Tag Archives: income

Income, Life Expectancy and Social Security

We are well aware of the fact that economic status has a direct correlation to life expectancy. The rich are expected to live longer than the poor. Recently, though, the gap between rich and poor people’s  life expectancy has been widening. Especially for women, economic status is having a more significant influence over life expectancy each year. Interestingly, life expectancy for poor women has actually been decreasing by generation, indicating that it is not only growing at a slower rate than that of the rich, but that it is actually decreasing. An article from the Wall Street Journal, “The Richer You Are the Older You’ll Get”, outlines the results found from surveys conducted by the University of Michigan, and points to the complex implications this has on social security.

The data used comes from the University of Michigan’s Health and Retirement Study, a survey that tracks the health and work-life of 26,000 Americans as they age and retire. According to the data, men of all incomes are living longer. But the data shows that the life expectancy of the wealthy is growing much faster than that of the poor. Looking at the graph below,  for a man born in 1940 with income in the top 10% for his age group, if he lives to age 55 he can expect to live an additional 34.9 years. This is six years longer than a man also in the 10%, but who was born in 1920. Men who were in the poorest 10%, can expect to live another 24 years, only a year and a half longer than his 1920s counterpart. That’s a huge difference. when we are talking about life expectancy.

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However, the story is different for women. While the wealthiest women from the 1940’s are living longer, the poorest 40% have a declining life expectancy from one generation to the next. ““At the bottom of the distribution, life is not improving rapidly for women anymore,” said Mr. Bosworth. “Smoking stands out as a possibility. It’s much more common among women at lower income levels.”” This is an interesting observation, which has some logic to it (smoking kills), but it’s hard to believe that this is the sole cause. I would also add that drugs play a big role here.

Looking at the following graph, we can see how life expectancy for the poorest women is declining, while that of men is still increasing (though not as significantly at that of rich men).

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Though I can’t immediately think of any explanation for this, it is worth thinking about. Perhaps the increase in cancers affecting women has something to do with it, but it is hard to tell.

Lastly, the article points towards the implications this has on social security. If people at the bottom are not experiencing increases in life expectancy (the graphs show predictions based on actuarial data), this means they are getting less social security benefits since they will receive it for less years. This might indicate that the retirement age should be lower. But then there is the case for those not in the lower class: for example, a wealthy man born in 1920 who retired at age 65, could expect to draw social security for 19 years. His son, born in 1940 and retired at age 67, could expect to draw benefits for 24 years. He retired at a later age, but he’s living longer. But this is obviously not true for men and women at the bottom. They would draw social security for less years, if the retirement age rises, and their longevity does not. Clearly, this poses a dilemma for setting appropriate policies as life expectancy rises (for all except women in the bottom 40%).

College Education: Worth more now than ever before

The debate over whether a college education is worth the cost has been going on forever. We’ve already had several posts about this topic on the class blog earlier this semester. However, there is new research from the Pew Research Center that suggests paying for a college education has become increasingly worth it over recent years, even with the increasing costs all around the country.

To me, the most striking piece of the research is not just that it has become increasingly worth going to college, but that it has become increasingly worse to not go to college. This is not only in terms of income, but also when you consider other factors such as unemployment, percent living in poverty, percent married, and percent living in their parents’ home. I suppose if you never want to get married or move out of your parents’ home you can ignore those statistics. The following data are among full-time workers ages 25-32. The gap in median income between those with a bachelor’s degree or more and those with at most a high school diploma has increased to $17,500 ($45,500 for college grads versus $28,000 for high school grads) compared to a difference of $14,245 in 1986 and only $7,449 in 1965 (all of these figures are in 2012 dollars). In percentage terms, college grads now earn 62.5% more on average than high school grads compared to 46.7% more in 1986 and only 23.7% more in 1965. Clearly there is an increasing trend in the income gap. Moreover, even though I do not love the unemployment rate in general, it can be okay when directed at a certain group of people (as I discussed in my previous blog post), only 3.8% of those with a bachelor’s degree or more are unemployed versus 12.2% of high school grads. This is a very significant difference.

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What’s more, college grads (again ages 25-32) are more satisfied with their jobs and consider their job a career or at least that they are on track to a career by a clip of 86% compared to 57% of high school grads.

Only yesterday, Dr. Richard Vedder, director of the non-profit Center for College Affordability and Productivity at Ohio University, spoke about how he believes a college education may not be worth the investment. He said that he views college as a diminishing return on investment. I really wonder if he has seen this report from Pew today and changed his opinion at all because after viewing this I don’t know how he could have that view. If the gap between college grads and high school grads is widening in terms of median income (and this research shows that it is), as well as so many other important factors in life, how can you possibly believe that a college education is not worth it? He also discusses his view that a higher education “bubble” exists, and that it has already begun to pop. However, this really can’t be the case because the prices of attending colleges around the United States would have started to fall if there really was a bubble that had begun to burst, as is the case with financial bubbles. The cost of a college education has only risen in recent years as college becomes more and more expensive.

All in all, doling out somewhere in the vicinity of $200,000 for a bachelor’s degree seems (and is) extremely expensive, but what you get in return is becoming obviously better over time. While I do think that it is crazy for the costs of college to continue to rise, given this new research from Pew, my opinion is clear. Going to college is absolutely worth it. Just think about the fact that even if a salary difference of 62.5% or $17,500 doesn’t matter to you at age 25 (though I can’t imagine that is the case), the fact that your job is way more likely to already be a career or at least on track to be a career will be huge later on in life. All of us made the right choice coming here to Michigan.

(Revised) Seemingly Obvious Information About Income Inequality

One of the best-known movements in recent years was Occupy Wall Street. The goal of this protest was to be the voice of the “99%”. The claim is that the “1%” was enjoying the spoils of success and leaving nothing for the 99%. The goal was to protest income inequality, which has been an increasingly growing problem in the United States. 1% of the nation controls a very large proportion of wealth.

Many wonder what the causes of this unequal distribution of income is the lack of intermarriage between social classes. In other words, the rich tend to marry the rich and the poor tend to marry the poor. Thus, making the rich richer and the poor poorer. In Jeffrey Sparshott’s Wall Street Journal article and Shaila Dewan’s New York Times article, these tendencies are discussed. People are tending to marry those with the same professional and educational background.

Michael A. Fletcher wrote an article in the Washington Post about how all of this affects the economy. He states that consumption, which has been decreasing, is about 70% of the economy. He attributes this to why the United States is recovering so slowly. The decrease in consumption can be linked to the rich becoming richer and the poor becoming poorer. When people have less money, they tend to save it. This means that they are consuming less. If this is how the 99% is operating, then consumption is going to be very low.

How can we combat this? One idea would be that rich people marry poor people. This would cause more people to have disposable income because the poor person marrying the rich person would suddenly have access to more money. Thus, they would spend more. If this happens, then it is clear that consumption would rise and the economy would recover at a quicker rate. 70 percent of the economy would be ameliorated. The problem is that this proposition is too idealistic, and is not entirely feasible. It is not possible to make every single rich person marry a poor person. That would be unconstitutional. Furthermore, making it that everyone has the same disposable income is pure communism. Another problem is that rich people and poor people do not tend to have the same social circles. Take New York City, for example. A wealthy lawyer from the Upper East Side probably will not be spending his time in Spanish Harlem, which is a very low-income area. This would reduce the interactions between people of different socioeconomic classes.