Friday, January 29, 2016

What if we shared the wealth?

A 2016 report from Oxfam has recently been circulating which asserts that 62 individuals have accumulated as much wealth as the poorest 3.6 billion people (half of the population) on this planet. This gap has followed a widening trend over time, and the United States is not an exception.

This provoked me to answer a question that I wonder about from time to time:

If every working person in the U.S. got paid the same wage regardless of occupation, how much would the common salary be for each individual?

This can be estimated from two numbers, publicly available from government data.

First: 122,603,000

This is the number of individuals employed full-time (at least 35 hours/week) as of December 2015, according to the U.S. Bureau of Labor Statistics.

Second: $15,604,900,000,000

This is the total personal income reported for the whole U.S. population for the year of 2015 according to the U.S. Bureau of Economic Analysis. Let's adjust this now by subtracting the amount contributed from part-time labor: $6,021,588. It's negligible, but this now gives us $15,604,893,978,412.

Dividing the adjusted total personal income by the number of full-time employees gives us the value $127,280

That would be the rough annual salary of every full-time laborer in a hypothetical America where teachers and custodians made as much as CEOs and hedge fund managers – where everyone’s pay was exactly the same. According to the most recent census data on household income, this would be an increase for about 82% of U.S households, and a decrease for the other 18%. It would also be nearly sufficient to cover the cost of living 'The American Dream', as defined by USA Today.
So here’s a follow up question:

If the annual salary were converted to an hourly wage, how many hours per week would one need to work in order to maintain a ‘middle-class’ income?

Salaried full-time employees in the U.S. work an average of 47 hours per week (we all know the 40-hour work week is a myth, right?).  So, at 47 hours per week, the $127,280 annual salary converts to an hourly wage of about $52. The plot below shows annual income prorated according to hours worked per week, based on this wage.
Now, consider that the current middle class income range for a family of 4 is defined as $48,347 to $145,041, according to the Pew Research Center during 2014. This income range is highlighted pink in the graph. At $52 per hour, it would be possible for a single household member to work 18 to 54 hours per week and still provide a middle class income for a spouse and two children. Or, that income could be achieved by both spouses each working 9 to 27 hours per week.

Of course, these numbers  represent a simplified scenario that could never exist beyond the realm of the hypothetical. They do not account for economic factors such as unemployment, income tax, capital gains, etc. But perhaps they can give us an idea of how much wealth there is in the U.S., in relatable terms that can be explained without using any complex math.