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Holiday Haul Goes to High-End Retailers

By Nell Henderson
Washington Post Staff Writer
Wednesday, December 22, 2004; Page E01

Preparing to test-drive a silver Mercedes-Benz sport-utility vehicle one recent afternoon, Bobby Meehling chuckled sheepishly as he described himself as a "consummate consumer" who's had a pretty good year.

A vice president with a commercial real estate firm, the Dupont Circle resident said he has enjoyed "consistent growth" in sales and income this year, and in turn is spending more money on his family and "a little more on my luxuries." That would include the slightly used two-door, convertible, black opal Mercedes-Benz he bought earlier this year, he said, "because I really loved the color."

Jack Yeaton of New York shows some of the gifts he has purchased for the holidays. This season, the divide between rich and poor has widened. (Richard Drew -- AP)

Consumers like Meehling help explain why upscale retailers such as Neiman Marcus and Saks Fifth Avenue have seen their sales soar this holiday season while discounters like Wal-Mart and many mid-price department store chains have struggled. They also help explain how the economy could grow at a healthy 4 percent this year even as it seemed stagnant to so many who had trouble finding a job or whose income did not keep up with higher costs for food, energy, health insurance, tuition and other items.

Pay is rising more than twice as fast for the top fifth of wage earners as it is for all others, and the pace of gains at the high end is quickening, according to economists' analyses of government income data through September.

Meanwhile, the top 20 percent of households, ranked by income from all sources and earning $127,000 or more as of 2003, accounts for more than 40 percent of all consumer spending, according to Labor Department figures.

If the highest-paid workers continue to score ever-bigger salaries, bonuses and commissions, in other words, the economy should grow solidly even if the job market for other employees improves only very slowly for a while, according to economists who have studied the data, including some at the Federal Reserve. Fast wage growth at the top, the data indicate, has more than offset weaker gains at the bottom, so that total U.S. consumer purchasing power has risen strongly.

While this may be good news for Neiman Marcus and for overall economic growth, it raises other concerns about the social costs of growing income inequality, according to economists as far apart politically as Republican Fed Chairman Alan Greenspan and Jared Bernstein, senior economist at the Economic Policy Institute, a liberal think tank.

"From the perspective of equity, this is no way to run an expansion," Bernstein said. "We ought to be able to have both growth and equity."

Greenspan has implied as much, though in more complicated language. In frequent public remarks on the subject, he has attributed the growing pay gap to the fact that highly educated and skilled workers are in growing demand in an increasingly information-based economy, while less-educated, lower-skilled workers find plenty of competition for lower-paying work.

He has urged policymakers to improve public education to provide better opportunities to all workers. In a speech earlier this year, Greenspan said, "We need to pursue equality of opportunity to ensure that our economic system . . . is perceived as just in its distribution of rewards."

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