The Upstate reality check on inequality

A Brookings Institution economist made news recently with his calculation that the 1 percent lost a higher percentage of their incomes during the Great Recession of 2009 than lower-income folks did, and that even though the 1 percent has taken in just about all the increased income since the Obama recovery began, the politicians are overstating America’s income inequality problem.

That same day, an International Monetary Fund economist challenged the basis of Thomas Piketty’s argument in his blockbuster best-selling 2015 book“Capital,” in which Piketty observed that the returns to capital have become so much greater than wages that we’re in a new global era of a tiny number of ever-richer Haves and a growing number of Have-Nots.

Academics always act like crabs in a bucket, when they’re not shooting spitballs or mixing metaphors in their endless nit-picking. But there’s a serious policy debate underway, which essentially asks whether government can be more effective – with economic development, trade negotiations, tax changes, or even guaranteed incomes – in smoothing the path for people and communities disrupted by recent trends.

Looking at Upstate New York’s experience and comparing it to the rest of America, there’s no disputing that an enormous disruption has occurred, and that increased income inequality is one of the results.

Take the eight counties of Western New York: As late as the Nixon administration, Buffalo and Niagara Falls were powerhouses of heavy manufacturing, chemicals, meat-packing, grain-milling and aviation technology, and were good-sized cities at a continental transportation hub. Their rural areas were dotted with specialty manufacturing – high-quality hardwood furniture and specialty steel in Jamestown, and food-processing based on intensive dairying and viticulture in towns in Chautauqua and Genesee counties, for example.

But globalization, financialization, and the IT revolution have been among the forces that have radically transformed the region, economically and demographically.

Based on an analysis of 2013 tax returns and other data, at least 55 percent of people reporting their income to federal and state authorities show poverty-level incomes for families of four. Nearly 70 percent show incomes below the New York state median of $58,000. There is a robust Top 10 percent or so, i.e., folks with incomes over $100,000, but our analysis of tax return data show that over 88 percent of the capital gains reported in the region have gone not to the middle- and upper-middle income strata, but to households in the top 2 percent of the regional income distribution. In decades past, the income distribution was much flatter, with the poor and the very rich constituting much smaller shares of the total.

In other words, the data from Western New York tend to support the Piketty hypothesis, and are consistent with what Emmanuel Saez, Piketty’s frequent collaborator, showed in his annually refreshed dataset, “Striking it richer.”

Why should this be so in Western New York?

Because a regional workforce of 650,000 is down to about 620,000 and a regional manufacturing workforce of 105,000 is down to about 68,000. There are 10,000 fewer jobs in the automobile industry, almost 3,000 fewer in furniture-making, a couple of thousand apiece fewer in other skilled goods-making fields like specialty metals, wood products, chemicals, aerospace, electronics, machine tools, and even food processing.

Connect the dots: Since 2000, not only has the number of jobs declined, but so has the population – even while the overall number of Americans continues to grow. Check the Cornell University demographic projections: Some of the rural counties will shrink another 20 to 30 percent. Erie County, down 25,000 since 2000, is going to drop another 100,000 – unless by some miracle the women of childbearing age in the Buffalo area (of whom there will be 31,000 fewer in 10 years) quadruple their rate of baby-making.

Former Gov. Eliot Spitzer wanted to change these dynamics. Current Gov. Andrew Cuomo created the Buffalo Billion to jumpstart the high-wage sector in the region. Even former U.S. Sen. Hillary Clinton thought, a decade ago, that the general American trend toward growth, technological innovation and global competitiveness could result in 200,000 new jobs for Upstate New Yorkers.

For all their good intentions, these politicians cannot deny the regional data and trends or global economic forces. Compared with 2000, inflation-adjusted GDP in Western New York and America is up, there are fewer people, fewer employed people, fewer women of childbearing age, and still no net immigration.

The income data here is good fodder for the very non-academic argument that a $15 minimum wage would boost take-home pay for 6 out of 10 workers in the region, who today make less than $12 an hour. But raising salary minimums seems unlikely to bring back manufacturing jobs in auto parts, furniture, chemicals, food-processing, or the other sectors as presidential candidates have promised this year.

Just check out the national Bureau of Labor Statistics data. It used to have a line for apparel manufacturing in Buffalo, which as late as 2000 employed 2,500 souls. But due to Chinese and other overseas competition, firms closed. The designers, cutters, tailors and seamstresses, and their skills, no longer appear in the official statistics. Those were high-skill, high-wage jobs. They are gone.

Bruce Fisher is director of the Center for Economic and Policy Studies, and visiting professor in the Economics and Finance Department, at Buffalo State College.