Consumption inequality just hasn’t gone up that much

by on August 8, 2017 at 1:56 am in Data Source, Economics | Permalink

The new NBER paper is “Consumption and Income Inequality in the U.S. Since the 1960s,” by Bruce D. Meyer and James X. Sullivan.  Here is the abstract:

Official income inequality statistics indicate a sharp rise in inequality over the past five decades. These statistics do not accurately reflect inequality because income is poorly measured, particularly in the tails of the distribution, and current income differs from permanent income, failing to capture the consumption paid for through borrowing and dissaving and the consumption of durables such as houses and cars. We examine income inequality between 1963 and 2014 using the Current Population Survey and consumption inequality between 1960 and 2014 using the Consumer Expenditure Survey. We construct improved measures of consumption, focusing on its well-measured components that are reported at a high and stable rate relative to national accounts. While overall income inequality (as measured by the 90/10 ratio) rose over the past five decades, the rise in overall consumption inequality was small. The patterns for the two measures differ by decade, and they moved in opposite directions after 2006. Income inequality rose in both the top and bottom halves of the distribution, but increases in consumption inequality are only evident in the top half. The differences are also concentrated in single parent families and single individuals. Although changing demographics can account for some of the changes in consumption inequality, they account for little of the changes in income inequality. Consumption smoothing cannot explain the differences between income and consumption at the very bottom, but the declining quality of income data can. Asset price changes likely account for some of the differences between the measures in recent years for the top half of the distribution.

This is one big reason why you can believe income inequality is high and/or rising, and not see it as the most significant normative issue.

1 Ray Lopez August 8, 2017 at 2:36 am

“overall consumption inequality was small” – is this just stating the well-known fact that rich people don’t spend as much on consumption as a percent of total income as poor?

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2 Stuart August 8, 2017 at 8:12 am

And is it also an argument against trickle down economics, if it shows the rich don’t spend that much of their income and that spending has decreased compared to the rest of the population over time?

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3 JWatts August 8, 2017 at 8:59 am

“And is it also an argument against trickle down economics, if it shows the rich don’t spend that much of their income …”

That’s exactly backwards. The argument for trickle down economics is that the rich will invest more of their income in assets that produce a net return for the economy rather than spend the money on immediate consumption.

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4 kevin August 8, 2017 at 9:46 am

Depends how the rich are saving. Buying shares of Apple that has 100 billion cash on hand most likely doesn’t actually result in any meaningful sense of investing. Now, if the rich are induced to start a new company (perhaps because poor people suddenly have more cash and there’s a genuine new investment opportunity) I see some merit to Stuart’s comment

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5 Jeff R August 8, 2017 at 9:50 am

Well, there has been pretty rapid growth in the number of venture capital firms and the cash they have to throw around the last twenty years or so. That money didn’t come from nowhere. But rich people also buy shares in Apple, too, I’m sure.

6 Alain August 8, 2017 at 11:09 am

-1

The worst comment, perhaps ever, Kevin.

7 kevin August 8, 2017 at 1:00 pm

@Jeff, agree–if their saving is actually being put to work investing *in our economy* everything you said is true. Its not clear to me that that is the case though. Either way, my point remains Saving != Domestic investment.

Thanks @Alain for adding to the conversation /s

8 spencer August 8, 2017 at 4:05 pm

The question that needs to be answered is how much are the rich spending their savings on financing the federal deficit and how much is going into productive investment. Foreigners are not financing all of the enlarged deficit. Nominal investment has been falling as a share of GDP while the deficit has been growing as a share of GDP. At first glance this implies that the republican economic theory that giving the rich a bigger share of the pie makes everyone better off has not worked.

9 JWatts August 8, 2017 at 5:14 pm

“The question that needs to be answered is how much are the rich spending their savings on financing the federal deficit and how much is going into productive investment.

At first glance this implies that the republican economic theory that giving the rich a bigger share of the pie makes everyone better off has not worked.”

The alternate to that scenario would be the rich paying higher taxes instead of financing the Federal deficit. In which case, it’s all a wash and doesn’t matter either way.

10 GoneWithTheWind August 8, 2017 at 7:37 pm

“the republican economic theory that giving the rich a bigger share of the pie makes everyone better off…”

What crap! That isn’t the Republican theory or the Democrat theory it seems to belong to you. I have to assume what you are actually saying is that you disagree with any politician who feels that tax rates are too high and wants the rates to be lower. The federal tax rates are too high, they need to be lowered. The good news is that lowering business taxes and individual taxes will help the economy which in turn helps the poor and middle class. That is a good thing. Right?

