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F o r Release on D e l i v e r y
T u e s d a y , December 2 , 1969
1:00 p0m. , E . S . T .




INFLATION AND INCOME DISTRIBUTION
I N THE UNITED STATES

Remarks by

Andrew F . Brimmer
Memb e r
Board o f G o v e r n o r s o f t h e
F e d e r a l Reserve System

Before a
C o n f e r e n c e on " I n p u t - O u t p u t ,

1969 ,f

Sponsored J o i n t l y By

P i t t s b u r g h Commerce
U . S . Department o f

Institute,
Commerce,

and
B u s i n e s s Week

Pittsburgh Hilton Hotel
Pittsburgh,
Pennsylvania

December 2 ,

1969

INFLATION AND INCOME DISTRIBUTION
I N THE UNITED STATES
By
Andrew F. Brimmer*

I

am d e l i g h t e d w i t h the o p p o r t u n i t y to p a r t i c i p a t e

Conference on " I n p u t - O u t p u t ,
new i n p u t - o u t p u t

1969."

in

this

The o f f i c i a l p r e s e n t a t i o n of the

t a b l e showing the p r i n c i p a l s t r u c t u r a l r e l a t i o n s and

t r e n d s i n the economy r e p r e s e n t s another i m p o r t a n t landmark i n the
c o n t i n u i n g e f f o r t t o understand the b e h a v i o r of our complex economic
system.

The s e v e r a l papers and workshops devoted to an a n a l y s i s of

the changing i n p u t - o u t p u t r e l a t i o n s among major s e c t o r s of the economy
w i l l o b v i o u s l y c o n t r i b u t e f u r t h e r to t h i s

understanding.

As I understand the t a s k assigned to me as the luncheon
speaker,

i t was hoped t h a t I would share whatever thoughts I might

have concerning the campaign to check i n f l a t i o n i n the U n i t e d S t a t e s .
I

am g l a d to do t h i s ,

of these remarks.

and I w i l l

sketch my views i n the c l o s i n g

section

But b e f o r e s h a r i n g my own thoughts about the

a p p r o p r i a t e course of monetary p o l i c y i n the c u r r e n t f i g h t

against

^Member, Board of Governors of the F e d e r a l Reserve System.
I am g r a t e f u l to a number o f persons f o r a s s i s t a n c e i n the
p r e p a r a t i o n of these remarks.
Mrs. Susan Burch of the Board's
s t a f f developed the s t a t i s t i c a l e s t i m a t e s o f income d i s t r i b u t i o n .
M r . Henry T e r r e l l of the Board's s t a f f helped w i t h the economic
a n a l y s i s o f trends i n income shares.
Messrs. Robert Graham and
Robert B r e t z f e l d e r o f the O f f i c e of Business Economics, U. S.
Department of Commerce, p r o v i d e d a s s i s t a n c e i n t r a c i n g the r e g i o n a l
impact of i n f l a t i o n a s s o c i a t e d w i t h the a c c e l e r a t i o n of the Vietnam
War.
The Bureau of the Census shared i t s i n f o r m a t i o n which p e r m i t t e d us to update through 1968 the income d i s t r i b u t i o n s e r i e s .




-2-

inflation,

I would l i k e

to examine more c l o s e l y

t h e impact

inflation

has had on t h e r a t e s o f economic e x p a n s i o n i n d i f f e r e n t r e g i o n s o f
c o u n t r y and on t h e d i s t r i b u t i o n o f income among m a j o r groups i n

the

economy.

can

The p r i n c i p a l

be summarized




c o n c l u s i o n s emerging from t h i s a n a l y s i s

briefly:
During the f i r s t three quarters of t h i s year,
i n f l a t i o n had p r o g r e s s e d so f a r t h a t the r i s e
i n gross n a t i o n a l p r o d u c t r e p r e s e n t e d p r i m a r i l y
p r i c e advances and v e r y l i t t l e growth i n r e a l
output.
T h i s was almost the e x a c t r e v e r s e o f
the e x p e r i e n c e i n 1965 when t h e c u r r e n t i n f l a t i o n
began.
The a c c e l e r a t i o n o f the V i e t n a m War and the
r e s u l t i n g i n f l a t i o n g r e a t l y s t i m u l a t e d economic
a c t i v i t y i n those r e g i o n s o f t h e c o u n t r y where
T h i s was
the r a t e o f growth had been l a g g i n g .
e s p e c i a l l y t r u e o f the M i d - W e s t and the M i d d l e
Atlantic states.
I n terms o f money income, the h i g h l e v e l o f
economic a c t i v i t y d u r i n g the l a s t few y e a r s
has r e i n f o r c e d
t h e t r e n d toward g r e a t e r e q u a l i t y
i n t h e d i s t r i b u t i o n o f income i n t h e U n i t e d S t a t e s .

However, t h e r e has a l s o been a s u b s t a n t i a l e r o s i o n
i n t h e r e a l income o f s e v e r a l i m p o r t a n t g r o u p s .
As one would e x p e c t , t h e aged have l o s t s i g n i f i c a n t l y ,
and t h e same i s t r u e o f f a r m e r s .
But perhaps t h e
most s t r i k i n g adverse e x p e r i e n c e has been t h a t o f
a t y p i c a l , s e m i - s k i l l e d worker i n manufacturing:
between 1965 and 1 9 6 8 , t h e gross w e e k l y e a r n i n g s
o f t h i s w o r k e r rose by about 14 per c e n t ; y e t , a l l
o f the i n c r e a s e was eroded by h i g h e r t a x e s and t h e
rise in prices.
To a c o n s i d e r a b l e e x t e n t , the f u r t h e r t r e n d toward
g r e a t e r e q u a l i t y i n t h e d i s t r i b u t i o n o f income
seems t o be due t o a sharp r i s e i n t h e number o f
f a m i l i e s w i t h m u l t i p l e earners - - r a t h e r than simply
t o h i g h e r e a r n i n g s by f a m i l y heads.

the

-3-

-

Nonwhites as a group have b e n e f i t e d s u b s t a n t i a l l y
from t h e h i g h l e v e l o f economic a c t i v i t y i n r e c e n t
years.
However, w i t h i n t h e n o n w h i t e community,
t h e r e was no f u r t h e r t r e n d toward g r e a t e r e q u a l i t y
i n income d i s t r i b u t i o n - - an e x p e r i e n c e c o u n t e r t o
t h a t i n the economy a t l a r g e .

The P r o g r e s s i o n o f

Inflation

The o r i g i n s o f t h e c u r r e n t i n f l a t i o n have been commented on
many t i m e s ,
sufficient

and t h e r e i s no need t o p r o v i d e d e t a i l s h e r e .
t o remember t h a t i t s m a i n s p r i n g s c e n t e r

t i o n o f t h e V i e t n a m War i n m i d - 1 9 6 5 ,
a l r e a d y on t h e eve o f f u l l
and s e r v i c e s
for

for m i l i t a r y

i n the

country.

(unmatched by h i g h e r

For t h r e e y e a r s - -

until

10 per c e n t income t a x surcharge i n m i d - 1 9 6 8 - continued.

Under the c i r c u m s t a n c e s , most o f

ing i n f l a t i o n

fell

on monetary

taxes

this

t o pay

source o f

inflathe

situation

the burden f o r

fight-

policy.
the

progression

i s t o a n a l y z e the c o m p o s i t i o n o f changes i n

n a t i o n a l product

goods

t h e passage o f

Perhaps t h e most c o n v e n i e n t way t o t r a c e
of i n f l a t i o n

accelera-

The r a p i d demand f o r

the w a r ) made t h e F e d e r a l Government a p r i n c i p a l

tion in this

is

a t a t i m e when t h e economy was

employment.
purposes

It

(GNP) over the

last

b e f o r e t h e V i e t n a m War a c c e l e r a t e d .
showing changes i n GNP t r a c e a b l e

few y e a r s ,

gross

compared w i t h

T h i s i s done i n T a b l e

1,

trends
attached,

t o t h e growth o f d o m e s t i c demand v s .

n e t s a l e s abroad and changes i n r e a l o u t p u t v s .

changes i n p r i c e s

since

1961.
I t w i l l be n o t e d t h a t i n the f i r s t
economy a c h i e v e d a s i z a b l e




half

o f t h e decade,

the

i n c r e a s e i n o u t p u t and m a i n t a i n e d a h i g h

-4-

degree of p r i c e s t a b i l i t y s i m u l t a n e o u s l y .

Between 1961 and 1965,

GNP i n c u r r e n t d o l l a r s rose a t an average annual r a t e o f over 7 per
cent.

T h r e e - q u a r t e r s of t h i s i n c r e a s e r e p r e s e n t e d the growth of

r e a l output,

and only o n e - q u a r t e r was due t o h i g h e r p r i c e s - -

the i m p l i c i t GNP d e f l a t o r
p r i c e indexes)

as

( t h e most b r o a d l y based of the v a r i o u s

rose a t an average annual r a t e o f o n l y 1 . 5 per

I n sharp c o n t r a s t ,

during the p e r i o d 1 9 6 5 - 6 8 , GNP i n c u r r e n t

expanded a t an average annual r a t e of 8 . 1 per cent ( o n l y

cent.
dollars

slightly

more r a p i d l y t h a n i n the f i r s t Jhalf of the decade). However, over twof i f t h s of the i n c r e a s e r e f l e c t e d higher p r i c e s , w i t h the i m p l i c i t GNP
d e f l a t o r r i s i n g a t an average annual r a t e o f 3 . 5 per c e n t .

