What would the income distribution look like with no redistribution?

[Leoreth]

The income distribution would look exactly the same as it does now.

Wealth transfer only moves dollars; it doesn't move the ability to produce dollars for oneself. So, you take money away from a rich person and hand it to a poor person; the poor person spends the money on something; and the money is gone. At which point the poor person remains just as poor as he or she always was.

And here I thought spending money gets you something of value in exchange, and the money you spend ends up in the hands of another person!

I was so stupid, thank you for ending this myth.

 

[luiz]

The thing is that welfare transfers are always so skimpy that in virtually no cases do they make people better off not working than they would be working. However what they do do is set a floor beneath which employers cannot pay without people not bothering to show up. So welfare should be expected to raise the income of the low income non-welfare recipients, not lower it. Ultimately welfare should be generous enough, and far easier to get, so that wages are bid up to attract workers. As is, in the US anyways, welfare is very difficult to get, and the benefits are extremely low. And so they do not provide much incentive to employers to raise wages and productivity.



To the OP question, the income distribution would be very great, like in kleptcratic LDCs. Income distribution depends on the economic and political power distribution, and a desperate workforce has no power to demand rising wages. Or to resist wages decreases.

In the US I don't doubt welfare transfers have minimum effects in lowering the income of the bottom earners by driving them out of the workforce or not wanting to raise their income above a threshold. But is that the case in places with more generous welfare transfers, like say Sweden?

 

[luiz]

Found and interesting data source, that let us look at the Gini Index of countries before taxes and transfer payments:
http://stats.oecd.org/Index.aspx?QueryId=26067&Lang=en

The curious bit: it's widely assumed that the US has far more wage disparity than its European counterparts, but it actually has a lower "pre-transfers" Gini index than the likes of Italy, Germany and the UK, and is essentially identical to France. Not much difference from Austria or Belgium either.

So the higher concentration of income in the US is explained by lower taxes and welfare transfers, not wage differences.

 

[Mise]

it's widely assumed that the US has far more wage disparity than its European counterparts

Who assumes that? TBH it makes perfect sense that most modern, western economies have similar wage structures and income distributions before taxes and benefits are taken/added. And that lower income inequality in the EU is a result of more redistribution of income via taxes and benefits. I've not heard anyone say that the US economy is uniquely predisposed to producing a wide disparity in incomes, aside from a narrow focus on executive pay (which, of course, is barely a rounding error in the overall Gini calculation).

 

[luiz]

Who assumes that? TBH it makes perfect sense that most modern, western economies have similar wage structures and income distributions before taxes and benefits are taken/added. And that lower income inequality in the EU is a result of more redistribution of income via taxes and benefits. I've not heard anyone say that the US economy is uniquely predisposed to producing a wide disparity in incomes, aside from a narrow focus on executive pay (which, of course, is barely a rounding error in the overall Gini calculation).

I've read many times that the rich in the US have huge salaries while the poor have tiny miserable wages. That doesn't seem to be true, or at least it's not any more true than for other rich countries.

And yeah, people do focus on executive compensation. How many times have we heard of the German CEOs who get paid a fraction of their American counterparts, while the German workers still make good pay? Turns out wages in Germany are more unequal than in the US. While of course I've never seen anyone state otherwise straight up, I've certainly seen it implied.

 

[Leoreth]

Germany's certainly looking better than it is in that regard in the light of its European neighbours. But it still has roughly a decade of stagnating wages behind it.

The comparison is still a little unfair, though: many things you have do privately in the US (health insurance, unemployment insurance, pension investments) are financed largely via social contributions, which is payed by half (at least in theory ) by the employers. This situation makes it reasonable for comparable US wages to be higher, when in fact it's more a question of accounting.

 

[luiz]

It's not a matter of wages being higher or lower, it's a matter of the higher US wages not being that much higher than US lower wages when compared to European nations. So it's about proportion, not absolute value. It's already widely known that in absolute values US average wages are higher than European wages, what isn't widely known is that pretax income isn't any more concentrated.

@Mise, another thought: doesn't this data also suggest that the relatively lower power of US unions have not lead to lower wages for the bottom earners, compared to stronger-union euro countries such as Germany?

 

[Terxpahseyton]

I've read many times that the rich in the US have huge salaries while the poor have tiny miserable wages. That doesn't seem to be true, or at least it's not any more true than for other rich countries.

I wouldn't put it to such extremes, but I freely admit I sort of hold such an impression, so this comes as an (interesting) surprise.

It's not a matter of wages being higher or lower, it's a matter of the higher US wages not being that much higher than US lower wages when compared to European nations. So it's about proportion, not absolute value.

No you didn't get it. What Leoreth talks about does not effect all wages equally, but primarily those wages of people who take part in public health insurance, which general are people of lower income brackets and which hence obscures the proportions, not only absolute values.
And I am skeptical if the OECD statistic sufficiently accounts for that.

Also, in case of Germany I think it is fair to give Germany the bonus of reunification which still has huge consequences for its Gini coefficient I imagine.

But well, as far as I know American social mobility still sucks

 

[Leoreth]

It's not a matter of wages being higher or lower, it's a matter of the higher US wages not being that much higher than US lower wages when compared to European nations. So it's about proportion, not absolute value. It's already widely known that in absolute values US average wages are higher than European wages, what isn't widely known is that pretax income isn't any more concentrated.

Sorry, I was talking about relative wages, just wasn't very clear on that.