11 Right Wing House Music August 8, 2017 at 9:01 pm

For the rich to buy shares of apple, someone has to sell their share and receive the money.

If it was a poor person who sold their share, then boom, we has wealth redistribution. If it was a rich person who sold their share, then we’re right back at square one, and that rich person can invest that additional money in small business bonds.

12 Anon7 August 9, 2017 at 4:18 am

“giving the rich a bigger share of the pie makes everyone better off has not worked.”

The economic pie is not a manna from heaven that is collectively owned for people to decide how much of it to “give” to people.

13 Alain August 8, 2017 at 11:04 am

+1

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14 John Thacker August 8, 2017 at 11:33 am

Right, if Warren Buffett eats cheap hamburgers and plays bridge while meaningless numbers accumulate in a bank account being invested in the economy, that doesn’t do much to increase inequality in any meaningful sense (unless and until his heirs spend it). It doesn’t rearrange resources to benefit him, but to benefit consumers.

On the other hand, rich people who spend lots of money on fancy cars, use up jet fuel and other non-renewable resources, hire servants, and otherwise cause the economy to reorder around their consumption needs do increase inequality. (To some extent, the more than their spending is pure profit for the companies they’re buying from as opposed to actually consuming scarce resources, it’s more okay.)

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15 Rafael R August 9, 2017 at 3:34 pm

If rich don’t spend money on goods it only means that nominal money supply falls so prices fall so poor people become effectively richer: the potential consumption that the rich choose to not consume goes to the poor.

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16 Doug August 8, 2017 at 2:37 am

OT:

Google engineer terminated for having conservative views. Political opinions held by at least 50% of the American population are now considered firable offenses at the country’s largest companies. The US is careening dangerously close to full-out red-blue civil war. If it comes to that, I’d probably bet on USMC over GOOGL…

https://www.bloomberg.com/news/articles/2017-08-08/google-fires-employee-behind-controversial-diversity-memo

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17 Thor August 8, 2017 at 3:13 am

I read a good piece about this alarming development over at NRO’s The Corner (not my hangout), which gave many examples of weak and mealy mouthed defences of freedom of speech. Essentially all started with “we believe in free speech” before moving to various qualifiers like “but” and “however.”

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18 prior_test3 August 8, 2017 at 8:35 am

Google is a private employer, most likely with at will employees, and has absolutely no need to respect anyone’s freedom of speech.

And this used to be celebrated as another example of American freedom.

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19 Potato August 8, 2017 at 8:50 am

The point. You missed it.

This is not about German labor laws. This is not about at will employment. This is about the state of affairs in the US regarding political polarization and the spread of politics into previously apolitical aspects of life. Questioning political orthodoxy is enough of a threat to someone’s feelz to result in termination. All the world’s a safe space, and in his time, a man will play many parts ?

Also, freedom of speech is more than a constitutional right vis–à–vis man and the state. It is a broad set of norms that we can choose to reinforce or destroy. It’s heading in the wrong direction.

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20 prior_test3 August 8, 2017 at 10:57 am

‘This is not about German labor laws.’

I’m American, and at will employment is very much an American employment concept.

And the point is that as an American at will employee of an American company, you have zero right to ‘freedom of speech.’ Do read the link below for more American specific legal information, posted by an American citizen.

(In Germany, google would most likely not be able to fire that employee, and if even if it did so following the termination period, then there would most likely be an Arbeitsgericht involved, with an excellent chance of the employee being reinstated, or having a termination bonus increased substantially. Or read how Walmart failed in its attempt to decide whether its employees could be punished for having romantic relationships – http://www.linklaters.com/Insights/Publication1403Newsletter/PublicationIssue20051214/Pages/PublicationIssueItem825.aspx One note – labor law in Germany mainly rests on the idea of a ‘workers council’ and co-determination – unions are nowhere as legally important.)

21 John Thacker August 8, 2017 at 11:35 am

It’s not about at-will employment because Google very likely had to fire him to minimize the chance of losing a Title VII Civil Rights lawsuit regarding gender discrimination that they’re already subject to. It’s disingenuous to analyze it as a pure choice by Google. In the same way, it’s inappropriate to analyze university responses to sexual assault and rape cases as being pure choices as opposed to being affected by government Title IX regulation.

22 John Thacker August 8, 2017 at 11:36 am

There’s in fact a decent case under existing Title VII case law that Google *had* to fire him. So it is about labor law, but it’s ridiculous to think that *more* labor regulation would make him less likely to be fired instead of more likely, under current trends. You would have to hypothesize an entirely different course for US labor law.

23 FSE August 8, 2017 at 11:46 am

In what alternative universe were companies once apolitical?