In

the pace of i n f l a t i o n has a c c e l e r a t e d s t e a d i l y .

the

g e n e r a l p r i c e l e v e l rose by 4 . 0 per c e n t ,
r e g i s t e r e d i n 1965.
was 5 . 0 per c e n t .

Last year,

or double the

From the t h i r d q u a r t e r t h i s y e a r ,
I n the f i r s t n i n e months of 1969,

5 . 6 per c e n t a t a s e a s o n a l l y a d j u s t e d annual r a t e .
first

increase
the

represented a gain i n r e a l

increase

the r i s e was
Thus, i n the

t h r e e q u a r t e r s of t h i s y e a r , w e l l over t w o - t h i r d s of

expansion i n GNP r e p r e s e n t e d i n f l a t i o n ,

fact,

the

and l e s s than o n e - t h i r d

output.

The adverse e f f e c t s of the c u r r e n t i n f l a t i o n can a l s o be
seen i n the d e t e r i o r a t i o n of our f o r e i g n t r a d e b a l a n c e .

During the

p e r i o d 1 9 6 1 - 6 5 , U.S. exports of goods and s e r v i c e s i n c r e a s e d a t an
average annual r a t e of about $ 1 . 3 b i l l i o n f a s t e r than the r i s e
imports.




Thus,

in

i n those y e a r s , not only were we able to cope w i t h

-5-

t h e growth o f domestic demand a t e s s e n t i a l l y

stable prices,

b u t we

a l s o were a b l e t o p r o v i d e needed support f o r our b a l a n c e o f
t h r o u g h a c h i e v i n g a s i z a b l e c u r r e n t account s u r p l u s .
the 1 9 6 5 - 6 8 p e r i o d ,

the s i t u a t i o n changed t o e x a c t l y

However,
the

Net e x p o r t s o f goods and s e r v i c e s d e c l i n e d a t an a v e r a g e
r a t e of $4.4 b i l l i o n .

Expressed d i f f e r e n t l y ,

demand i n t h i s p e r i o d o u t s t r i p p e d the r i s e
i m p o r t s making up the d i f f e r e n c e .

n e t e x p o r t s showed a modest i n c r e a s e ,

b a l a n c e o f payments - -

domestic

but the fundamental

this

balance
year,

situation
the

t h e need

pressing.

Inflation

i n f l a t i o n a r y pressures i t

activity

in

V i e t n a m and t h e

g e n e r a t e d have a l t e r e d b a s i c

trends

income growth among the p r i n c i p a l r e g i o n s o f t h e c o u n t r y .
t h e change may be t e m p o r a r y ,

it

1960 t o the f i r s t

Although

Taking the p e r i o d from

q u a r t e r 1965 as a f a i r l y n o r m a l

identified:

to

first
yardstick,

t h r e e subsequent p e r i o d s o f s h a r p l y s h i f t i n g r e g i o n a l p a t t e r n s
economic e x p a n s i o n can be

in

cannot be o v e r l o o k e d i f we a r e

u n d e r s t a n d the c u r r e n t i n f l a t i o n .




with

t r a d e account and i n t h e

from the p o i n t o f v i e w o f

The a c c e l e r a t i o n o f m i l i t a r y

quarter

annual

i n domestic o u t p u t ,

as w e l l as f o r domestic reasons - -

t o check i n f l a t i o n remains

R e g i o n a l Impact o f

So,

opposite.

the growth i n

D u r i n g the f i r s t n i n e months o f

has n o t improved a p p r e c i a b l y .

in

Thus, d o m e s t i c i n f l a t i o n has been

a m a j o r cause o f weakness i n t h e U . S .
o f payments as a w h o l e .

payments

of

-6-

-

The p e r i o d between the opening q u a r t e r of 1965
and the c l o s i n g q u a r t e r of 1966, which was
c h a r a c t e r i z e d by a r a p i d expansion i n product i o n f o r m i l i t a r y purposes and i n response to
the g e n e r a l tax cut of 1 9 6 4 - 6 5 .
The p e r i o d between the f o u r t h q u a r t e r of 1966
and the f o u r t h q u a r t e r of 1967, when the r a t e
of i n c r e a s e i n m i l i t a r y purchases slowed and
the advance i n t o t a l output moderated.
The c u r r e n t p e r i o d , f i r s t q u a r t e r of 1968
through the second q u a r t e r of 1969 (which i s
as f a r as our d a t a take u s ) , when even though
m i l i t a r y expenditures have expanded only a l i t t l e ,
continued increases i n c i v i l i a n demand have taxed
the economy beyond i t s c a p a c i t y w i t h r e s u l t a n t
inflation.

I n g e n e r a l , under the impact o f the Vietnam m i l i t a r y

build-

up and the c u r r e n t i n f l a t i o n , t h e d i f f e r e n c e s i n r e g i o n a l growth r a t e s
have narrowed s u b s t a n t i a l l y .

Such a narrowing o f r e g i o n a l growth

r a t e d i f f e r e n t i a l s has also been a c h a r a c t e r i s t i c of o t h e r
o f r a p i d economic growth and r e l a t i v e l y
especially

periods

f u l l u t i l i z a t i o n of

resources,

labor.
R e g i o n a l trends i n personal income over the postwar

period

g e n e r a l l y have produced a s h i f t o f income from the N o r t h e a s t and
C e n t r a l r e g i o n s of the country to the South and West.
1960,

From 1948 to

the growth r a t e i n the t h r e e western and southern regions was

27 per c e n t above t h a t i n the other f i v e major a r e a s .
differential

Similarly,

continued n e a r l y unchanged ( a t 2 5 - 1 / 2 per c e n t )

1960 through e a r l y 1965.

the

from e a r l y

Among the e i g h t i n d i v i d u a l geographic

sections,

the p a t t e r n o f r e g i o n a l growth i n the two time periods j u s t noted was




-7-

also q u i t e s i m i l a r .

From e a r l y 1948 through e a r l y I 9 6 0 ,

West r e g i s t e r e d the g r e a t e s t growth - -

the Far

7 - 1 / 4 per cent per y e a r .

The gains i n both t h e Southeast and Southwest were above 6 per cent
per y e a r , w h i l e

the Rocky Mountains, New England,

the G r e a t Lakes

and Mideast a l l r e g i s t e r e d advances of above 5 per c e n t .

The g a i n

i n the P l a i n s was the s m a l l e s t - - 4 - 1 / 4 per cent per y e a r .

The same

r e g i o n a l p a t t e r n of income advances p r e v a i l e d among the regions
d u r i n g the f i r s t h a l f of the

1960's.

But, as mentioned above, the expansion of economic
i n response to the Vietnam b u i l d - u p brought about

activity

considerable

u n i f o r m i t y i n r e g i o n a l growth d u r i n g the seven q u a r t e r s from the
f i r s t q u a r t e r o f 1965 t o the f o u r t h q u a r t e r of 1966.

This

also r e f l e c t e d the s t i m u l a t i n g e f f e c t s of the 1964-65 t a x
I n the t h r e e f a s t growing

regions,

period
reductions.

income rose a t an average r a t e

o f 9 - 1 / 2 per c e n t , w h i l e i n the f i v e slower growing r e g i o n s
expanded a t an 8 - 3 / 4 per cent pace - 7 per c e n t .

a d i f f e r e n t i a l of less

it
than

This d i f f e r e n t i a l was about o n e - t h i r d o f the gap which

p r e v a i l e d over the postwar p e r i o d as a whole, and j u s t over oneq u a r t e r of the margin d u r i n g the e a r l y 1 9 6 0 f s .

Moreover,

t h e r e was

c o n s i d e r a b l e d e p a r t u r e d u r i n g the 1965-66 p e r i o d from e s t a b l i s h e d
trends among the i n d i v i d u a l r e g i o n s .
f a s t e s t growing of the r e g i o n s ,

I n the Far West,

typically

the

income expanded a t a l e s s - t h a n - a v e r a g e

r a t e , w h i l e income growth i n the New England, G r e a t Lakes and P l a i n s
r e g i o n s , which had been expanding a t l e s s - t h a n - a v e r a g e r a t e s from 1948
t o 1965, exceeded t h a t i n the N a t i o n .




-8-

The r e g i o n a l p a t t e r n of advance i n personal income r e v e r t e d
t o a more t y p i c a l postwar c o n f i g u r a t i o n d u r i n g the p e r i o d of
economic expansion r e g i s t e r e d from l a t e 1966 to l a t e 1967.

slow
During

these f o u r q u a r t e r s , p e r s o n a l income i n the U . S . grew a t a 6 - 1 / 2 per
cent annual r a t e .

I n the f a s t growing r e g i o n s ,

income rose a t

more than 8 per cent per y e a r , but the r i s e was o n l y a l i t t l e
5 - 1 / 2 per cent i n the slow growing r e g i o n s .
regions,

Among the

above

individual

the g a i n i n each o f the t h r e e f a s t growing s e c t i o n s was

above the U.S.

average,

and the g a i n i n each i n d i v i d u a l l y

exceeded

t h a t i n each of the f i v e s l o w l y growing areas taken s e p a r a t e l y .

