STUMP » Articles » The Horrors of Income Inequality: Numbers Check » 19 July 2016, 09:39

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The Horrors of Income Inequality: Numbers Check  

by

19 July 2016, 09:39

Or, rather, earnings inequality.

The following piece caught my eye, for a couple reasons. You can check out my livejournal post where I address the ‘opportunity hoarding’ issue.

But the first thing that caught my attention was this graph:

Here is the text surrounding that graph:

There is a significant earnings gap between those at the top and those in the middle. But this gap is much bigger in the U.S. than in other nations, and is getting bigger over time:

The cost of falling reflects the particular way in which income inequality has risen in recent years: namely, at the top of the distribution. The relationship between income inequality and intergenerational mobility is a much-disputed one, as regular readers of this blog know well. Overall, the evidence for a “Great Gatsby Curve” is quite weak.

But at the top of the distribution, there could be some incentive effects linking inequality and immobility. As the income gap has widened at the top, the consequences of falling out of the upper middle class have worsened. So the incentives of the upper middle class to keep themselves, and their children, up at the top have strengthened. It looks like a long drop, because it is.

I had a couple immediate thoughts from that graph:

  • How likely is it that someone earning at 90th percentile falls to the 50th percentile barring a sudden disability (say, stroke) or retirement? Or a deliberate choice?
  • Oooh, am I at 90th percentile? [short answer: no, with a but. long answer: I’m at the 99th percentile for female personal income, and at about 90th percentile for family income]
  • Why are they showing percentage differences?

I mean, after all, things such as income are often translated between different currencies. There’s no reason to just show percentage change… they could show that someone in America falls to much lower income levels, as opposed to the relative change.

I had an inkling why: Americans in general have higher income than all those other countries they like to compare us against, whether compared pre-tax or post-tax. To get to countries with higher income levels, you generally have to compare us against teensy countries, like Lichtenstein. That’s true when you look at labor force participation rates as well.

I assume all the numbers we see are pre-tax, and will ignore tax policy issues right now.

OUR RICH PEOPLE ARE RICHER, AND OUR MIDDLE CLASS PEOPLE ARE RICHER

So I went to their original data set, and noticed they don’t make it easy for you to get at the actual numbers. HMMM.

But they do give enough info to back into the amounts.

So here they are, using the same countries, and in addition to 50th and 90th percentiles, I put in the minimum wage annual income, 10th percentile income, and average income.

You can check out my spreadsheet here, where I calculate these amounts. These are all in U.S. dollars for comparability.

When we’re talking about actual buying power, then the U.S. 50th percentile gets a lot farther than those other countries.

To be sure, our 10th percentile wage is 15% lower than Japan’s, though our minimum wages are higher. But our average and our median wages are higher. The next closest to us there is Canada, and our median is 11% higher than Canada’s and our 90th percentile is 40% higher than Canada’s. Ha!

The real income inequality is the U.S. vs. all those other countries: our rich are richer and our average folks are richer, too. I checked other countries from that OECD data, and the closest country is Australia. Our 90th percentile is 20% higher than theirs. It looks like the Netherlands would likely surpass us (their median is about 10% higher than ours), but the data are missing.

But let me try to take income inequality seriously at the upper end. There are issues about nonlinearity in things you can buy — for all my high income, certain things are out of my reach, because I don’t have connections. But that’s about stuff money won’t buy. Marking down incomes is not going to be able to mark out that I’m not related to a Clinton, say.

Well, that my income is so low might, but you get my point.


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