In this universe, American companies have a long history of positions on various political topics, including unionization, the environment, and international trade. And companies have a long history of firing employees who do not agree with their agenda.

The only difference here is that a company has espoused a liberal agenda rather than a conservative one. So now it’s the conservatives who suddenly want a “safe space”. Too bad, that ship sailed long ago. Maybe you can find it in Montana?

24 prior_test3 August 8, 2017 at 12:16 pm

‘It’s not about at-will employment because Google very likely had to fire him to minimize the chance of losing a Title VII Civil Rights lawsuit regarding gender discrimination that they’re already subject to.’

If he was an at will employee, Google needs exactly no reason to fire him. Somewhat hard to tell, at least from this article – https://www.theguardian.com/technology/2017/aug/08/google-employee-fired-diversity-row-considers-legal-action-james-damore – as the legal opinions being floated around seem a bit nebulous about any recourse he may have.

Whereas if he was not an at will employee, his legal options would be considerably better than this – ‘Damore has now said he would “likely be pursuing legal action”.

“I have a right to express my concerns about the terms and conditions of my working environment and to bring up potentially illegal behaviour, which is what my document does,” he said in an email reported by the New York Times.’

An at will employee has all kinds of rights – the right to be fired, the right to be fired without notice, the right to be fired solely at employer discretion, etc.

And his legal action is extremely unlikely to have the support of any American employer in this pursuit, by the way. And the Mercatus Center is equally unlikely to support seeing employer rights restricted in such a fashion.

American employers prefer their employees to have as few rights as conceivable, as seen over the last generation.

‘It’s disingenuous to analyze it as a pure choice by Google.’

At will employment is always at the sole choice of the employer. Why do some of the commenters here hate a company’s freedom so much? This is the sort of thing that makes America stand out on all those Mercatus freedom metrics, after all.

‘it’s inappropriate to analyze university responses to sexual assault and rape cases as being pure choices’

It is disingenuous to suggest that an at will employment relationship bears any connection to criminal activity.

25 Urso August 8, 2017 at 4:21 pm

Title VII doesn’t require Google to fire him unless there was evidence that he had actually taken concrete adverse actions against female or minority co-workers. To the contrary, the fired guy probably has a good claim under either California or federal law. (p_a’s comment about “at will” employment is quaint; The US hasn’t been a true at-will jurisdiction since the 30s, or maybe the 60s, or maybe even the 1860s, depending on how you’re counting, and California is as far removed from at-will as any European country).

26 prior_test3 August 8, 2017 at 8:31 am

‘Political opinions held by at least 50% of the American population are now considered firable offenses at the country’s largest companies.’

Luckily, though, companies are able to fire people for any reason, right? Isn’t that the whole point of that right to work, keep the government off the company’s back rhetoric?

So somebody got fired just because the company wanted to? – welcome to the home of the free, land of the brave. ‘Many people are surprised to learn, whether from an employment contract or employee handbook, that they are an “at-will employee.” This means that your employer can terminate you at any time, for any cause — with or without notice. An employer has every right to walk up to an at-will employee and say, “I don’t like that your favorite color is purple. You’re fired.” There are very few, if any, remedies for you, unless your employer did something to violate your employee rights or broke labor laws.

All states but one (Montana) have adopted laws that protect the employer in an at-will setup. That is, the employer does not have to have good cause to terminate your employment. Unless you signed some sort of employment contract that states you cannot be terminated without good cause, it is assumed that you are an at-will employee.’ http://employment.findlaw.com/hiring-process/at-will-employee-faq-s.html

Whiner. (Unless you live in Montana, that is.)

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27 The Other Jim August 8, 2017 at 9:25 am

>Isn’t that the whole point of that right to work

No, you magnificent dope.

It means you can work without being forced to join a union and forced to make cash contributions to Democrat politicians.

Other than that, you were spot on. Nice job!

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28 JWatts August 8, 2017 at 9:36 am

“Other than that, you were spot on. Nice job!”

No, prior_test still missed the whole point of Constitutional rights. Google is free to fire the engineer and we are all free to criticize Google for doing it. And more to the point, start using a competitors Search Engine.

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29 prior_test3 August 8, 2017 at 11:06 am

JWatts gets it at least in part – you have a problem with google, criticize it to your heart’s content, use Bing or DuckDuckGo or Baidu.

However, an American company is under zero obligation to respect the 1st Amendment the way that the federal government must.

Trigger warning – any American at will employee can be fired at any time, for any reason – or no reason at all (Montana excepted, it seems) by their employer. Your employee/employer relationship is not a matter of the 1st Amendment – never has been, never will be. This is the sort of freedom that America excels in, after all.