Income

expanded v e r y s l o w l y i n the Great Lakes (more than a t h i r d below
n a t i o n a l average)

and i n the P l a i n s

average) d u r i n g t h i s p e r i o d .

(more than f o u r - t e n t h s below

In contrast,

the only major

exceptions

to the u s u a l p a t t e r n were somewhat a b o v e - n a t i o n a l - a v e r a g e gains
the Rocky Mountains and the New England S t a t e s .
region (the Mideast)

in

I n the r e m a i n i n g

income went up a t a r a t e s l i g h t l y above t h a t of

the country as a whole.
I n the f i n a l p e r i o d ,

f o u r t h q u a r t e r 1967 t o second q u a r t e r

1969, r e g i o n a l p e r s o n a l income growth was u n u s u a l l y u n i f o r m .

Income

i n the f i v e t y p i c a l l y s l o w l y growing N o r t h e a s t e r n and C e n t r a l

regions

rose n e a r l y as r a p i d l y as i t d i d i n the t h r e e t y p i c a l l y f a s t
Southern and Western areas o f the c o u n t r y .

growing

T o t a l p e r s o n a l income i n

the U.S. over t h i s 18 month p e r i o d expanded a t an annual r a t e o f
9 - 3 / 4 per c e n t ;




about

the average g a i n i n the Far West, Southeast and Southwest

-9-

( t h e u s u a l l y most r a p i d l y growing r e g i o n s ) was j u s t under 10 per
c e n t , w h i l e the g a i n i n the Rocky Mountain, New England, Great Lakes,
M i d e a s t and P l a i n s r e g i o n s
over 9 - 1 / 2 per

( t h e u s u a l l y slower expanding areas) was

cent.

A key f a c t o r u n d e r l y i n g the narrowing o f r e g i o n a l growth
r a t e s d u r i n g 1965-66 was the p a t t e r n of m i l i t a r y procurement.
the Vietnam m o b i l i z a t i o n ,

Before

a d i s p r o p o r t i o n a t e share of m i l i t a r y

procurement (as measured by prime c o n t r a c t awards) was o b t a i n e d from
the West and South.

I n 1965 f o r example, about 45 per cent o f

m i l i t a r y c o n t r a c t s were l e t

i n the t h r e e f a s t e r growing r e g i o n s ,

although only 37 per c e n t of p e r s o n a l income o r i g i n a t e d i n these
areas.

By the end o f 1966, however,

t h e r e had been a l a r g e

away from these newer areas and toward

shift

the o l d e r and more c o n v e n t i o n a l l y

i n d u s t r i a l i z e d r e g i o n s o f t h e Midwest and N o r t h e a s t .

In that

year,

o n l y 42 per cent o f the m i l i t a r y c o n t r a c t s were awarded t o the West
and South.
T h i s s h i f t was due t o two f a c t o r s .

First,

t h e r e was more

excess i n d u s t r i a l and l a b o r c a p a c i t y i n the o l d e r m a n u f a c t u r i n g regions
of the N o r t h e a s t and C e n t r a l a r e a s .

Secondly,

the product mix o f m i l i t a r y procurement.

t h e r e was a s h i f t

M i s s i l e s and e l e c t r o n i c s ,

which had been accounting f o r about o n e - t h i r d o f t o t a l m i l i t a r y
ment, d e c l i n e d t o o n e - s e v e n t h of the t o t a l i n 1966.
importance o f a i r c r a f t ,

ordnance,

procure-

In contrast,

the

and o t h e r more c o n v e n t i o n a l equipment

i n c r e a s e d markedly as a percentage o f t o t a l m i l i t a r y purchases.




in

Because

-10-

t h e r e i s a heavy c o n c e n t r a t i o n o f p r o d u c t i o n f a c i l i t i e s
c o n v e n t i o n a l m i l i t a r y e q u i p m e n t and i t s
growing regions,

the s h i f t

for

component p a r t s i n t h e

i n product mix c o n t r i b u t e d t o the

gain i n manufacturing payrolls

i n these areas.

p r i m e c o n t r a c t awards r o s e b y o n l y a q u a r t e r

I n sum,

i n the f a s t

but i t

Military

large

military
growing

r e g i o n s , b u t s p u r t e d by more t h a n 45 p e r c e n t i n t h e s l o w l y
areas.

slower

growing

c o n t r a c t i n g went up o n l y 10 p e r c e n t i n t h e F a r W e s t ,

r o s e by 85 p e r c e n t i n t h e G r e a t L a k e s .

these developments,

Largely

reflecting

the a c c e l e r a t i o n i n the growth o f personal

income

i n t h e F a r West ( a t a b o u t 35 p e r c e n t ) was t h e second s m a l l e s t
t h e e i g h t r e g i o n s , w h i l e t h e a c c e l e r a t i o n o f more t h a n 80 p e r
i n t h e G r e a t Lakes was t h e second

on t h e economies o f t h e r e g i o n s was most d i r e c t l y

c i v i l i a n demand.

cent

largest.

The income e f f e c t o f t h e s h i f t i n g o f p r i m e m i l i t a r y

manufacturing payrolls.

among

transmitted

These e f f e c t s were i n t e n s i f i e d by

The u p s w i n g i n f a c t o r y p a y r o l l s ,

in turn,

contracts
through

rising
helped

t o s t i m u l a t e demand and income i n a w i d e v a r i e t y o f t r a d e and s e r v i c e
industries,
activity

and t h e s e g a i n s a l s o c o n t r i b u t e d t o i n c r e a s i n g t o t a l

and p e r s o n a l income.

A l l o f t h e s e f a c t o r s were f e l t

s t r o n g l y i n t h e t y p i c a l l y more s l o w l y g r o w i n g

most

regions.

R e f l e c t i n g t h e s e i n c r e a s e d demands, as w e l l as h i g h e r
s c a l e s , m a n u f a c t u r i n g wages and s a l a r i e s r o s e a t an a n n u a l r a t e
9 - 3 / 4 p e r c e n t o v e r t h e 1965-66 p e r i o d ,

economic

pay
of

as compared w i t h an a v e r a g e

a n n u a l advance o f 4 - 1 / 4 p e r c e n t d u r i n g t h e p r e c e d i n g f i v e y e a r s - - an




-11-

a c c e l e r a t i o n of more than 125 per c e n t .

W i t h both r e a l demand and

p r i c e s f o r a wide v a r i e t y o f hard and s o f t goods r i s i n g

rapidly,

t h e r e was a s i m i l a r s p u r t i n manufacturing p a y r o l l s from l a t e
through m i d - 1 9 6 9 .

The pace of advance climbed from a 3 per

1967

cent

annual r a t e i n the f o u r t h q u a r t e r 1966 to f o u r t h q u a r t e r 1967 p e r i o d
to a 9 - 3 / 4 per cent r a t e over" ; the l a s t 18 months.

Again,

i n c r e a s e s i n m a n u f a c t u r i n g p a y r o l l s played a key r o l e i n

these
shifting

the o v e r a l l income advance toward the p r e v i o u s l y slow-growing regions™

Trends i n the D i s t r i b u t i o n of Personal Income
At t h i s p o i n t , we can t u r n t o an e x a m i n a t i o n o f changes
the p a t t e r n of income d i s t r i b u t i o n d u r i n g the l a s t
l e v e l economic a c t i v i t y .

For t h i s purpose,

consider the share o f t o t a l

i s convenient

Trends i n t h e income of

i n the U n i t e d S t a t e s ,

to

families

1950 through 1968,

are shown i n T a b l e 2,—^ f o r the country as a whole and a l s o f o r
and nonwhites s e p a r a t e l y .

The f i g u r e s i n the t a b l e i n d i c a t e the

centage share of aggregate income r e c e i v e d by each f i f t h o f

it

per-

class.

should be noted t h a t i n no y e a r was the

d i s t r i b u t i o n of income equal i n e i t h e r

the economy or i n the w h i t e

1 / E s t i m a t e s f o r 1968 were made a t the F e d e r a l Reserve
Board on the b a s i s of i n f o r m a t i o n supplied by the Bureau
of the Census.




whites

families

and i n d i v i d u a l s and by those i n the top 5 per c e n t o f the income
I n examining these d a t a ,

high

income r e c e i v e d by a g i v e n p r o p o r t i o n of

the t o t a l f a m i l i e s and i n d i v i d u a l s .
and u n r e l a t e d i n d i v i d u a l s

it

few y e a r s o f

in

-12or nonwhite community.

If

i t had been, each f i f t h o f the income r e c i p i e n t s

would have r e c e i v e d 20 per cent of the aggregate income i n each y e a r .
The d a t a i n Table 2 show a s t r i k i n g s i m i l a r i t y i n the changing
p a t t e r n o f income d i s t r i b u t i o n i n the two p e r i o d s 1961-65 and 1 9 6 5 - 6 8 .
I n both periods,

t h e r e was a s u b s t a n t i a l i n c r e a s e i n the p r o p o r t i o n of

income going t o the lowest two q u i n t i l e s
quintile.

a t the expense o f the h i g h e s t

Between 1961 and 1965, the lowest two q u i n t i l e s

increased

t h e i r share by 0 . 9 per cent of the t o t a l w h i l e the share of the top q u i n t i l e d e c l i n e d by 1 . 3 per c e n t .

