Thursday, October 6, 2011

EconTalk Podcast on Income Inequality

From the October 3rd EconTalk podcast, Bruce Meyer discusses income inequality since the 1960's (note there is also a brief interesting discussion with measurement problems related to the CPI at the beginning of the podcast):

"Bruce Meyer of the University of Chicago talks with EconTalk host Russ Roberts about the middle class, poverty, and inequality. Many economists and pundits argue that the middle class has made little or no economic progress over the last 30 years, that poverty rates are stagnant or rising, and that inequality has increased dramatically. Meyer, drawing on his research over the last ten years, argues that these conclusions are either false or misleading. He argues that standard measures of economic progress and inequality are based on faulty inflation data or a misplaced focus on pre-tax income instead of post-tax income or consumption. " 
Some excerpts from Meyer's paper:
Consumption and Income Inequality in the U.S. Since the 1960s*
October 18, 2010
Bruce D. Meyer
University of Chicago and NBER
and James X. Sullivan
University of Notre Dame

"Income data primarily come from the ASEC/ADF Supplement to the Current Population Survey (CPS), which is the source for official measures of poverty and inequality in the U.S. We use data from the 1964-2006 surveys which provide data on income for the previous
calendar year."
What we see is that compare the top 10% (90th percentile)to the bottom 10% the ratio o inequality (income for the top 10% / income for the bottom 10%) has increased very little. Adjusting for taxes, the ratio has went from about 5.5 to about 6.25, while adjusting for taxes and transfers, it has increased from about 4.10 to about 5.75. We don't see drastic changes such as a 10 fold change or even a doubling of the gap as the media might impress. Looking at just the last 10-15 years, the change is even smaller. 
If we look at the top 10% of earners vs. the median earners, (often the most popular claims in the is  that the gap between median income earners and the top earners has gotten larger as median income has stagnated over the last 30 years) we see that the ratio has remained changed very little since 1961, going from around 2.0 to about 2.25 adjusting for taxes and transfers, and has been even flatter since the 90's.
 Finally, when compare the median income earners to the bottom 10%, again we find little change in income differences since 1961. There was a growing gap for a period during the 1980's, but those slight increases diminished in the 90's and we finished out 2007 at a ratio right about 2.5 where we started in 1961. 

For additional data related to income inequality, please see my link under TOPICS FOR DISCUSSION are the rich getting richer while the poor get poorer?