If you don’t like, you can try to change the terms of at will employment (cognitive dissonance is unlikely to be much of a problem for many commenters here anyways) in the U.S.

30 prior_test3 August 8, 2017 at 11:11 am

Union contracts do not allow at will termination – right to work laws are designed to minimize, if not outright eliminate, any union’s ability to force an employer to go through union contract approval.

It has been so strange seeing how many American commenters here seem to have absolutely no awareness of the sort of enviable freedom American companies enjoy when it comes to at will employment.

Google needs precisely no reason to fire any at will employee any time it wants.

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31 Floccina August 8, 2017 at 3:02 pm

I’m glad that Google can fire an employee for any reason, but think it is a bad sign that they chose to fire a guy for writing something that about 50% of USAers agree with.

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32 FSE August 8, 2017 at 4:01 pm

Well, if you are in that 50% and want to work in Silicon Valley, then it is indeed a bad sign. For you.

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33 JWatts August 8, 2017 at 9:01 am

JWatts from yesterday: “If I had to bet, I’d put the odds as a) 40% chance the authors identity becomes known to Google’s upper management and he’s quietly forced out; probably not an immediate firing, just a passive-aggressive “your career ends here”; b) 30% chance the authors identity becomes publicly known and he’s fired and c) 30% chance the authors identity becomes publicly known,Google management doesn’t fire him and instead uses the opportunity to address the issue directly.”

Alright option B it is. And it took a day.

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34 bevans1 August 8, 2017 at 10:04 am

It is called sexism, not conservatism. When promulgated by a manager it opens you up to a lawsuit and Federal penalties. It also gets you negative publicity, obviously. Firing you protects the company. In a sense, he fired himself with that self-inflicted wound. “Google is currently fending off a lawsuit from the Dept of Labor….” Great time for an inappropriate memo.

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35 Potato August 8, 2017 at 10:27 am

A) I don’t think you’ve read the memo. That memo is neither sexist nor conservative. The chances of that author voting republican seems about nil. If anything he looks like a member of the liberal rationalist community, a la Scott Alexander.

B) that’s the whole point, what the hell is going on where lawyers from the federal government sue companies for hr policy? This is so far outside the purview of the federal government it is insane. Holding a lawsuit/gun to a company’s head (not necessarily what happened here, but bear with me ) and then saying it’s not a violation of free speech if the threat of a federal lawsuit causes a private company to fire someone? That’s akin to saying “you can say whatever you want, but the federal government can sue your landlord, employer, and spouse for your speech.” That’s not freedom of speech at all. It’s coercion.

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36 JWatts August 8, 2017 at 10:45 am

“that’s the whole point, what the hell is going on where lawyers from the federal government sue companies for hr policy? … It’s coercion.”

Well that’s the whole point after all. To use the Federal Government’s power to enforce a particular point of view.

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37 prior_test3 August 8, 2017 at 11:23 am

Google fired someone, an apparent at will employee (based on the circumstances of the firing, actually). Big deal.

No government coercion was involved, Google can fire any at will employee at any time for any reason – and undoubtedly has done so before this, and will do so after this. Exactly the same way that any American employer would, enjoying its freedom to be able to make such decisions in any way it pleases. With the full blessing of the law as it exists (except for that noted socialist hellhole Montana, where after a probationary period an at will employee becomes an employee requiring termination for cause).

38 JWatts August 8, 2017 at 11:57 am

“No government coercion was involved,”

Google is currently under an Obama legacy investigation involving Gender discrimination. So, government coercion is involved.

39 prior_test3 August 8, 2017 at 12:25 pm

‘So, government coercion is involved.’

This gets to be a bit circular, doesn’t it? Google also has to pay taxes, even if an employee circulates a memo explicitly detailing how google could use a new improved ‘Double Irish With A Dutch Sandwich’ tax avoidance scheme in the future. (‘The double Irish with a Dutch sandwich is generally considered to be a very aggressive tax planning strategy. It is, however, famously used by some of the world’s largest corporations, such as Google, Apple and Microsoft. In 2014, it came under heavy scrutiny, especially from the United States and the European Union, when it was discovered that this technique made it possible to send several billion dollars annually tax-free to tax havens.’ http://www.investopedia.com/terms/d/double-irish-with-a-dutch-sandwich.asp )

Assuming he was an at will employee, Google would have every right to fire such an employee, due to potential coercion on the part of the IRS/EU to aggressively investigate such an accounting scheme, again.

We will see how this turns out, but the Guardian article provides a further glimpse that he is extremely likely to have been an at will employee.

Look, we all know we he was fired – management wanted him gone. Which is the sort of freedom that an American corporation enjoys in full when dealing with at will employment relationship.

