Thursday, June 27, 2013

Reducing Inequality

Almost everyone who's paid attention to the issue believes that inequality has been increasing in the last few decades:  specifically, a small minority at the top has been pulling ahead of everyone else.  In the New York Times today, Thomas Edsall wrote about a new study that says almost everyone is wrong:  between 1989 and 2007, household income grew by about 13% for the bottom quintile, about 6% for the middle quintile, and declined for the top 5%.  That is, the poor are getting richer and the rich are getting poorer.  Edsall gave a quotation from the authors of the study (Richard Burkhauser, Jeff Larrimore, and Philip Armour) giving a few examples to illustrate their calculations:

Consider a couple with one child making \$50,500 (2013 dollars) in 1989 before considering capital gains (this is roughly the mean income of the middle quintile). . .  In 2007, the couple at the same point in the distribution would make \$61,000 before capital gains. This is a 20% increase. ...
Now consider a high-income couple with one child making \$200,000 (in 2013) dollars in 1989 (this is roughly the mean income of the top 5%) excluding capital gains  . . .  In 2007 a couple at the same point in the distribution would make \$230,000 ....
Something seems odd here:  the earnings of their middle couple grew by 20% (\$50,500 to \$61,000), while the earnings of the top 5% couple grew by 15% (200,000 to 230,000).  So even before all of the adjustments including in-kind income, accrued capital gains, etc., the middle was gaining on the top.

The original source of their data was the Current Population Survey.  I went to the CPS website and found a table called "Mean Household Income Received by Each Fifth and Top Five Percent, 1967-2011."  According to that table, the mean income of households in the third fifth was \$50,657 in 1989 and \$54,202 in 2007 (both in 2011 dollars), an increase of 7%.  The mean income of households in the top 5% was \$242,007 in 1989 and \$311,524 in 2007, for an increase of 29%.