Upper-income people still don't realize they're upper-income

http://www.stat.columbia.edu/~cook/movabletype/archives/2011/04/upper-income_pe.html

by clay • 15 years ago

19 15 15 years ago

stat.columbia.edu

r00fus• 15 years ago

From a statistical standpoint, it'd be interesting not to talk, as the article does, in terms of raw percentile, but based on region, normalized by the cost of living index.

A couple making $250k in Medford, OR would probably be considered fairly well off, but in NY, NY that would not take you very far at all.

ck2• 15 years ago

"upper-income" is way too broad of a term

If people really want to compare, then they should rank their wealth as a percentile.

ie. instead say, your income is in the 20% percentile (meaning you have more annual income than 80% of other people in the nation)

It's probably a nice problem to have but I cannot imagine working at a job that paid me $250k a year, I'd keep asking myself how the hell I am worth that much - I'd put 10% of it as cash in a safe and open it once in awhile and freak-out just looking at it.

brg3• 15 years ago

Consdier any family of two engineers in silicon valley. If they graduated from college and joined successful companies, after a decade or so they will be making over 150k each, for a family income of 300k.

But yet they still work 50+ hours a week each, maybe 60 if they are checking email at nights and on the weekends. How have their lives changed between the interview and now? Not much. Meals are still prepared at home or work. Weekends most likely still mean riding bike or going to a movie. Any talk of family causes worry about taking time away from the career or delaying their hopes to be founders. Vacations disrupt work schedules, and the catching up afterward cause more headache then they are worth.

This level of wealth is different than what we hear about from the days of robber barons or Mad Men. Its even different than what anyone images when they prepare for undergraduate school. There is no luxury lifestyle with a condo downtown and home in the country. There are no two hour martini lunches. There are no personal chefs or nannies. You don't spend more time in leisure than at work. You always spend more of your time doing something you wish you could delegate, but you do it because you know it has to get done.

And maybe that is because wealth is very transient in tech. In five years your 100k+ job could be just as easily gone as become a 200k job. But more likely I would think that in tech high income comes with higher responsibilities. More wealth means more work, not less. And that is not about to change.

Perhaps this is the same in all sectors consistently creating new wealth; bio, pharma, engineering and tech. If so I think it is not surprising to see that families in the 200-500k range don't think they're wealthy when their current income level crosses a certain mark, because it has little immediate, and maybe little permanent, affect.

entangld3• 15 years ago

I think the people in the 250k range are having a philosophical argument about what it means to be wealthy. And the working class are arguing numbers.

I get it. They can have a decent income and not live a "rich" lifestyle, but they probably have a house, investments, kids in nice schools, they probably travel, eat at nice restaurants, etc. It's not wealthy, but they're not broke. I think that was the idea of a progressive tax. It increases as you move up the ladder. We're all debating the cutoff point.

brg3• 15 years ago

My thesis was the opposite of your statement; those at the cut-off point are not travelling, they are not eating a nice restaurants, and they do not have kids let alone kids in good schools. They are working longer and harder than they did at the beginning of their career, and hence do not have a feeling of having obtained wealth.

To restate, I posit that while they have recently acquired a high income; with that has not come wealth in any sense that has made an impact on their lifestyle.

Concretely, having a 30 year mortgage on a 1500 foot house isn't a significant change from a 900 sq ft apartment. A 6% pay decrease for a 401k account might not be noticable, but when an investment can't be touched for 29 years there isn't a feeling of wealth attached to it.

I would assume that 10 years at this salary level may change that, but with the transient nature of tech this is not something that it assumed by most. I am also working under the assumption that that the distribution of people with earnings in this range is skewed towards those having reached it within the last decade.

orijing2• 15 years ago

I don't remember the source, but there was a great article that discussed a similar topic and showed that the income inequality isn't really that skewed unless you look at those making above some threshold (maybe top 0.1% of the population or so). For example, the average income for any percentile of the population is a fairly straight function until you hit around 99 percentile, after which there is a sharp discontinuity rising higher.

This wasn't the original source but you can take a look here: http://elsa.berkeley.edu/~saez/pikettyqje.pdf (Excuse my Berkeley bias, but Emmanuel Saez has produced great works in this field).

As you can see, the action is in the top 1 percentile, and the real action is in the top 0.01 percentile.

In other words, those in the top 5 percentile do not feel rich because there are people who are much MUCH richer than they are, due to the discontinuity you can see. So those making 240k are only four times as rich (less, after taxes) as those making 60k despite being nearly 50 percentile away. In contrast, those making tens or hundreds of millions are two orders of magnitude richer than those making 240k despite being less than 5 percentile away. Plus, most of their taxes are in the form of capital gains on stocks and dividends.

