Income Facts: Work Pays

by | May 3, 2003

Those for whom indignation is a way of life often inform us of the fact that families or households in the top 10 or 20 percent in income make far more money than people in the bottom 10 or 20 percent in income. What they almost never inform us of are how much money they […]

Those for whom indignation is a way of life often inform us of the fact that families or households in the top 10 or 20 percent in income make far more money than people in the bottom 10 or 20 percent in income. What they almost never inform us of are how much money they are talking about and how many people in these different brackets actually work.

These omissions are neither incidental nor accidental. If the full facts were brought out, those facts would completely undermine the picture presented by the envy zealots or, as they prefer to be called, advocates of “social justice.”

Despite the looseness with which the term “rich” is thrown around — as in “tax cuts for the rich” — most people to whom that term is sweepingly applied are far from being rich. First of all, whether you are rich or not depends on your wealth, not your income, but the statistics used by the envy zealots are almost always income statistics.

These are also usually statistics about family income or household income, which can be very misleading, because families and households differ substantially in size — and where there are more people making money, they usually make more money.

While there are more than 19 million people working in households with incomes in the top 20 percent, there are fewer than 8 million people working in households in the bottom 20 percent. How much of an injustice is it that people who work get more money than people who don’t work?

If you are talking about working full-time, 50 or more weeks a year, then there are more people doing that in the top 5 percent of households than in the bottom 20 percent. As Casey Stengel used to say, you can look it up. These are Census data, available on-line from the Current Population Survey, Table HINC-06.

It may not be a breakthrough on the frontiers of economics to say that work pays, but it does. Among households in the bottom 20 percent in income, there are more than 13 million people who do not work at all and fewer than 8 million who do work, counting both full time and part time workers.

How do people live without working? Millions in the bottom 20 percent live on the money earned by other people who do work and whose income gets taxed to pay for the non-workers. In addition, more than 4 million families in the bottom fifth in income live on property income and nearly 6 million live on various forms of retirement income, including Social Security. (Table FINC-06, for those who demand proof only from those they disagree with.)

What about those “rich” people we hear so much about? Studies that follow the same individuals over time have found that those in the top 20 percent and those in the bottom 20 percent are mostly the same people at different stages of their lives. Not only does work pay, when you have worked a longer time, it usually pays more.

High-income people are typically people who have reached their peak earning years in middle age. What does it take to reach the top 20 percent in income? In 2001, it took a little less than $85,000 — for a whole household! (This is a different Census publication: “Current Population Reports,” P60-218.)

How many yachts these people are going to buy, even if they get those “tax cuts for the rich” we hear about, is another story.

To reach the top 5 percent, you need an income of about $150,000 — again, for a whole household. A middle-aged couple who have worked their way up in middle-class jobs, over a period of decades, can reach this peak — and have much of it taxed away.

These publicly available numbers may be surprising news to some because neither in the media nor in academia do the envy zealots like to talk about actual dollars and cents. Or about work — one of the few four-letter words that remains taboo.

They prefer to talk about percentage shares going to some people versus others. But people do not live on percentages. They live on money and on the things that money can buy, which is to say, their real income.

Despite all the hand-wringing about the fact that the bottom 20 percent get a smaller share than in times past, the real income of the bottom 20 percent has gone up by thousands of dollars. Moreover, the people who were in that bottom 20 percent in the past have also gone up into higher brackets.

Thomas Sowell has published a large volume of writing. His dozen books, as well as numerous articles and essays, cover a wide range of topics, from classic economic theory to judicial activism, from civil rights to choosing the right college. Please contact your local newspaper editor if you want to read the THOMAS SOWELL column in your hometown paper.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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