There is no increase in inequality among 99 percent of the population

So much for concerns about the poor getting poorer than everyone else.

In a recent paper weaving together several strands of new research, Mr Gordon reports that improved use of income datasets "shows that there was no increase of inequality after 1993 in the bottom 99 percent of the population, and can be entirely explained by the behavior of income in the top 1 percent." So we are left needing an explanation for the rise of "the stinking rich", as Mr Noah calls them. But when it comes to rising inequality, that's all there is to explain. Maybe the subject doesn't merit a ten-part series after all.

Mr Gordon's surprising conclusion is based upon recent studies showing that measured income inequality has been overstated due to inadequacies in traditional methods for constructing price indices and estimating real income. In the latest version of a much-discussed paper Christian Broda and John Romalis find that

the relative prices of low-quality products that are consumed disproportionately by low-income consumers have been falling over this period. This fact implies that measured against the prices of products that poorer consumers actually buy, their “real” incomes have been rising steadily. As a consequence, we find that around half of the increase in conventional inequality measures during 1994–2005 is the result of using the same price index for non-durable goods across different income groups.

. . .

Using an updated price index, Christian Broda, Ephraim Leibtag, and David Weinstein find that

the real wages at the 10th percentile increased by 30 percent from 1979 to 2005. In other words, the real wages of low earners have not remained stagnant, as suggested by conventional measures, but actually have been rising on average by around 1 percent per year.

From the Broda et al. article:

Past research suffered from the problem of being unable to match data on prices paid with the households that actually make the purchases. As a result, prior work focused on inferring the linkages between prices paid and household characteristics—for example, by using approaches based on neighborhood effects and unit costs. Here, we first describe household-level data that allows us to look at the linkages between prices paid and household characteristic. We then use that data to reconsider the commonly held notion that the poor pay higher prices than those with high incomes and that this behavior is driven by the larger share in expenditure of the poor in high-priced convenience stores.

Labels: ,


Post a Comment

<< Home