It

should be noted f u r t h e r t h a t t h i s

loss

o f 1 . 3 per c e n t i n the top q u i n t i l e was c o n c e n t r a t e d e n t i r e l y i n the
share going t o the top f i v e per c e n t .
remarkably s i m i l a r .

The 1965-68 e x p e r i e n c e was

Here the lower two q u i n t i l e s gained 0 . 7 per cent

w h i l e the top q u i n t i l e l o s t 0 . 7 per c e n t .

D u r i n g t h i s same p e r i o d ,

t h e share going to the top 5 per cent d e c l i n e d by 1 . 8 per c e n t ,
i n g t h a t t h e r e was some income r e d i s t r i b u t i o n w i t h i n the upper

indicatquintile.

T h i s f i n d i n g w i l l prove u s e f u l l a t e r when we examine the d i s t r i b u t i o n
the v a r i o u s sources o f personal income. A /
1/ For those i n t e r e s t e d i n t e c h n i c a l m a t t e r s , another way
economists have of measuring r e l a t i v e i n e q u a l i t i e s i n the d i s t r i b u t i o n o f income i s through the computation o f G i n i c o e f f i c i e n t s . A
G i n i c o e f f i c i e n t i s o b t a i n e d by measuring the a r e a between the
a c t u a l c u m u l a t i v e d i s t r i b u t i o n curve and the h y p o t h e t i c a l cumulative
d i s t r i b u t i o n curve i f a l l u n i t s had an e q u a l d i s t r i b u t i o n of income.
A c o e f f i c i e n t o f zero would imply t o t a l e q u a l i t y i n d i s t r i b u t i o n
s i n c e t h e r e would be no area between t h e a c t u a l curve and the curve
o f e q u a l d i s t r i b u t i o n , w h i l e a t the o t h e r extreme a c o e f f i c i e n t o f
1 . 0 0 0 would i m p l y a t o t a l i n e q u a l i t y of d i s t r i b u t i o n .
The G i n i
c o e f f i c i e n t s a r e shown i n Table 2.
These r a t i o s f e l l d u r i n g both of
the p e r i o d s under c o n s i d e r a t i o n .
This computation confirms i n a
f o r m a l sense t h a t the d i s t r i b u t i o n of income has continued t o move
toward g r e a t e r e q u a l i t y among f a m i l i e s d e s p i t e r a t h e r wide divergences
i n the performance of the economy over the two p e r i o d s .




of

-13F a c t o r s A f f e c t i n g the D i s t r i b u t i o n o f

Income

Having d i s c u s s e d t h e r e c e n t t r e n d s i n t h e d i s t r i b u t i o n

of

income, we should t r y t o e x p l a i n why these changes t o o k p l a c e .

Since

e a r n i n g s a r e t h e p r i m a r y source o f income t o i n d i v i d u a l s

lower

end o f t h e income d i s t r i b u t i o n ,

it

is important

such e a r n i n g s advanced r a p i d l y enough to a f f e c t

at

the

to determine whether
the d i s t r i b u t i o n

of

income.
For purposes o f a n a l y s i s ,

I have focused on t h e

o f a f a c t o r y worker w i t h t h r e e dependents.

experience

T h i s r e p r e s e n t a t i v e man

saw h i s gross w e e k l y e a r n i n g s r i s e from about $92 i n 1 9 6 1 t o
i n 1965,

and t o $ 1 2 2 . 5 0 i n 1968.

(See T a b l e 3 . )

$107.50

I n percentage

h i s gross e a r n i n g s r o s e a t an i m p r e s s i v e 3 . 9 per c e n t a n n u a l l y
1961 to 1 9 6 5 ,

Essentially,

d i f f e r e n t rates of

l e v e l s o f e a r n i n g s and a t

slightly

t h a n gross w e e k l y

e a r n i n g s because o f v a r i o u s compulsory and v o l u n t a r y w i t h o l d i n g
Only two such programs a r e r e q u i r e d of almost a l l employees;
F e d e r a l income and s o c i a l s e c u r i t y t a x e s .

Allowance f o r

an average c u r r e n t d o l l a r

programs.

specifically,

tax

liabilities

p r o v i d e s an e s t i m a t e o f n e t spendable e a r n i n g s o r f o r p u r p o s e s

of

paycheck.

allowing for tax withholding,

t h e paycheck o f a

f a c t o r y p r o d u c t i o n w o r k e r w i t h t h r e e dependents a v e r a g e d $82 i n




other

increase.

Of c o u r s e , paychecks a r e always s m a l l e r

After

from

the same p a t t e r n h o l d s f o r w o r k e r s i n

although at d i f f e r e n t

illustration,

from

and t h e n a c c e l e r a t e d to a 4 . 4 per c e n t a n n u a l r i s e

1965 t o 1968.
industries,

terms,

1961,

-14-

n e a r l y $97 i n 1965, and n e a r l y $107 i n 1968.

As t o be expected,

the growth r a t e of h i s spendable earnings changed d i r e c t i o n when
taxes were t a k e n i n t o account.

Over the 1961-65 p e r i o d ,

had grown a t a 4 . 2 per cent annual r a t e ,

paychecks

compared w i t h a 3 . 9 per

cent average annual i n c r e a s e i n gross e a r n i n g s .

I n t h i s i n s t a n c e , the

d i f f e r e n c e r e f l e c t s to a l a r g e e x t e n t the b e n e f i c i a l e f f e c t of the income t a x
r e d u c t i o n of 1964.

Since 1965, however,

i n the other d i r e c t i o n .

t a x changes have operated

Paychecks rose by 3 . 3 per cent

annually

between 1965 and 1968, compared w i t h a 4 . 4 per cent annual advance
i n gross e a r n i n g s .

I n o t h e r words, r i s i n g taxes - -

i n c l u d i n g both

s o c i a l s e c u r i t y t a x changes and the income t a x surcharge - -

absorbed

one d o l l a r o f each f o u r d o l l a r s o f a d d i t i o n a l gross income.
When the paycheck e s t i m a t e i s a d j u s t e d to r e f l e c t

changes

i n the Consumer P r i c e I n d e x , however, the p i c t u r e changes d r a m a t i c a l l y .
Because o f t h e 1965-68 a c c e l e r a t i o n of p r i c e i n c r e a s e s ,

t h e r e was

no i n c r e a s e i n the average f a c t o r y w o r k e r s 1 " r e a l 1 1 purchasing power
during this period.

I n c o n t r a s t , between 1961 and 1965,

purchasing power advanced by 2 . 8 per cent a n n u a l l y .

real

Thus, a f t e r

a

p e r i o d o f s i z a b l e r e a l gains i n purchasing power, the average worker
h i t a t r e a d m i l l i n 1965.

Growing increments to gross income were

f u l l y absorbed by r i s i n g t a x l i a b i l i t i e s
and a c c e l e r a t i n g p r i c e increases

( 1 / 4 o f h i s gross

( 3 / 4 of h i s gross

increase)

increase).

We a r e now confronted w i t h an apparent paradox:

although

the r e a l wages o f a f a c t o r y worker f a i l e d t o grow i n a p e r i o d when




-15-

r e a l disposable income grew a t an annual r a t e of 4 . 6 per c e n t ,

the

share of income r e c e i v e d by the lowest two segments of the p o p u l a t i o n
has continued to i n c r e a s e r a t h e r c o n s i s t e n t l y .

Two f a c t o r s appear to

e x p l a i n t h i s seeming paradox; these a r e a r a p i d i n c r e a s e i n the number
of m u l t i e a r n e r

f a m i l i e s and a more r a p i d ungrading o f

labor.

T a b l e 4 presents h i s t o r i c a l evidence on the trends i n the
d i s t r i b u t i o n o f f a m i l i e s by number of e a r n e r s .
1961-65 p e r i o d ,

Compared to the

the 1965-68 p e r i o d has witnessed a v i r t u a l

i n the growth of zero earner f a m i l i e s ,

cessation

a dramatic i n c r e a s e i n the

r a t e of d e c l i n e i n the a b s o l u t e number of s i n g l e earner

families,

and a r a p i d a c c e l e r a t i o n i n the r a t e of i n c r e a s e i n the number of two
and t h r e e or more earner f a m i l i e s .

These data a r e i m p o r t a n t because

they show t h a t f a m i l i e s w i t h earnings income have o f f s e t the impact
o f stagnant r e a l wages by i n c r e a s i n g the number o f workers per

family.

A second f a c t o r r e i n f o r c i n g the t r e n d toward income e q u a l i t y
i n the 1965-68 p e r i o d i s the a c c e l e r a t i o n i n the o c c u p a t i o n a l
o f the employed l a b o r f o r c e .

The 1961-65 p e r i o d saw g r e a t e r

upgrading
overall

employment gains than the 1965-68 p e r i o d because t h e r e was a pool of
unemployed l a b o r to draw upon, w h i l e the 1965-68 p e r i o d had t o
p r i m a r i l y on new e n t r a n t s to the l a b o r f o r c e .