40 JWatts August 8, 2017 at 2:22 pm

“This gets to be a bit circular, doesn’t it?”

No, it’s not circular. Google is under investigation for Gender disparities in hiring and pay. A Google engineer says that Google is doing too much in this area already. Casting negative publicity about the issue at a bad time. Google then fires the engineer. Google may have fired then engineer in any case, but it’s clear that the current investigation is another significant factor motivating them to take prompt action.

That argument is not circular.

41 prior_test3 August 8, 2017 at 3:39 pm

‘No, it’s not circular. Google is under investigation for…’

This, for example – ‘Google’s AI subsidiary DeepMind has come under fire again for its partnership with the UK’s National Health Service (NHS). According to a leaked letter from the government’s top data advisor, the company’s deal to train a new medical app using health data from 1.6 million NHS patients was conducted on an “inappropriate legal basis.”

The letter, sent by the UK’s National Data Guardian (NDG), was published by Sky News this week, and will inform an ongoing investigation into the legality of the deal between the NHS and DeepMind. This investigation is currently being carried out by the UK government’s data watchdog, the Information Commissioner’s Office (ICO), with the ICO telling Sky News that it is “close to conclusion.”’ https://www.theverge.com/2017/5/16/15645832/google-deepmind-nhs-patient-data-deal-ndg-letter

And if it results in employee dismissals, clearly, it is due to government coercion. Or Google’s own actions, of course.

‘Gender disparities in hiring and pay.’

Which, oddly enough, Google could have avoided having investigated, in the main – ‘Berlin’s decision resolves a more narrow court battle stemming from a DoL lawsuit filed against Google in January, which accused the corporation of violating federal laws in its refusal to turn over salary history and employee contact information. Google has contracts with the federal government, which means it is obliged to comply with equal opportunity laws and has to allow the DoL to review certain internal records.’ https://www.theguardian.com/technology/2017/jul/17/google-told-to-hand-over-salary-details-in-gender-equality-court-battle

Almost sounds like entrapment, with the government possibly tempting Google into making money from government contracts.

‘Casting negative publicity about the issue at a bad time.’

Sounds like the sort of reason used by a company to fire anyone, as happens all the time in the U.S.

‘Google may have fired then engineer in any case, but it’s clear that the current investigation is another significant factor motivating them to take prompt action.’

Ah, so it is just one factor – and it very likely is, of course. But Google needs no reason at all, apart from its own desire to do so, regardless of the reason, assuming he is an at will employee.

And really, how stupid does someone have to be to put into writing. while their company is under investigation, words that undermine the company in public? Sheer stupidity is another, considerably more than significant factor for a company to terminate an employee. After all, Google has been fiercely fighting to not to release any salary information (see link above), and such bad publicity undoubtedly undermines the strength of Google’s lawyers’ arguments in a public setting.

42 FSE August 8, 2017 at 4:23 pm

It’s not coercion. The government did not demand that Google fire this employee, nor promise Google better treatment conditional on firing the employee. So, firing him was not due to coercion.

The word you are looking for is “prudence”. Or maybe “principles”. Hard to know for sure.

43 JWatts August 8, 2017 at 5:18 pm

The Department of Labor would fine Google if it’s found to be out of compliance.

Fining someone if they don’t comply is a method of coercion.

44 FSE August 8, 2017 at 6:34 pm

Yes, but compliance is not measured by the number of sexist engineers who are fired. It is measured by the number of women they hire and how much they are paid.

Google could easily be found noncompliant after firing him, and likewise they could have kept him and still remain compliant (if hypocritical).

So, no coercion on the part of th government.

45 FSE August 8, 2017 at 11:13 am

Google has a stated commitment to improving diversity. This is not a new development, it has been company policy for quite some time. And Google has every right to choose its policies regardless of what 50% of the American population thinks.

So now an engineer publicly disagrees with company policy, and is fired. Why should this come as a surprise? To paraphrase comments from a former Google manager: when an employee is determined to thwart company policy, the solution is pretty clear.

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46 Jeff R August 8, 2017 at 12:06 pm

Yeah, but rank and file employees dissent from company policies all the time, register their complaints, and aren’t terminated because of it. Why is this a special case?

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47 prior_test3 August 8, 2017 at 12:37 pm

There is nothing special about an at will employee being dismissed for any reason.

It just seems as if a whole bunch of Americans did not understand the enviable freedom American employers generally enjoy in their employment relationship with an at will employee.

