3.01 Flipping Out over Social Class: Income

 Today we are gambling in class!  

We are playing a coin flipping game from the ASA's Teaching Sociology that is a metaphor for social class in the United States.  

As students enter, please get 3 pennies and wager with each other.

Rules:

• You must find someone to wager against and continue wagering with that person.
• Take turns flipping and wagering (one person picks the wager (how many coins) and one calls heads/tails).
• When I pause the action, be sure to count your coins and be counted!

    Charting the distribution of coins

 

 round        1        2        3        4        5

#coins

    0

    1-3

    4-6

    7-9

    10-12

    13+

BEGIN WAGERING!

Today's lesson:

• How does the simulation resemble social class in the US?
• What is the median income in the US?
• How does your family's income or the average person in your hometown compare?
• What does the median/typical American look like in terms of wealth, education, location, power and prestige? 
• How does your family or the typical family from your hometown compare to the typical US household?
• How do all of these components affect each other?

Google Form

Debriefing


A Metaphor for Our System

The exercise was a metaphor for social class, also called Socioeconomic Status or SES. It reflects reality in the USA in a number of ways:


Americans Believe that the Economic System is Fair and Equal

What are the chances of winning a coin flip?

If everyone starts with three coins, what do you think will happen as the contest goes on?

Like life in the U.S., the  exercise had the appearance of being fair and equal - everyone had a 50% chance of winning.  The U.S. is an open system - not a caste system or closed system like a monarchy or apartheid.  Because the American system technically allows anyone to move up, it gives the impression that everyone has an equal chance and that the system is fair.  The coin flip metaphor seems like everyone has a 50-50 chance to succeed.  This is true for U.S. society too.  From Jen Hochschild's book, Facing Up to the American Dream,  Americans believe in the "American dream;" success is attainable for anyone.  However, just like real life, the coin game takes a little luck.  If you are lucky enough to be born into wealth, it is an advantage just like being lucky to win early in the game.

The Difficulty of Defining Middle Class

At the end of the simulation, how would you define middle class?

Most Americans claim to be in the middle class.  People making $30K per year to people making $200K per year claim to be in the middle class.  Because Americans hate the idea of a class system, most Americans prefer to think of themselves as middle class.  This 2015 article from Smithsonian Magazine details a number of sources that show Americans like to believe that they are middle class.  However, rather than being a society of equality or a society of people in the middle, America has the highest rate of poverty among the 17 leading industrial nations.  Most wealth is at the top in the hands of very few people and most people are at the bottom with very littleHowever, defining the middle is difficult because there is so much money skewed to the top and there are so many people at the bottom.  Even though the game has the appearance of being an equal 50-50 chance, the rules favor a channeling of wealth to the top.  Every time we play this, the outcome is similar: most money at the top and most people at the bottom with very little money.  This is true in real life as well as the metaphor.  The wealth distribution in the U.S. resembles a Lorenze curve (here):

Compare this graph to a graph of the coin distribution at the end of the game.

Some of the specific similarities include:

• How difficult it is to define the middle class.
• The huge disparity between those at the top and those at the bottom.
• The large number of Americans who have no wealth/no coins.

 

Rather than being a society of equality or a society of people in the middle, the US has one of the highest rates of poverty and inequality out of the most developed countries in the world. 

The longer we play the game, the more skewed the outcome becomes

From the Economic Policy Institute,

Most Americans believe that a rising tide should lift all boats—that as the economy expands, everybody should reap the rewards. And for two-and-a-half decades beginning in the late 1940s, this was how our economy worked. Over this period, the pay (wages and benefits) of typical workers rose in tandem with productivity (how much workers produce per hour). In other words, as the economy became more efficient and expanded, everyday Americans benefited correspondingly through better pay. But in the 1970s, this started to change...Income trends have varied from state to state, and within states. But a pattern is apparent: the growth of top 1% incomes. 

Social class inequality in the U.S. is growing and has been for decades.  This growth is profoundly shaping the United States even though few seem to recognize it.  Economic inequality is influenced by many factors, including the economy, public policy and social changes.  The last several decades, income inequality has been growing.  The highest earning Americans have continued to earn more and more over the last 50 years, while the lower earners have earned closer to about the same.