The r e l a t i v e

labor

shortage i n the 1965-68 p e r i o d meant t h a t the excess demand f o r
r e s u l t e d i n an o c c u p a t i o n a l upgrading i n the a v a i l a b l e l a b o r




rely

labor

force.

-16-

Th i s upgrading can be seen most c l e a r l y by comparing the
r a t e s o f growth o f the v a r i o u s components of the l a b o r f o r c e i n the
two d i f f e r e n t p e r i o d s .
level,

(Table 5)

At the h i g h e r paying w h i t e

collar

the average annual r a t e of i n c r e a s e i n the second p e r i o d was

roughly 1 - 1 / 2 times as g r e a t as i n the 1961-65 p e r i o d - - d e s p i t e a marked
slowdown i n the growth i n t o t a l employment.

This a c c e l e r a t e d growth

i n the h i g h e s t paying component was made p o s s i b l e by a d e c l i n e

in

the r a t e o f growth of b l u e c o l l a r and s e r v i c e workers and an a c c e l e r a t i o n of the r a t e of exodus out of farm employment.

Clearly

the

upgrading o f the l a b o r f o r c e i n the 1965-68 p e r i o d has l e d t o an
i n c r e a s e i n the e q u a l i t y o f income because i t has reduced the
o f the p o p u l a t i o n which d e r i v e s i t s

fraction

income from lower paying occupations.

Thus, i n g e n e r a l , we can say t h a t the 1961-65 p e r i o d witnessed
a more equal d i s t r i b u t i o n of income because the unemployed were a b l e
to o b t a i n employment.

The g r e a t e r e q u a l i t y i n the d i s t r i b u t i o n

of

f a m i l y income which occurred i n the 1965-68 p e r i o d of excess aggregate
demand i s a t t r i b u t a b l e to a r e l a t i v e

i n c r e a s e i n the number of m u l t i -

earner f a m i l i e s and a more r a p i d upgrading of the employed l a b o r

force.

Experience o f P r i n c i p a l Income R e c i p i e n t s
The p r e c e d i n g a n a l y s i s has attempted to e x p l a i n the major
trends i n the o v e r a l l income d i s t r i b u t i o n ,

comparing developments

in

a p e r i o d o f emerging f u l l employment and one o f excessive aggregate




-17-

demand c h a r a c t e r i z e d by a high degree o f p r i c e i n f l a t i o n .
p o i n t , we should see what happened to d i f f e r e n t

At

this

final recipients

p e r s o n a l income to determine which segments o f our p o p u l a t i o n

of

fared

r e l a t i v e l y the b e s t i n an expansion o f the 1961-65 v a r i e t y and which
segments a r e a b l e to i n c r e a s e t h e i r share i n an expansion o f
1965-68 v a r i e t y .

the

One way o f making t h i s comparison i s to examine

changes i n the d i s t r i b u t i o n o f t o t a l p e r s o n a l income among major groups
according to t h e i r sources o f income.

The r e s u l t s a r e shown i n Table 6.

The most s t r i k i n g f e a t u r e of Table 6 i s the almost t o t a l

lack

of change i n the d i s t r i b u t i o n of p e r s o n a l income by type between 1961
and 1965.

The o n l y s i g n i f i c a n t change appears to be a d e c l i n e i n the

share o f p r o p r i e t o r s 1

income by one f u l l percentage

point--which

seems t o conform t o the observed down-trend i n p r o p r i e t o r s 1
i n the postwar e r a .

income

T h i s d e c l i n e was o f f s e t by a r i s e o f 0 . 4 per cent

i n the share o f income r e c e i v e d i n dividends and a 1 . 2 per cent
i n c r e a s e i n the share o f t o t a l income r e c e i v e d as personal
These two o f f s e t s to the d e c l i n e i n p r o p r i e t o r s 1

income a r e

interest.
results

o f s t r u c t u r a l s h i f t s i n the economy toward the c o r p o r a t e form of
o p e r a t i o n as d i s t i n c t

from i n d i v i d u a l p r o p r i e t o r s h i p s .

It

should be

noted t h a t i n t h i s same p e r i o d the share o f p e r s o n a l income going to
wages and s a l a r i e s stayed v i r t u a l l y constant w i t h an i n c r e a s e i n the
share going to s e r v i c e and government workers o f f s e t t i n g a d e c l i n e
the share going to commodity producing and d i s t r i b u t i v e




workers.

in

-18-

In contrast

to the e a r l i e r

years,

t h e 1965-68 p e r i o d showed

r a t h e r marked changes i n t h e d i s t r i b u t i o n o f t h e t y p e s o f
income.

personal

The s h a r e r e c e i v e d i n t h e f o r m o f wages and s a l a r i e s

rather sharply,

due t o i n c r e a s e d demand f o r l a b o r w h i c h made p o s s i b l e

i n c r e a s e i n t h e number o f m u l t i e a r n e r
noted e a r l i e r .

advanced

In particular,

families

and o c c u p a t i o n a l

an

upgrading

one s h o u l d n o t e t h e s i z a b l e i n c r e a s e i n t h e

c a t e g o r y o f Government wages and s a l a r i e s , w h i c h p a r t l y r e f l e c t s t h e V i e t n a m
War, and t h e i n c r e a s e i n t h e s h a r e o f e a r n e d income i n t h e s e r v i c e i n d u s t r i e s .
The r e c o r d o f non-wage and s a l a r y income i n t h e
p e r i o d shows c o n s i d e r a b l e change.
d e c l i n e d by 1 . 7 p e r c e n t a g e p o i n t s

1965-68

The s h a r e o f p r o p r i e t o r s 1
i n only three years, w i t h

income
the

d e c l i n e b o r n e p r o p o r t i o n a t e l y b y b u s i n e s s e s and f a r m

proprietors.

The s h a r e o f t o t a l p e r s o n a l income r e c e i v e d as r e n t a l

income and

dividends also f e l l .

The o n l y two t y p e s o f n o n - e a r n e d income w h i c h

r o s e were p e r s o n a l i n t e r e s t , w h i c h r e f l e c t s
in this period,
from increases

and t r a n s f e r p a y m e n t s , w h i c h r e s u l t e d i n l a r g e
in social security

I n summary,
shift

the high i n t e r e s t

then,

t h e 1965-68 p e r i o d d i d w i t n e s s a marked
income.

income, d i v i d e n d s ,

The d e c l i n e i n

for

certainly

t h e s e t h r e e s o u r c e s w e i g h r e l a t i v e l y h e a v i l y i n t h e incomes o f
income




in

accounts

t h e 1 . 8 p e r c e n t d e c l i n e i n t h e s h a r e o f income

t o t h e t o p 5 p e r c e n t o f t h e income d i s t r i b u t i o n n o t e d above,

highest

the

and r e n t a l income

t h e 1965-68 p e r i o d , w h i c h amounted t o 2 . 9 p e r c e n t ,
i n large part

part

benefits.

i n the d i s t r i b u t i o n of personal

share going t o p r o p r i e t o r s 1

rates

class.

going

since
the

-19-

Income Experience o f Nonwhites
We can now t u r n to an a n a l y s i s of the income e x p e r i e n c e
of m i n o r i t y groups i n the economy.
of nonwhites.

This i s t y p i f i e d by the e x p e r i e n c e

Table 7 shows t h a t i n the 1961-65 p e r i o d the nonwhite

share of aggregate income rose from 5 . 3 per cent t o 6 . 2 per cent
and rose a g a i n to 6 . 9 per cent i n 1968.

It

appears t h a t the second

p e r i o d o f economic expansion d i d not have a marked d i f f e r e n t i a l
on the growth of the nonwhite share of t o t a l

impact

income.

But, when the q u e s t i o n i s examined i n terms of median
income, a somewhat d i f f e r e n t p i c t u r e emerges.
1961 and 1965,

--

(See T a b l e 8 . )

family
Between

the median f a m i l y income o f nonwhites i n c r e a s e d

only

from 53 per cent of the w h i t e median t o 55 per cent of the w h i t e median.
However,

from 1965 to 1968, i t

increased by 8 percentage p o i n t s

63 per cent o f w h i t e median f a m i l y income.
what d i f f i c u l t

These trends are some-

to r e c o n c i l e w i t h the trends i n nonwhites*

aggregate income shown i n Table 7.

to

share of

But they do seem to suggest

that

nonwhites have been able t o b e n e f i t from o c c u p a t i o n a l upgrading o f
the l a b o r f o r c e and from the increased number o f workers per
Having discussed the o v e r a l l r e l a t i v e
nonwhites,

it

is instructive

family.

income p o s i t i o n of

to compare the changes i n the income

d i s t r i b u t i o n among nonwhite f a m i l i e s w i t h the r e c o r d f o r w h i t e
as presented i n Table 2.

families

When t h i s comparison i s made, a s t r i k i n g

d i s s i m i l a r i t y becomes r e a d i l y apparent.

For w h i t e f a m i l i e s ,

the income

d i s t r i b u t i o n became more equal i n both the 1961-65 p e r i o d and the




-20-

1965-68 period.