As noted above, we will see, but if he was an at will employee, his rights are as limited as the dedicated and ongoing efforts of American employers can make them. As he is likely already discovering. A bit more quoting from http://employment.findlaw.com/hiring-process/at-will-employee-faq-s.html – ‘If you are told, however, either during the hiring process or after accepting the job, that you are an at-will employee, your employer has every right to rely on that statement in a legal proceeding, as proof that you may be fired without cause.’

Continuing – ‘Employers are almost always certain to include that their employees are at-will employees. Look through these documents at your job and see if any of them mention that you are an at-will employee. Even if the documents do not use the term “at-will,” any language implying that your employment can be terminated at any time means the same thing as “at-will”. Chances are it is written somewhere.

Even if you’re employer has not written it in any of the documents, you are probably an at-will employee, unless the documents state otherwise. If you signed any of these documents that state that you are an at-will employee, then you have agreed you understand you can be terminated at any time.’

And of course, you as an (potential) employee retain a bit of freedom – ‘Theoretically, you do NOT have to sign the at-will agreement. Courts have consistently held that the employer can terminate you or even refuse to hire you if you refuse to sign the at-will agreement, however.’ The company, of course, retains considerably more.

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48 Jeff R August 8, 2017 at 2:43 pm

What was it like when you got fired? Were you embarrassed? Was there an awkward silence in the office as you were escorted out? Did people stare?

49 prior_test3 August 8, 2017 at 3:45 pm

I have never been fired, and never been escorted out – and was not an at will employee when working for the Commonwealth of Virginia. I have merely read about the practice in the U.S., and have never seen it happen personally (a result of growing up in Northern Virginia, mainly among military and government employees).

Generally, both federal and state governments are not allowed to use at will contracts with employees.

50 FSE August 8, 2017 at 1:04 pm

Because not all policies are created equal, not all dissent is equal, and not all employees are equal.

Mutter to a coworker that Casual Friday is dumb, and you’ll probably still be a partner at a law firm.

Email your entire department that client confidentiality is overrated, and you may well lose your job as a bank teller.

Evidently, the Google engineer is closer to the latter than the former.

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51 Brian Donohue August 8, 2017 at 12:11 pm

I can’t wait for Google’s stated commitment to cold fusion, long a dream of mankind. Who wants to weigh in on the new company policy? No thwarting please.

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52 FSE August 8, 2017 at 5:21 pm

If Google were to commit to cold fusion, then it would attract people who are interested in promoting cold fusion. How foolish one must be to get hired being well aware of this, and then make a scene that cold fusion is a waste of time.

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53 Golden Elephant August 8, 2017 at 2:41 am

Maybe the problem is too much mid-class people thinking everybody should have a private jet and a Lambo.

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54 Thanatos Savehn August 8, 2017 at 3:08 am

“Dissaving” is a thing?

Dear Lord, I’m happy and all that but why couldn’t you have put me in a job like this where you just make sh*t up in between getting stoned and watching interwebs pr0n? Oh, OK, I see what you mean. Thx Dude.

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55 Joan August 8, 2017 at 3:16 am

5 decades ago the poor were the old, now they are households with children.

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56 Brian Donohue August 8, 2017 at 8:14 am

1967? Almost everyone was then poor by today’s standards. Also, whenever have households with children been comparatively rich for their societies? Never, I think.

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57 Steve Sailer August 8, 2017 at 3:37 am

The big problem with being poor in today’s America is not that you can’t afford to buy enough stuff, it’s that you can’t afford to get away from other poor people.

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58 Brian Donohue August 8, 2017 at 8:16 am

Yeah. My grandparents were the only poor people on their block, so they rose.

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59 Ricardo August 8, 2017 at 4:07 am

This isn’t anything particularly new. Getting accurate data on consumption for the wealthy is difficult and there is plenty of reason to think consumption is underreported for this group. Think about it: how many busy professionals earning six figures are going to be willing to take a tedious survey asking them to report the details of all their recent purchases?

By contrast, the Piketty Saez measures of inequality come from tax returns and even the wealthiest people have to file tax returns and have a disincentive against lying.

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60 Joan August 8, 2017 at 7:49 am

About half of what was reported as corporate income 5 decades ago is now reported on individual tax returns.

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61 Aretino August 8, 2017 at 9:33 am

Why is a survey needed? I thought our complete spending habits were well known to internet companies.

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62 The Engineer August 8, 2017 at 10:06 am

Yeah, but…

Why can’t you determine consumption from tax returns? You know how much they made in income, capital gains, etc. You know how much they have saved. If you have tax returns over a number of years, you know how those savings grew. What isn’t saved is most likely consumed.