Crazy world, huh?

This leads me to a different point, which is that politicians' focus on 250,000 as some threshold for "rich" masks the bigger inequality. In my opinion, those making 250k or so are hard-working households who mostly "deserve" what they earn as families of doctors, lawyers, engineers even; and that the real inequality manifests itself above the million dollar threshold. The reason I say that is, a family with decent opportunities, a strong work ethic (since youth) and a decent set of brains can reach those levels through just hard work and persistence, while getting above the 1 million threshold is either reserved for severe luck, entrepreneurship (also heavily influenced by luck), inheritance, or politics.

So my point is that upper income people don't feel rich ('realize they're upper-income') because they are so close to those earning tens to hundreds of times more. In that context, all of us are in their shadows.

entangld3• 15 years ago

I hate to rain on your parade...

As you can see, the action is in the top 1 percentile, and the real action is in the top 0.01 percentile.

It doesn't so much matter how people feel. It matters what the reality is. If you make 250k there are millions of people who make much less than you do. The top 5% in a country of 310 million is a lot of people.

I'm not necessarily even favoring dramatically increasing taxes on the lower threshold of rich people, but I don't want to pretend like the life of a family that makes 250k+ and a family that makes 60k are very similar. This issue is about self-awareness, not "the other guys".

orijing2• 15 years ago

Well, I didn't mean to say that the 60k and 240k families are "similar" but my suggestion was that they are much more similar (despite the 50 percentile gap) than the 240k is to someone 4 percentile above him.

So it's relative similarity I'm referring to, if that makes any sense.

brg3• 15 years ago

What are the significant differences between these two families that we shouldn't pretend to gloss over?

I grew up extremely poor, my father making around 18k a year at the time he was required to provide his tax statements for a student loan.

There were no high profile private schools in my area, and so I attended school with the children of doctors, lawyers, bankers, and the local newscaster. While they often had newer clothes, I don't think our childhood experience or family situation were much different.

And now, when I look to start a family of my own, I cant see how having a family income of 4x that of my parents is going to induce any significant change.

Perhaps if I make it to 10x my fathers wage I'll see these difference you speak of, but as of now I don't see them.

earl• 15 years ago

There's also cost of living issues -- $250K in sf is not the same as $250k in rural Wisconsin. My family all lives there, so based on my personal experiences, I'd wager that $250k in sf is about the same as $90k in rural-ish WI.

My sister and her husband have three kids. They live on a 1/2 acre lot in a 4 bedroom 3 bath 2 car garage house for which their monthly payment on a 30 year amortizing mortgage is a little over $1300, including taxes and insurance. My gf and I are looking at homes. A medium quality 1200 ft^2 to 1500 ft^2 two bedroom one bath non tic with a deeded parking spot in mission / noe is going to cost between $750k and $950k; we're staring at about $5.5K/mo minimum between mortgage, hoa, taxes, and insurance.

So owning the type of apartment that you would have a family in costs my sister maybe 1.5 * 1300 * 12 = $23,400 / year in pretax income while it will cost us approximately 1.5 * 5500 * 12 = $99,000 in pretax income.

So there's no doubt that people making $250k in gross income are doing well, but it's not exactly like not worrying about the mortgage or having unlimited income, at least in sf.

And while I'm well aware that I could live somewhere less expensive, this is, at least for now, where the type of employers that employee us are.

bwanab• 15 years ago

To talk about the average income in Manhattan is nonsense. Big parts of Manhattan are untouchable by someone making less than several million a year. Other large parts are populated by families dependent on food stamps. There is no "average" neighborhood in Manhattan. As a statistician, the writer has to know that was a straw-man argument.

mgkimsal• 15 years ago

"but only 6 percent say that they personally pay too little." (in taxes).

No one is stopping people who feel this way from writing a check to the government. They'll take your money just fine.

storborg• 15 years ago

The two assertions, taken alone, are not contradictory. If Joe makes $250,000 a year, he may think that he pays too much in taxes, but that the entire portion of society that makes over $200,000 pays too little. It could be that he thinks that only the top 0.1% pays too little, and everyone else pays slightly too much.

Also, what is "upper-income"? Is that the top 50% of earners? The top 1%?

swampplanet• 15 years ago

First some facts: The upper 5% of the population pays 75% of all federal revenue, even though they only account for about 25% of the GDP Almost 60% pay no income tax The real US tax rate is already one of the highest in the world The corporate tax is #2 to Japan

Now the ramifications are that the US is already seeing a capital flight out of the country and that trend will only pickup until the Tax Code is fixed.

We should have a flat tax and a VAT.

Upper-income people still don't realize they're upper-income

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