For nonwhite f a m i l i e s ,

the same t r e n d toward g r e a t e r

e q u a l i t y was e v i d e n t i n the 1961-65 p e r i o d ,
i n the 1 9 6 5 - 6 8 p e r i o d .

i t remained roughly

constant

This f i n d i n g suggests t h a t a movement toward

f u l l employment helps the lowest income nonwhite f a m i l i e s get jobs but
the economic f o r c e s of j o b upgrading and a r i s e i n the number of e a r n e r s per
f a m i l y appear t o be w i d e l y dispersed through the nonwhite community.

Since the

upper income members i n the nonwhite income d i s t r i b u t i o n tend not to have
p r i m a r i l y wage and s a l a r y income ( i . e . ,
from p e r s o n a l i n t e r e s t ,
income),

dividends,

they tend to r e c e i v e

proprietors

little

income, and r e n t a l

t h e y tend not to be a f f e c t e d by the d e c l i n e s i n the share

o f income going to sources other than e a r n i n g s .

I n o t h e r words,

d e c l i n e i n t h e o v e r a l l share of nonearned income d i d not a f f e c t
income of the upper income nonwhites,
o f the i n c r e a s e i n m u l t i - e a r n e r

and i t

appears t h a t the

f a m i l i e s and the gains i n

the
the

effects

occupational

s t a t u s were spread f a i r l y evenly throughout the nonwhite community.

Income E x p e r i e n c e of the Aged
Another i n s t r u c t i v e comparison t o make i s t h a t f o r
elderly,
65.

as d e f i n e d by those f a m i l i e s headed by an i n d i v i d u a l

T a b l e 9 shows aggregate and median income d a t a f o r the

population.

Between 1961 and 1964 ( u n f o r t u n a t e l y ,

1965 were not a v a i l a b l e ) ,

for

the share of aggregate income going t o the
families

headed by a person aged 65 or over d e c l i n e d by 0 . 4 per c e n t .
1964 and 1968,

over

elderly

tabulations

aged d e c l i n e d by 0 . 9 per cent w h i l e the t o t a l f r a c t i o n of




the

Between

the share of t o t a l income going t o the aged dropped a

-21-

f u r t h e r 0 . 9 per c e n t , but the share of the aged i n the
p o p u l a t i o n remained r e l a t i v e l y s t a b l e .

total

I n g e n e r a l , t h e r a t i o of

the

median income of a f a m i l y headed by an i n d i v i d u a l over 65 t o the
t o t a l median income remained about c o n s t a n t .
These d a t a suggest t h a t a l a r g e f r a c t i o n o f the

decline

i n the t o t a l income to the aged i n the 1961-65 p e r i o d can be e x p l a i n e d
by the d e c l i n e i n the percentage of f a m i l i e s w i t h an aged head.
Secondary importance may be attached to a s l i g h t d e c l i n e i n
r e l a t i v e median f a m i l y income of the aged.

The e x p l a n a t i o n of

e x p e r i e n c e o f the aged i n the 1964-68 p e r i o d i s q u i t e
During t h i s p e r i o d ,

the median f a m i l y

p o p u l a t i o n stayed r e l a t i v e l y c o n s t a n t .

the

different.

income of aged i n the
Yet,

income

total

t h e r e was a l a r g e drop

i n the share of t o t a l income r e c e i v e d by the aged.

The e x p l a n a t i o n

of t h i s seeming paradox would appear t o be the d e c l i n e i n the

total

income of the aged going to the upper 5 per c e n t o f the aged and a
s u b s t a n t i a l r i s e i n the share of the aged income going to the
q u i n t i l e of the aged.

(See Table 1 0 . )

lowest

This g r e a t e r e q u a l i t y o f

in-

come among the aged e x p l a i n s why the median income o f a f a m i l y headed
by someone over 65 can g a i n r e l a t i v e to the t o t a l ,

w h i l e a t the same

time the share of aggregate income accruing to the aged could d e c l i n e
faster

than t h e i r share i n the p o p u l a t i o n .
Although hard d a t a on the causes of the g r e a t e r

o f income among the aged are not a v a i l a b l e ,

it

equality

seems s a f e t o

speculate

t h a t the d e c l i n e i n the share of aged income going to the upper end o f




-22-

the range i s probably i n l a r g e p a r t due to the i n c r e a s e i n t r a n s f e r payments
and the d e c l i n e i n the share of p r o p r i e t o r s 1 income, d i v i d e n d s , and r e n t a l i n come.

These sources most c e r t a i n l y make up a r e l a t i v e l y l a r g e share of

the

income of the more a f f l u e n t aged. I n g e n e r a l , we can conclude t h a t the aged
have f a r e d l e s s w e l l i n the 1965-68 p e r i o d than they d i d i n the f i r s t

half

o f the decade.

in

While t h i s experience was p a r a l l e l e d by an i n c r e a s e

the e q u a l i t y of income among the aged, on the whole they appear
have f a l l e n behind income r e c i p i e n t s

i n the economy a t

to

large.

Income E x p e r i e n c e of Farm F a m i l i e s
F i n a l l y , we should analyze r e c e n t changes i n the
income p o s i t i o n of f a m i l i e s w i t h farm r e s i d e n c e .

Table 11 shows the

income t r e n d s of farm f a m i l i e s i n the two p e r i o d s under
( A g a i n we l a c k t a b u l a t i o n s f o r 1 9 6 5 . )
virtual

relative

examination

The 1961-64 p e r i o d saw a

s t a g n a t i o n i n t o t a l farm income, w i t h the nonfarm share of

the p o p u l a t i o n dropping by 1 . 0 percentage p o i n t ,
o f t o t a l income d e c l i n i n g by 0 . 7 percentage p o i n t .

and the farm share
The 1964-68 p e r i o d

brought a marked r e v e r s a l i n the trends observed i n the e a r l i e r
Farm income advanced, although not n e a r l y as r a p i d l y as t o t a l
Yet,
cent.

period.

income.

the share of farm f a m i l i e s i n the t o t a l dropped another 1 . 3 per
T h i s r i s e i n farm income combined w i t h a r a p i d d e c l i n e i n the

share of farm f a m i l i e s i n the 1964-68 p e r i o d p e r m i t t e d the remaining
farmers to make r a p i d r e l a t i v e gains compared to the r e s t o f
population.

Between 1964 and 1968, the r a t i o of median farm income

t o the median income of a l l

f a m i l i e s rose from 0 . 5 4 to 0 . 6 7 ,

h a v i n g d e c l i n e d from 0 . 5 6 i n 1961.



the

after

-23-

The a c c e l e r a t i o n i n the r a t e of d e c l i n e i n the number o f
farm f a m i l i e s i n the second p e r i o d r e i n f o r c e s the e a r l i e r

conclusion

about the i n c r e a s e i n the r a t e of abandonment of farms mentioned
above.

Table 12 presents some e n l i g h t e n i n g d a t a on the

of income among f a m i l i e s r e p o r t i n g farm r e s i d e n c e .

distribution

These d a t a show

a c l e a r and continued t r e n d toward g r e a t e r e q u a l i t y of income among
farm f a m i l i e s .

Combining t h i s i n f o r m a t i o n w i t h the i n c r e a s e i n the

r e l a t i v e median income of farm f a m i l i e s suggests r a t h e r

convincingly

t h a t t h i s e q u a l i t y w i t h i n farm f a m i l i e s and between farm f a m i l i e s and
o t h e r s i s being achieved by an o u t m i g r a t i o n of m a r g i n a l farm f a m i l i e s
w i t h r e l a t i v e l y low incomes.

The g e n e r a l conclusion f o r farm f a m i l i e s

i s t h a t they advanced t h e i r r e l a t i v e income p o s i t i o n ( a l t h o u g h not
t h e i r t o t a l income) because the a c c e l e r a t e d r a t e of
enhanced the p o s i t i o n of the remaining

outmigration

farmers.

Concluding Observations
The mixed income e x p e r i e n c e of d i f f e r e n t groups,

examined

i n some d e t a i l above, p o i n t s up some o f the reasons why many observers
are having a d i f f i c u l t

time r e c o n c i l i n g themselves to the need to

p e r s i s t i n the f i g h t a g a i n s t i n f l a t i o n .

Some groups have b e n e f i t e d

from the h i g h r a t e s of economic growth i n the l a s t few y e a r s .
regions have experienced an a c c e l e r a t i o n i n a c t i v i t y ,

and l a g g i n g

i n d u s t r i e s have enjoyed a s t r o n g demand f o r t h e i r o u t p u t .
been c o n s i d e r a b l e upgrading i n occupations,




Lagging

There has

and m a r g i n a l groups

in

-24-

the labor

f o r c e have found j o b s .

These developments have

many p e o p l e t h a t our m a i n o b j e c t i v e
gains - -

rather

than r i s k

should be to p r e s e r v e

convinced
these

s e e i n g them l e s s e n e d t h r o u g h a m o d e r a t i o n

i n t h e pace o f economic g r o w t h as a p r e c o n d i t i o n f o r b r i n g i n g
t i o n under c o n t r o l .