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63 Ricardo August 8, 2017 at 12:26 pm

That could work but “carried interest” would be a problem. When hedge fund or private equity managers get their performance fee income, they report it as capital gains even though what they are essentially doing is skimming 20% or so from the capital gains realized by their investors. You would tend to overestimate the “savings” of these people unless there was an easy to separate these sorts of people out. Same goes for people who inherited money or who are trust fund beneficiaries and start reporting lots of interest and capital gains income from money that they (or the trust they benefit from) inherited tax free.

At any rate, the summary up top says that they relied upon the Consumer Expenditure Survey to measure consumption. Not saying you couldn’t do it your way but I still think we would underestimate the consumption of at least the top 0.1% (who are disproportionately likely to have inherited money or be hedge fund or private equity managers) if not the top 1%.

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64 matt August 8, 2017 at 5:07 am

Methodological issues aside, the normative case against income inequality was never very focused on material consumption, but on power (e.g. https://www.cambridge.org/core/journals/perspectives-on-politics/article/testing-theories-of-american-politics-elites-interest-groups-and-average-citizens/62327F513959D0A304D4893B382B992B). If it’s shown that high income, low consumption individuals do not wield outsize influence on politics or social spheres, that’s when the normative case falls apart. Essentially, Raymond Tusk from House of Cards isn’t any better just because he lives in a moderately sized home.

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65 Nope August 8, 2017 at 9:27 am

And the rich are using all that power to systematically NOT consume more.

How clever of them.

We should tax such cleverness.

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66 Floccina August 8, 2017 at 4:15 pm

Seems like the election of Trumpty Dumpty shows that blue collar voters are plenty powerful.

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67 rayward August 8, 2017 at 6:50 am

This study inadvertently reveals the policy dilemma: “Asset price changes likely account for some of the differences between the measures in recent years for the top half of the distribution.” She who owns assets has done quite well during the recovery, she who doesn’t hasn’t. We have staked our prosperity on ever rising investment asset prices, stocks, real estate, collectibles, degrees from elite colleges. We are as hooked on rising asset prices as a junky is hooked on heroin. If one were to tell you that prices have almost doubled in the past four years, you would be screaming for the Fed to do something; after all, this isn’t Argentina! But prices have almost doubled, and most everyone is quite pleased about it and with the Fed’s contribution to it. Of course, I’m referring to investment asset prices not consumer prices. I have (sort of) ridiculed Larry Summers for his Okun Lecture, given as the financial crisis was unfolding, in which he blamed “inflation” lurking in the background, undetected by the Fed. Summers “credits” economists (such as himself) for having overcome the Phillips Curve dilemma. “Inflation”? I thought Summers had gone round the bend. Summers soon abandoned that explanation, but was he right to begin with? “Inflation” as usually defined (a “general” increase in prices) is focused on broad-based consumption (hence, the “consumer” price index). As we know, consumer prices have been tame during the recovery (even as investment asset prices have soared), and this study confirms that consumption likewise has been quite steady (i.e., flat). Yet, it’s rapidly rising investment asset prices that almost always portend a crisis ahead. Why aren’t economists running around with their hair on fire.

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68 Brian Donohue August 8, 2017 at 8:22 am

As far as asset prices doing quite well, stocks have earned just a 3% real annual return this century, far and away the worst 18 year performance seen since WWII, despite long-term interest rates falling from 8% to <4%.

This is also the answer to the multi-trillion dollar public sector pension shortfall question, and a big reason why most employers with businesses to run now eschew pensions.

But do go on…

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69 rayward August 8, 2017 at 8:33 am

Of course, “this century” includes the financial crisis and the collapse of asset prices. My comment was focused on the period of “the recovery”. And the main point of my comment is that rapidly rising investment asset prices portend a coming crisis, just like the rapidly rising investment asset prices leading up to the crisis in 2008 (and in 1929 for that matter). Excessive inequality correlates very strongly with speculation in, and rapidly rising, asset prices and financial crises. Summers was raising (although not explicitly) the correlation in his Okun Lecture – referring to it as “inflation”. Why aren’t economists today concerned about the “inflation”?

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70 Brian Donohue August 8, 2017 at 10:13 am

Rapidly rising investment asset prices cannot be considered apart from the massive falls that preceded them. Were you wringing your hands about rapidly rising investment asset prices in the 1940s and 1950s?

You are repeating one of the most widely held misconceptions out there.

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71 rayward August 8, 2017 at 11:16 am

Larry Summers seems to have the same misconception.

