than the overall economy. Basically, the wealth is becoming more and more concentrated and as the result of that, you’re going to have more and more elites and a poorer rest of us.

How is Piketty’s idea holding up?
What we know now, is that’s probably not true. So the wealth doesn’t grow on average faster than the economy. Moreover, the wealth of the top 1-2 or top 0.1 percent doesn’t grow faster. What is going on however, there is a very interesting phenomenon that is related to globalization as we see it. And the story is very simple. In each country there are basically the workers going to work for a certain wage. What is determining this wage? Basically his level of productivity and his standard of living in the country, so think about it as basically as a subsistence wage plus a premium.

Does anyone gain from the wealth gap?
I am gaining when I go to Target or Wal-Mart and I’m buying stuff let’s say for simplicity’s sake 50 percent cheaper. Who is suffering? If we are talking about a pair of jeans, those would be textile workers in South Carolina.

Basically you have this effect going on for years. What is left? Again, basically products with high value-added, so basically intellectual products. That’s why, by the way, the U.S. is so crazy about enforcing intellectual property rights all over the place.

Can people at the top of the wealth gap maintain their wealth?
In the top 1 percent of the population, incomes are very volatile. If you sort your population on income, if you look at the chances that this guy is also is a top 1 percent or 0.1 percent five years down the road, or 10 years down the road, it is not that high.

What does it mean for people locally?
There are all those things that are driven by technology, by opening of the new markets and things like that. However, you have to remember, whenever someone in the world someone is losing, someone else is gaining.

If you are talking about somebody who is between 40 and 50, didn’t graduate from high school in his (or her) life and who used to have $100,000 a year income in the auto industry? Nothing is going to help him (or her). But on average we can help some individuals through education, that is actually centering on professions with industries that are high value added and things like that.

Do you think it is possible to diminish the wealth gap?
What to do is very tough thing to say, but in my view is there is almost nothing that can be done now. We can talk in very, very long perspective about things like minimal income and things like that and income support and whatever. I don’t see it coming in my lifetime, but I easily see it coming 70 years down the road.

In the U.S., where there is this perceived chance of you going to become as rich as Bill Gates, well this is becoming different. So basically people are much less willing to support income redistribution and things like that. It’s a very complicated problem.

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