I personally recognize

t h e a b s o l u t e and

improvements which have o c c u r r e d among some groups o f income
But I must a l s o s t r e s s

inflarelative
recipients.

t h e need t o a v o i d c o n f u s i n g t h e b e n e f i t s

r e a l economic g r o w t h w i t h t h e d i s t o r t i o n s
c o n t i n u i n g aim s h o u l d be t o p r e s e r v e

of

inflation.

of

Our

the former w h i l e c o r r e c t i n g

the

latter.
I

am p e r s o n a l l y d e e p l y t r o u b l e d by t h e r i s i n g

comment u r g i n g the F e d e r a l Government to abandon - curtail

sharply - -

control.

I

observers:

the n a t i o n a l

in t h e i r view,

commitment t o b r i n g i n f l a t i o n

as t o r i s k

serious decline

fiscal
has

i n the r a t e o f economic g r o w t h ;

t h e m o d e r a t i o n i n p r o d u c t i o n may have
a recession.

i n output

under

these

pursued d u r i n g t h e l a s t y e a r and a h a l f

some o f them s a y ,

of

least

t h e combined impact o f r e s t r i c t i v e

b r o u g h t about a marked slowdown

gone so f a r

or a t

can u n d e r s t a n d t h e arguments made by many o f

and m o n e t a r y p o l i c i e s

fact,

tide

Thus,

and a s u b s t a n t i a l

they argue,
rise

already

to prevent

i n unemployment,

should be a prompt and s i z a b l e r e l a x a t i o n o f m o n e t a r y r e s t r a i n t .
t h e most p a r t ,

t h e s e o b s e r v e r s do t a k e n o t e o f t h e f a c t

t h e r e d u c e d pace o f economic e x p a n s i o n ,
made i n dampening t h e r i s e




little

that,

in

a
there
For

despite

o r no headway has been

i n p r i c e s or i n weakening t h e

public's

-25-

expectations of continuing i n f l a t i o n .

T h i s d e l a y e d response

prices

and we a r e c a u t i o n e d

i s t o be e x p e c t e d , we a r e t o l d ,

m a i n t a i n i n g monetary r e s t r a i n t u n t i l
pace o f p r i c e advances has slowed

the e v i d e n c e i s c l e a r

of
against

that

the

appreciably.

W h i l e I o b v i o u s l y cannot speak f o r my c o l l e a g u e s on the
F e d e r a l Reserve Board o r on t h e F e d e r a l Open M a r k e t Committee,

I

can express my own p o s i t i o n :

recent

on the b a s i s o f my assessment of

economic t r e n d s and t h e o u t l o o k d u r i n g t h e months ahead,
still

have to w i n t h e b a t t l e

v i e w o f monetary p o l i c y ,
restricting

against i n f l a t i o n .

the a v a i l a b i l i t y

From t h e p o i n t

of c r e d i t ,

and t h i s

t h i s country - -

that

still

is,

However,

the f u n d a m e n t a l t a s k remains t h e same:
i n our commitment to t h i s g o a l .

in

the basic

t o check the a c c e l e r a t i n g

has n o t been accomplished.

instituted

inflation

Thus,

in

i n my o p i n i o n ,

we ought to r e m a i n

steadfast

T h i s need to p e r s e v e r e i n the use

o f monetary p o l i c y i s made even more p r e s s i n g because o f the
c o n t r i b u t i o n which f i s c a l

of

i n t u r n has helped

f o r which t h e p o l i c y of monetary r e s t r a i n t was

about a y e a r ago - -

t h i n k we

we have made c o n s i d e r a b l e p r o g r e s s

t o moderate the r a t e o f economic e x p a n s i o n .
objective

I

p o l i c y i s making t o t h e o v e r a l l

declining

stabilization

effort.
H a v i n g made c l e a r my own w i l l i n g n e s s
l e t me s t r e s s

that

o f unemployment




I

also r e a l i z e

(which i s

that

currently

to s t i c k w i t h the

some f u r t h e r

rise

i n the

i n t h e n e i g h b o r h o o d o f 4 per

task,
level
cent)

-26-

c a n n o t be a v o i d e d i f we a r e t o r e s t o r e
price

stability.

by-product of
that

it

This

a reasonable degree

i s o b v i o u s l y an u n f o r t u n a t e

the e f f o r t

t o check i n f l a t i o n .

and unwelcomed

Rather

than pretend

can be a v o i d e d , we s h o u l d g e t on w i t h t h e m o d i f i c a t i o n s

public policies

that w i l l

be n e c e s s a r y t o e n s u r e t h a t

restoring price

stability

does n o t f a l l

able

of

to bear

it.

the burden o f

e x c e s s i v e l y on t h o s e

These p o l i c y measures s h o u l d i n c l u d e a

s t r e n g t h e n e d unemployment c o m p e n s a t i o n system and g r e a t l y
t r a i n i n g and r e t r a i n i n g

facilities.

least

substantially
expanded

But we should a l s o r e a l i z e

even t h e s e improved a r r a n g e m e n t s w o u l d n o t c u s h i o n t h e i m p a c t o f
significantly

r e d u c e d r a t e o f economic a c t i v i t y

on young p e o p l e

on some members o f m i n o r i t y groups who have n o t a c q u i r e d t h e
to b e n e f i t s
the l a t t e r

derived

come d i r e c t l y

--

that
a
and

rights

from a l o n g h i s t o r y o f g a i n f u l employment.

g r o u p s , we w i l l

in

s i m p l y have t o f i n d ways o f p r o v i d i n g

For
in-

perhaps even h a v i n g t h e F e d e r a l Government s e r v e as an

employer o f f i r s t i n s t a n c e f o r t h i s r e l a t i v e l y s m a l l p r o p o r t i o n o f t h e l a b o r
force.

This,

t o o , we s h o u l d be p r e p a r e d t o a c c e p t i f

t i o n of c o n t i n u i n g the f i g h t
I n the end,

against

t h e budget costs o f a l l

moves would be f a r

less

o n l y a few weeks.

And t h e b e n e f i t s

of

it

these

is a precondi-

i s won.
defensive

than the cost of continued i n f l a t i o n

human terms c a n n o t be measured.




inflation until

it

accruing to t h i s

country

for
in

Table 1. Composition of Changes i n
Gross N a t i o n a l Product, 1961-1969
( B i l l i o n s of d o l l a r s ; seasonally adjusted annual r a t e s )

GNP
(Current
dollars)

Period

1961-1965
684.9

Year 1965
1965-1968

-

865.7

Year 1968
Third quarter,
to
Third quarter,

Source oi: Change
i n GJNP
Domestic
Net
Demand
Exports

(]ompositic >n of Change i n
GNP (Pei: cent change)
GNP
Real
{ (Current
Output P r i c e s
dollars)

164.8

163.5

1.3

7.1

5.6

52.5

54.1

-1.6

8.3

6.3

1.9

180.8

185.2

-4.4

8.1

4.6

3.3

72.2

74.9

-2.7

9.1

4.9

4.0

66.4

67.3

-0.9

7.6

2.5

5.0

50.3

48.8

1.5

7.6

2.2

5.2

1.5

1968
1969

Fourth q u a r t e r , 1968
to
T h i r d q u a r t e r , 1969




Change i n
GNP
(Current
dollars)

Table

2.

T r e n d s i n t h e Income o f F a m i l i e s and P e r s o n s
i n the United States:
1950 t o 1968
1968

1967

1965

1961

1950

100.0
5.7
12.4
17.7
23.7
40.6

100.0
5.4
12.2
17.5
23.7
41.2

100.0
5.3
12.1
17.7
23.7
41.3

100.0
4.8
11.7
17.4
23.6
42.6

100.0
4.5
12.0
17.4
23.5
42.6

14.0
.343

15.3
.356

15.8
.358

17.1
.376

17.0
.375

100.0
6.0
12.7
17.7
23.4
40.3

100.0
5.8
12.5
17.5
23.5
40.7

100.0
5.6
12.5
17.7
23.4
40.8

100.0
5.2
12.1
17.3
23.2
42.2

100.0
4.8
12.2
17.3
23.1
42.5

14.0
.336

14.9
.347

15.5
.347

17.3
.364

17.6
.372

100.0
4.8
10.5
16.5
24.6
43.6

100.0
4.4
10.4
16.4
24.1
44.7

100.0
4.6
10.7
16.5
24.7
43.5

100.0
4.0
9.7
15.9
24.3
46.0

100.0
3.5
10.2
17.6
25.2
43.5

TOP 5 PER CENT

16.1

17.5

15.5

17.4

16.6

Gini

.390

.402

.388

.414

.402

100.0
3.2
7.8
13.8
24.4
50.8

100.0
3.0
7.5
13.3
24.4
51.8

100.0
2.6
7.6
13.5
25.1
51.2

100.0
2.6
7.0
13.0
24.2
53.3

100.0
2.3
7.0
13.8
26.5
50.4

TOP 5 PER CENT

20.4

22.0

20.2

22.7

19.3

Gini

.477

.501

.488

.507

.483

INCOME RANK
FAMILIES
TOTAL - ALL RACES
PER CENT
LOWEST F I F T H
SECOND F I F T H
MIDDLE F I F T H
FOURTH F I F T H
HIGHEST F I F T H
TOP 5 PER CENT
Gini Coefficients
WHITE
PER CENT
LOWEST F I F T H
SECOND F I F T H
MIDDLE F I F T H
FOURTH F I F T H
HIGHEST F I F T H
TOP 5 PER CENT
Gini Coefficients
NEGRO AND OTHER RACES
PER CENT
LOWEST
SECOND
MIDDLE
FOURTH
HIGHEST

