Tuesday, November 1, 2011

Should be be worried about reports of rising income inequality?
2. The CBO fails to factor in that American households in the top income quintile have, on average, almost five times more family members working than the lowest quintile. (Analysis by AEI blogger Mark Perry.) Those folks are also far more likely, as Perry notes, than lower-income households to be well-educated, married, and working full-time in their prime earning years. Perry also notes that “individuals are not stuck forever in a single income quintile but instead move up and down the income quintiles over their lifetimes.” (Indeed, a Treasury study on income mobility found that starting in 1996, half of taxpayers who started in the bottom 20 percent had moved to a higher income group by 2005.)

3. Price indexes for the poor rise more slowly than for the rich, causing most empirical measures of inequality to overstate the growth of real income of the rich vs. the poor.

4. Apples-and-oranges kinds of issues—such a differences in household size and inflation indexes—has led highly respected Northwestern University professor Robert Gordon to conclude that the “rise in American inequality has been exaggerated both in magnitude and timing.”

5. The Minneapolis Federal Reserve concluded—after taking into account household size and differing price indexes—median household income for most household types increased by 44 percent to 62 percent from 1976 to 2006. In addition, its research shows that median hourly wages (including fringe benefits) rose by 28 percent from 1975 to 2005.

Ultimately, I don't care how fast the income of the wealthy is rising, as long as the incomes of the middle class and the poor are rising too. And the data says they are.
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