Tuesday, January 24, 2012

US Inequality Proponents Misleadingly Use Percentile Group Changes Instead Of Tracking Same Families Over Time

My comment posted on Rortybomb, "Changes in the Wealth and Income of Those at the Bottom Over the Past 30 Years" by Mike Konczal:
"whatever is going on for the average American, there are a huge group of Americans worse off, in absolute and relative terms, in the wages they get in the current market economy and with the wealth they’ve tried to build."

Your conclusion is unsupported by the charts.

The charts shows differences in amounts held or earned by percentile groups, but it is not measuring the difference in wealth or income among the same families. The Census definition of family is related individuals living together.

Having more young people move out of their parent's homes, more divorces, more cohabitation for which a family measurement does not combine the partners income or wealth, more dual earning husbands and wives, and more retirees and especially more older retirees would produce much of your results. Immigration differences will also affect the inequality measurements.

Many studies show that the top earners and wealth holders are not static over a decade or longer. There is considerable churning at the top, middle and the bottom with many moving out of their initial percentile ranking by several deciles. Longitude studies that track families, households or individuals over time show income and wealth gains as one moves from new entrant into the workforce to experienced worker to dual worker household to retiree. They also show a decline in family income as one enters retirement or divorces and a wealth loss in retirement and after divorce.

Over long time periods, 30 years, of measured inequality and wealth changes, we have a changing amounts, and changing relative weights, of new entrants, established workers, married, divorced and retired.

Unless one controls for normal life events, and establishes equal weight at the beginning and end of the period, then the different amounts of normal life events in the beginning and ending time periods will cause much of all the supposed inequality measurements.

If opportunities for wealth and income gains did not exist for new workforce entrants in the US, I would expect an increase in emigration and a decrease in immigration as one sees in other countries without economic opportunities. Yet, the US has a low emigration rate and a high immigration rate.

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