Social Class Components (aka "Rules") Create a Similar Skew of Social Class

The "rules" of our society help to create that dynamic. By "rules" I mean the opportunities and obstacles that are embedded into our system, especially wealth, income, education, location.  All of these components both exemplify social class inequality and they exacerbate it.  Please read about each element below.  Remember to think about what an average American looks like and how your family compares.  I want you to have a better understanding of where your family fits compared to the average American when the lesson is finished.

Income and Social Class:  

What is income and what are some different types of income?

The first component of social class that we will examine is income.  Income is usually what Americans think of first when they think of social class.  Income is how much money a person or household takes in each year.  Income can come from different sources:

• Hourly Wages - It can be hourly wages such as a secretary or construction worker that makes $25 per hour and they only get paid for the hours they work.  
• Salary - a set amount regardless of how much one works like a teacher or a manager who makes a salary of $75,000 per year, regardless of the number of hours they work.  
• Capital gains - profits made off of investments.  An example of capital gains might be a stock trader who buys Apple stock at $100 per share and then sells it 2 years later for $200 per share.

1.  What do you think the median household income in the United States is? 

(please guess if you are not sure.) Note - Median is the middle, whereas mean is the average.

The “typical” (median) American family income

2.  What is the typical American family income?  

You can find the median income for the US as a whole and the zip code where you are from specifically by using the Census Data finder here.

Here is 2021 Data from the US Census Bureau:

The median income for households in the US was $74,755 in 2023. 

 

3.  How does this compare to either your own household income, or the zip code you are from?

Income by percentile

Another way to examine income is through percentile.  This is best visualized through the data analysis from the website Don’t Quit Your Day Job.  Here is how Rogers Park falls on the data:

For more on income by percentile, Four Pillar Freedom gives an overview (2019). 

Less Money More Work 

Income inequality has been growing since 1980

Here is Income Inequality from inequality.org. One graph shows that income inequality has grown to levels of the gilded age:

The Center on Budget and Policy Priorities published this report with this graph detailing the rising inequality.

This 2017 NY Times editorial explains the rising inequality in one chart, from David Leonhardt (shown below).

The grey line is how much that percentile group's income grew from 1945-1980.

The red line is how much that percentile group's income grew from 1979 - 2014.

Note that more recently, the highest income earners experienced the greatest gains in income.  But it used to be the opposite - the lowest earners were making the highest gains.

This post from Slate details how there was much income inequality during the beginning of the 20th century, then the inequality lessened known as the great compression (1940-1980) followed by a growth in income inequality known as the great divergence (1980 - present).

Another resource for income is from the Federal Reserve Economic Data (FRED)  You can search for real income (adjusted for inflation) in multiple years for comparison.  Here is a graph showing the real income from 1984 to the most recent data.

The Rise of Dual Income Households

Despite the growing inequality in income, Americans are working more than ever.  The graph below from PEW shows the share of households who have two income earners from 1960 to 2012.   Families are busier and working more, but earning less and less of a share of the income in the U.S.

Lower Incomes Pay Higher Taxes

Another contributor to income inequality is government policy. Income has been becoming more unequal, but government policies can affect this inequality.  For example, some of the highest income earners actually pay a lower percentage in taxes than middle income earners!  From the Tax Policy Center, this chart (below) shows that higher income earners pay more of their taxes as capital gains taxes which are taxed at a lower rate than the majority of Americans who pay income taxes at a higher rate.

This chart (below) from the nonpartisan Concord Coalition  shows the rate that capital gains have been taxed compared to other taxes:

Note capital gains have always  been taxed at less than income tax.  And what this chart does not show is that if you can earn all of your money by capital gains and declare no income, then you can reduce your capital gains tax to zero! If you find the chart or all of the tax talk confusing, simply know this: Some of the highest income earners in the U.S. can pay the less income tax than the average American.  And, as tax rates have fallen since the 1950s, inequality has gone up.  The higher tax rates allowed the government to provide loans for college, small businesses and buying homes, and the taxes fueled projects that created jobs like building infrastructure such as highways, airports and the power grid, and even Red Rocks Amphitheater.

And this 2023 NPR story explains that many millionaires realize that the tax system is not fair and they would like to see that change.

Visualizing Economics also explains the changing tax rates.