Thursday, October 01, 2009

Has income inequality been a lot less unequal than we've been led to believe? 

Robert Gordon, of the National Bureau of Economic Research business cycle dating committee (among many other meaningful credentials), says so in a new paper...
Misperceptions About the Magnitude and Timing of Changes in American Income Inequality

NBER Working Paper No. 15351.
Issued September 2009

The rise in American inequality has been exaggerated both in magnitude and timing ... This paper shows that a conceptually consistent measure of this growth gap over 1979 to 2007 is only one-tenth of the conventional measure.

Further, the timing of the rise of inequality is often misunderstood. By some measures inequality stopped growing after 2000 and by others inequality has not grown since 1993. This cessation of inequality’s secular rise in 2000 is evident from the growth of Census mean vs. median income, and in the income share of the top one percent of the income distribution. The income share of the 91st to 95th percentile has not increased since 1983, and the income ratio of the 90th to 10th percentile has barely increased since 1986...

Directly supporting our theme of prior exaggeration of the rise of inequality is new research showing that 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.

Further, as much as two-thirds of the post-1980 increase in the college wage premium disappears when allowance is made for the faster rise in the cost of living in cities where the college educated congregate and for the lower quality of housing in those cities...
(Who is this guy? Why does the NBER let him decide when recessions start and end? And what's he about to do with his hands around the neck of that puppy?)