Income inequality
2008-01-26 · Original WordPress address
Politicians screaming about inequality often provoke analysis like this. The point being the rich have gotten much richer in the last couple of decades but the poor have had to scrape by with on a few points of real income growth. I have a couple complaints about this sort of analysis.
First, which theory of justice requires there to be equal sharing of economic growth. I get strict egalitarians want to equalize incomes, but this doesn't require them to go as far as lamenting about variances in growth rates. All they should have to do to get their point across is to take a look at the non-zero gini coefficient and be done with it. Why bother looking at differences in growth rates?
Second, once you accept some level of income inequality is inevitable, tracking income changes by income percentiles makes no sense. People aren't stuck in income ranks. Lots of people start their careers in a lower income percentile and then move their way up through their careers. So really what one is doing when they track changes in percentiles is tracking a particular demographic. If that's what you're really doing, then why not do it explicitly?
This first diagram shows median income by age group since 1967 ((Source.)). Clearly, income growth has been much less dramatic in the youngest and oldest age groups. It seems easy to come up with perfectly legitimate reasons why this would be so. To me, this diagram doesn't scream for the need for redistribution, but maybe you see differently.
BTW, you can track my dad in this diagram. He starts out in 1967 on the 15-24 line, then he jumps up to the 25-35 line in 1978, etc. Following my dad's trajectory might be easier with this second diagram.
Its easy to see from this diagram that most of the income growth has happened in the middle ages. The inverted U-shaped pattern of lifetime income has become more dramatic in recent decades. Again, I don't see a problem here.
UPDATED: fixed some typos.