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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