What I was referring to is that a large portion of US wages go into private social security afterwards (unless you're the risky type, which you're free to be in the US). In Germany, (public) social security is payed in half by you and in half by your employer. Your employer's contribution is not part of your actual wage, so I assume it's not accounted for in the "income before redistribution" statistic, but it pays for something a US employee has to spend a portion of his income for.

I don't think it's entirely fair to see this as "redistribution" because this contribution is usually accounted for in wage considerations, and is mainly a result of the fact that social security is mandatory in Germany. That's what I meant with "it's a question of accounting".

But SiLL's probably right in that former East Germany is the larger contributor to the current GINI value. That's one of the problems with the GINI coefficient: combine two economies with low GINI coefficients and you might get one with a large coefficient. Especially ironic because the GDR probably had a lower GINI coefficient even in 1990 than West Germany.

 

[Mise]

@Mise, another thought: doesn't this data also suggest that the relatively lower power of US unions have not lead to lower wages for the bottom earners, compared to stronger-union euro countries such as Germany?

That's an interesting point.

 

[Cutlass]

In the US I don't doubt welfare transfers have minimum effects in lowering the income of the bottom earners by driving them out of the workforce or not wanting to raise their income above a threshold. But is that the case in places with more generous welfare transfers, like say Sweden?

I'm not sure I understand what you are saying. Rephrase please?

 

[Cutlass]

It's not a matter of wages being higher or lower, it's a matter of the higher US wages not being that much higher than US lower wages when compared to European nations. So it's about proportion, not absolute value. It's already widely known that in absolute values US average wages are higher than European wages, what isn't widely known is that pretax income isn't any more concentrated.

@Mise, another thought: doesn't this data also suggest that the relatively lower power of US unions have not lead to lower wages for the bottom earners, compared to stronger-union euro countries such as Germany?

That's an interesting point.

Are the figures you are looking at total compensation, or wages alone? That will result in a large possible differential between the US and other developed nations because the US does not have health care for a large part of it's low end workforce. Pensions should also be considered, because the bottom 2 quintiles are commonly not getting that any longer either.

 

[Mise]

Yeah, that's what Leoreth was talking about above.

 

[luiz]

The OECD talks of income, I don't know if they mean wages alone or total compensation. I would hope total compensation.

 

[luiz]

I'm not sure I understand what you are saying. Rephrase please?

I mean that is the US welfare probably has a very small effect over the incentive to work, but that's not necessarily true for countries with more generous welfare systems.

 

[Cutlass]

I mean that is the US welfare probably has a very small effect over the incentive to work, but that's not necessarily true for countries with more generous welfare systems.

OK. I can see your point. How many countries have systems like that though? People are still generally better off working. But the jobs don't necessarily exist.

 

[Leoreth]

The OECD talks of income, I don't know if they mean wages alone or total compensation. I would hope total compensation.

But wouldn't that just further blur the line to "redistribution"?

 

[Cutlass]

But wouldn't that just further blur the line to "redistribution"?

Maybe, maybe not. Health care might fall partially under the heading of redistribution in a nation with universal health care, but in the US it's mostly compensation to labor.

 

[Arwon]

No, it does not. We can see that it does not. We have been observing, ever since the earliest forms of wealth redistribution, that wealth redistribution does not work. It doesn't make the rich poorer, and it doesn't lift the poor out of poverty. Progressives can argue all they want that it should work, but reality has always been proving that it doesn't work.

Is it that you cannot see Mise's graph or that you can't you read it?

Nobody is talking about what the recipients of income transfer do with the transferred income, just the extent to which it occurs. "Income transfers work" in this thread just literally means that income gets redistributed. I don't understand how you are missing the point of the thread so badly.

 

[Arwon]

No, it does not. We can see that it does not. We have been observing, ever since the earliest forms of wealth redistribution, that wealth redistribution does not work. It doesn't make the rich poorer, and it doesn't lift the poor out of poverty. Progressives can argue all they want that it should work, but reality has always been proving that it doesn't work.



There are no ideal scenarios and no ideal solutions here. Teaching men to fish is simply the closest we can get. It's certainly not perfect, by any means; there are some people in this world who are simply incapable of learning to fish, and so the solution won't work all the time. But everything else the human race has tried, has failed completely.

Mexico makes a perfect example: they send their citizens up here to the U.S. to make money and send it home. Then the money is spent, and it's gone. And the labor of Mexican citizens is wasted as well, because that labor is performed IN THE UNITED STATES. Meaning nothing gets built in Mexico (in fact, since the workers produce stuff outside Mexico, when they send the money home, the people receiving the money have to spend it outside Mexico because the stuff they need was produced outside Mexico--their attempt at redistribution is self-defeating). That's why Mexico is stagnating. The wealth has been transferred, yet Mexico remains as poor as always. The only way Mexico can get out of its poverty hole is to produce stuff IN MEXICO.

Redistribution doesn't work.

And actually, not that it has anything to do with the thread (seriously, what?), while we're at it, where do you get this view of Mexico from?

Mexico's growth rate is about 5.5%, unemployment is lower than in the United States, it's the 11th biggest economy in the world. Mexico is an upper-middle-income country, not a third world basket case. "Nothing gets built in Mexico" is a bizarre claim when it's a manufacturing export powerhouse and a third of the workforce are in the industry sector. AND according to the OECD it's basically the hardest working country in terms of hours worked per person. "Stagnation" indeed.

OH, and also. Mexican migration to the US has slowed right down and migration back to Mexico has increased, meaning that net migration has dropped to zero and there may now be net emigration to Mexico from the United States.