Monday, March 14, 2016

It was a very bad year?

A fact that will probably be mentioned a lot before November, especially if Hillary Clinton gets the Democratic nomination, is that inequality rose more during Bill Clinton's presidency than in did under George W. Bush, George H. W. Bush, Ronald Reagan, or Barack Obama, according to a standard measure (the Gini coefficient) calculated by the Census Bureau.   Here's one example, which gives a link to the original numbers.

In s figure showing the Gini coefficient over the last 50 years, it's clear there was a change in the 1990s--more specifically, between 1992 and 1993, when it jumped from .433 to .454.  The increase of .021 in that year was as big as the increase in the previous ten years and bigger than the increase in the next fifteen years.
What went wrong in 1993?  The Excel table which you can find by following the link above has a number (23) by the year 1993.  It doesn't give any indication of what that means, but an old Census report (P60-203) does:
"Data collection method changed from paper and pencil to computer-assisted interviewing. In addition, the Census Bureau revised the March 1994 income supplement to allow for the coding of different income amounts on selected questionnaire items. Limits either increased or decreased
in the following categories: earnings increased to $999,999, social security increased to $49,999, supplemental security income and public assistance increased to $24,999, veterans’ benefits increased to $99,999, child support and alimony decreased to $49,999."

The Census also reported average earnings for the five income quintiles and the top 5%.  The biggest change in 1993 was the increased limit for top earnings, which had been $299,999 until then.  Incomes in that range would be in the top 5%, so I estimated the Gini coefficient in 1967-92 by regressing it on the shares of the bottom four quintiles and the 80%-95% group (R-square=.97).  The predicted and reported values from 1991-5 are:

                  Pred    Reported            residual
1991          .428       .428                    .000
1992          .431       .433                    .002
1993          .439       .454                    .015
1994          .442       .456                    .014
1995          .437       .450                    .013

The comparison suggests that about two-thirds (.014/.021) of the reported increase in the Gini coefficient between 1992 and 1993 was a result of the increase in the limits to reported income.  If the Gini coefficient is adjusted by subtracting .014 from all years starting in 1993, the figure is:

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