By Adam Walker, Economics Correspondent
Since the global recession struck we have cut society into two vastly unequal groups as a means of pigeon holing blame.
The one per cent – those with a total household income that exceeds £300,000 annually – have become targets in the financial downturn. The credit crunch in 2007, the Icelandic Banking crisis in late 2008 and the Eurozone Sovereign Debt crisis in 2010 have all at one point referred back to this section of society in an “us-and-them” attitude to promote our solidarity as the other 99 per cent.
Before writing this article I was keen to see where I stood within the 99 per cent. Considering I am a 24 year old, single, young professional, not working on a commission-based bonus scheme or within a large financial institution, I expected to be pretty low down on the scale. Thankfully the Wall Street Journal had published a “What Percentage Are You?” calculator and, after some quick exchange rate calculations, I input my details into the algorithm.
The calculator came back and shocked me by stating that my current income alone was in the 56 per cent range, placing me straight into the top 44 per cent of earners. Following a minor reality check, this brought my focus onto a whole new question. Namely, how far up in “the 99 per cent” are the majority of those claiming to be part of it?
Breaking Down The 99
At the very extreme end of the scale, an individual earning less than £1,500 annually is considered to be in the bottom one per cent of income earners in a Western economy. However, if an individual earns more than £12,000 a year they are in the top 75 per cent of estimated earners.
If you are earning the average UK salary in 2014, approximately £26,500, you would find yourself in the top 50 per cent. It gets even more shocking when you consider the idea that a married couple, both earning the average UK salary and therefore possessing a total household income of £53,000 are in the top 25 per cent of income earners within the economy. Suddenly the 99 per cent seems to be slightly more segregated than the group’s mentality would have you believe, and the ostensibly black-and-white arguments of “the 99 per cent vs the one per cent” are much greyer than first thought.
The issue with this level of categorisation is that it groups the majority of people together and attempts to tell everyone they are in the exact same circumstances. Furthermore, like many “absolute statistics” it is massively distorted by the extremes of the scale whilst completely hiding the true nature of the data. Not only does this mean that people are sometimes unfairly categorised simply by their income, but psychologically it could be said that it deters those with greater influence and power from being able to bring about change.
So are we doing ourselves a disservice by clumsily huddling together rather than taking the time to understand where we stand economically? More importantly, doesn’t the “Us vs. Them” attitude promote unfair stereotyping and persecution of people in the top one per cent who may deserve to be there?
Getting To Grips With The one per cent
In mid-February Nicholas Mankiw, a prominent macroeconomist as well as Professor and Chairman at Harvard University, wrote an article in The New York Times discussing whether the one per cent were deserving of their top-end incomes because they have risked more to get to that position.
His primary example was Robert Downey Jr. and his role in the recent Avengers Assemble movie, a role which earned him $50 million. This, by almost anyone’s definition is an outrageously large sum of money and Mankiw himself stated that “the typical American would have to work for about 1,000 years in order to earn that much”. However, when that figure is put into context with the fact that the movie grossed $1.5 billion in box office revenue, you realise that Downey Jr. took home three per cent of the total earnings.
The question that usually follows is “do you think he contributed three per cent to that movie’s production?” Bear in mind that this is not a review of the film, but no matter what your opinion is, it seems like a drastic underestimation that any of the main actors only contributed three per cent. Not only were their reputations on the line as performers, some had to go through gruelling fitness regimes to fit the part (i.e. Chris Hemsworth/Jeremy Renner) whilst others spent weeks touring with the film to promote it across the globe. This is not to say this was a terrible hardship for them, but they certainly contributed a great deal to the movie’s success.
To bring it back from the Hollywood example, the average Fortune 500 CEO earns over £7 million annually. Without doubt this is another very large figure until you understand that it is their sole responsibility to manage billions of pounds of capital within an organisation through multiple channels, countries and economic bodies. The level of risk with roles associated to these kinds of figures are extremely high and it can sometimes only take one mismanaged member of staff to bring the organisation to its knees. So naturally the reward must be higher in order to compensate for these levels of pressure and stress.
What’s Being Given Back?
Mankiw goes on to cite data from the Tax Policy Center which states that the top one per cent of income earners contribute approximately 27 per cent of the total tax income, compared to the middle quintile of the income earners who contribute 10.3 per cent. This demonstrates that the highest earners are paying a large amount back into the economic wellbeing of the country and doesn’t include factors such as job creation, private investment and general expenditure.
As Mankiw bluntly puts it “the richest one per cent aren’t motivated by an altruistic desire to advance the public good. But, in most cases, that is precisely their effect.”
Removing The Labels
As I said before, these labels only serve to hinder and further separate groups than unifying individuals to form a solution. As the economy is re-stabilising and employment increases it is time we understood how we as both people and groups contribute to our national economy and the risks/factors that are associated with those above and below us. By doing this we not only strengthen our resolve to progress both economically and socially, but we also understand what we must contribute as we move forward.