FIFTH
FIFTH
FIFTH
FIFTH
FIFTH

Coefficients

UNRELATED

INDIVIDUALS

PER CENT
LOWEST F I F T H
SECOND F I F T H
MIDDLE F I F T H
FOURTH F I F T H
HIGHEST F I F T H




Coefficients

Table 3,

Changes i n Average Weekly E a r n i n g s ,

1961-1968

Percentage Changes
1961 t o 1965
1965 t o 1968
Average
Average
annual
Total
annual
Total

1961

Levels
1965

1968

$82.60
79.27

$95.06
86.50

$107.73
88.89

15.1
9.1

3.6
2.2

13.3
2.8

4.3
0.9

74.48
71.48

86.30
78.53

95.28
78.61

15.9
9.9

3.8
2.4

10.4
0.1

3.4
0.0

92.34
88.62

107.53
97.84

122.51
101.08

16.5
10.4

3.9
2.5

13.9
3.3

4.4
1.1

82.18
78.87

96.78
88.06

106.75
88.08

17.8
11.7

4.2
2.8

10.3
0.0

3.3
0.0

Private
Gross e a r n i n g s
Current d o l l a r s
Real (1957-59 d o l l a r s )
N e t spendable e a r n i n g s , worker
w i t h 3 dependents
Current d o l l a r s
Real (1957-59 d o l l a r s )

Manufacturing
Gross e a r n i n g s
Current d o l l a r s
Real (1957-59 d o l l a r s )
Net spendable e a r n i n g s , worker
w i t h 3 dependents
Current d o l l a r s
Real (1957-59 d o l l a r s )




Table 4.
D i s t r i b u t i o n of Number of F a m i l i e s ,
by Number of E a r n e r s , 1 9 5 0 - 1 9 6 8

Earners

Percentage D i s t r i b u t i o n
1961 1965
1950
1953
1968

Average Annual P e r c e n t a g e
Rates o f Change i n
F a m i l i e s by Number o f E a r n e r s
1950-53
1953-61
1961-65 1965-68

0

6.4

6.3

7.8

8.4

8.2

0.5

4.3

2.9

0.6

1

54.5

51.7

45.9

43.1

38.2

-0.7

0.0

• .5

-2.5

2

30.4

32.4

35.7

36.2

39.2

3.2

2.7

1.4

4.2

8.7

9.6

10.6

12.2

14.3

4.4

2.7

4.7

7.1

100.0 100.0 100.0 100.0 100.0

1.1

1.5

1.0

1.5

3+
Total

Families




Table 5
Employed Persons 16 Years and Over,
by Broad Occupation Groups, 1961-1968
(Number i n Thousands)

196 1
Number

White Collar Workers

28,884

Blue Collar Workers

196>8

19i65
Percen t Number

Percent

Number

2.5

3.7

36.3

2.6

1.6

9,381

12.4

2.0

1.6

5.7

3,464

4.6

-4.7

-5.1

100.0

75,920

100.0

3.1

2.2

35,551

43.9

31,849

23,683

36.0

26,246

36.9

27,542

Service Workers

8,261

12.6

8,936

12.6

Farm Workers

4,917

7.5

4,057

63,036

100.0

71,088

T o t a l Employed




Percent

Per cent
Ave rage
Annua1. Growth
1961- 19651965
1968

44.8

46.8

Table 6 .

L e v e l and Percentage D i s t r i b u t i o n o f P e r s o n a l Income, By
Major Category of Income R e c i p i e n t s , 1947-1968

1947

1961

1965

1968

191.3
100.0
9.6
90.4

416.8
100.0
4.0
96.0

538.9
100.0
3.6
96.4

685.8
100.0
2.9
n"7
97. 1i

64.3
28.4
22.2
6.2
18.4
8.4
9.1

1.2

66.7
27.1
21.5
5.6
16.6
10.6
12.5
10.1
2.4
3.0

66.6
26.8
21.5
5.3
16.1
10.8
12.9
10.5
2.3
3.5

68.3
26.5
21.1
5.4
16.0
11.7
14.1
11.4
2.6
3.5

P r o p e r t y incomes
R e n t a l income
Personal i n t e r e s t
Dividends

10.9
3.7
3.9
3.3

13.1
3.8
6.0
3.3

14.4
3.5
7.2
3.7

14.1
2.9
7.9
3.3

P r o p r i e t o r s ' income
Business and p r o f e s s i o n a l
Farm

18.6
10.6
7.9

11.6
8.5
3.1

10.6
7.9
2.7

8.9
6.7
2.2

6.1

7.8

7.4

8.7

1.1
5.0

2.3
5.5

2.5
4.9

3.5
5.2

Type of Income
T o t a l P e r s o n a l Income
Amount ( B i l l i o n s of d o l l a r s )
Percentage d i s t r i b u t i o n
A g r i c u l t u r a l income
N o n a g r i c u l t u r a l income
Labor income
Wages and s a l a r i e s
Commodity-producing
Manufacturing
Other i n d u s t r i e s
Distributive industries
Service industries
Government
Civilian
Military
Other l a b o r income

T r a n s f e r payments: T o t a l
Less: P e r s o n a l C o n t r i b u t i o n s
f o r s o c i a l insurance
Net t r a n s f e r payments




-

Table 7
Aggregate Income of F a m i l i e s
by C o l o r , f o r the United States
1961 - 1968

Aggregate
Money Income ( B i l l i o n s )
Year

Total

White

1961

$306.6

$290.4

1962

320.1

1963

Total

White

Nonwhite

$16.2

100.0

94.7

5.3

301.8

18.3

100.0

94.3

5.7

337.2

316.6

20.7

100.0

93.8

6.2

1964

355.8

333.1

22.7

100.0

93.6

6.4

1965

380.1

356.7

23.4

100.0

93.8

6.2

1966

408.8

381.9

26.9

100.0

93.4

6.6

1967

449.5

418.3

31.1

100.0

93.1

6.9

1968

488.4

454.5

33.9

100.0

93.1

6.9




Nonwhite

Per Cent

Table 8
Median Family Income
by Color f o r the U n i t e d States
1961 - 1968

Year

All

Families

White

Nonwhi te

R a t i o of Nonwhite
to White

1961

$6,671

$6,957

$3,709

0.53

1962

6,851

7,170

3,825

0.53

1963

7,101

7,443

3,940

0.53

1964

7,367

7,691

4,303

0.56

1965

7,666

7,995

4,419

0.55

1966

8,040

8,366

4,994

0.60

1967

8,318

8,625

5,352

0.62

1968

8,632

8,936

5,590

0.63




T a b l e 9 . Aggregate Income of F a m i l i e s W i t h
Head 65 & Over, For The U n i t e d S t a t e s
1961 - 1968

Per Cent o f
Aggregate Income
Received by F a m i l i e s
Head 65 & over

R a t i o of
Median Income
65 & Over
f a m i l i e s to
a l l families

Year

Aggregate Money
Income ( B i l l i o n s )
Total
65 & over

1961

$306.6

$33.0

10.8

14.5

0.53

1964

$355.8

$35.4

9.9

14.1

0.51

1968

$488.4

$43.9

9.0

14.0

0.53

Note:

Per Cent o f a l l
Families with
Head 65 & Over

T a b u l a t i o n s f o r 1965 were not a v a i l a b l e from t h e Bureau of t h e Census.




T a b l e 10.
Income D i s t r i b u t i o n Among F a m i l i e s
With Head 65 & Over, 1961-1968

1968

1964

1961

100.0

100.0

100.0

LOWEST FIFTH

5.5

4.6

4.1

SECOND FIFTH

9.3

8.7

8.0

MIDDLE FIFTH

14.8

13.0

12.4

FOURTH FIFTH

22.2

21.3

19.9

HIGHEST FIFTH

48.2

52.4

55.6

TOP 5 PER CENT

21.8*

24.5

29.5

TOTAL
PER CENT

*




I t was i m p o s s i b l e to compute the share of t o t a l income to
the top 5 per cent i n 1968 so t h i s f i g u r e r e f e r s to 1966.

T a b l e 11.

Money Income of F a m i l i e s w i t h Farm Residence,
1961-1968

Farm
income

Per cent of
total
income

Per c e n t
of a l l
families

Ratio of
median income
to a l l f a m i l i e s

T o t a l - A l l Families
(billions)
1961

$306.6

$14.6

4.8

7.5

0.56

1964

355.8

14.5

4.1

6.5

0.54

1968

488.4

17.8

3.6

5.2

0.67




Table 12. Income D i s t r i b u t i o n Among
Farm F a m i l i e s , 1961-1968

1968

1964

1961

100.0

100.0

100.0

Families
Total
Per

cent

Lowest

fifth

4.2

3.8

3.3

Second

fifth

10.7

9.4

9.2

Middle

fifth

17.4

15.5

15.3

Fourth

fifth

23.8

24.7

24.1

43.9

46.6

48.2

Highest




fifth