72 rayward August 8, 2017 at 11:58 am

What I am describing is post-Keynesianism, or the dominance of psychology (beliefs), the “new fundamental” in economics, supplanting what Robert Lucas wrote way back in 1972, that the expectations of market participants are determined by economic fundamentals. Whether Lucas was right then is debatable, but he is clearly wrong today. People will believe anything, even the most irrational things. And that includes owners of capital. Call it the marriage of psychology with multiple equilibria in economics. No doubt it is upsetting for many readers of this blog that Robert Shiller knows more about economic fundamentals than Robert Lucas.

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73 Slocum August 8, 2017 at 7:15 am

And ‘utility inequality’ is lower, still, than consumption inequality. Much of what the wealthy buy is far along the curve of diminishing marginal utility.

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74 dearieme August 8, 2017 at 9:25 am

Suppose I advance the conjecture that middle earners have been losing, oligarchs and dole-bludgers winning. Are there statistics good enough to test that notion?

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75 JWatts August 8, 2017 at 10:53 am

I think there are plenty of statistics that support that argument, though they are usually phrased as “the middle class is shrinking”. Of course, I believe that the more careful analysis tends to indicate that the “middle class” in the US has moved up to the “upper class”, at least by some measurements. Granted, that’s always subject to classification issues of how you determine where the boundary lines are.

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76 John Thacker August 8, 2017 at 10:09 am

The differences are also concentrated in single parent families and single individuals. Although changing demographics can account for some of the changes in consumption inequality, they account for little of the changes in income inequality.

I’m not sure how to take that statement about “changing demographics” not accounting for the differences in the last five decades, considering that the number of single individuals and single parent families has increased with the later age of marriage, declining rates of marriage, and initially increasing rates of divorce (though now declining as an absolute due to the lower marriage rate.) Especially since so many people putting off marriage (or kids) in order to focus on getting ahead in careers first (or only) and enjoying spending and living in the now would presumably increase both these types of inequality.

If the change is driven by singles, and the percentage of singles is increasing, how does “changing demographics” not account for much of it?

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77 John Thacker August 8, 2017 at 10:10 am

Especially since the 90/10 ratio is much higher among singles than among married couples. (The 90th percentile of singles/single parents makes more relative to the 10th percentile of singles/single parents than the 90th percentile of married parents/married no kids relative to 10th percentile of same.)

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78 JWatts August 8, 2017 at 11:00 am

That’s true, but the statement is full of confounding factors. The most obvious that both sides of the 90th/10th income curve for married people are individuals with enough social capabilities to enter into and maintain a marriage, at least temporarily.

Whereas, the 90th/10th percentile for unmarried, is av ast extreme of individuals too limited to even be capable of marriage. At the lower boundary, a good chuck of the people will be mentally retarded (roughly 3% of the population) whereas at the upper end you’ll encounter a group of people who are probably so career dedicated to preclude marriage.

I don’t think you can draw decent conclusions from those cases.

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79 John Thacker August 8, 2017 at 11:39 am

Except we’re measuring changes over the last 50 years, and based on the statistics, it is almost surely the case that many of the people both in the 90th and 10th percentile of singles in their 30s now would have been married 50 years ago.

I agree that it’s difficult to draw decent conclusions, but that’s why I don’t think it’s possible to claim that we know that “changing demographics contribute little,” at least if changing propensity to marry is a changing demographic.

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80 JWatts August 8, 2017 at 12:10 pm

“I agree that it’s difficult to draw decent conclusions, but that’s why I don’t think it’s possible to claim that we know that “changing demographics contribute little,” at least if changing propensity to marry is a changing demographic.”

Fair point.

81 Floccina August 8, 2017 at 11:14 am

Thanks. I have been asking that.

If GDP is growing but the bottom half is not getting more where is the consumption going. My hunch was that the rich do not consume much more so consumption should not be changing that much.

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82 John Thacker August 8, 2017 at 11:41 am

My hunch is that status and positional goods have increased in price. That makes it much harder to, e.g., be a middle income person with one luxury (whether going to Broadway, attending good schools, having a beach home) but overall consumption inequality for people with average consumption buckets (say upper middle class middlebrow tastes in everything for upper middle class) is relatively flat.

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83 JWatts August 8, 2017 at 12:12 pm

“My hunch is that status and positional goods have increased in price.”

Is Facebook a positional good?

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84 Joan August 8, 2017 at 3:11 pm

Consumption has increased from 60% of GDP ibefore 1980 to 68% now. Median wage for white men is about the same as it was in the early 1960s but more households have 2 earners.

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85 Mr. Econotarian August 9, 2017 at 1:06 am

How do these NBER papers work?

This paper has been around since at least 2010 in various forms. For example, here is 2013’s: https://www3.nd.edu/~jsulliv4/Inequality3.6.pdf

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86 Master of None August 11, 2017 at 10:09 am

One guy can only eat so much fois gras

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