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Lecture 2: Inequality

Lecture 2: Inequality. Today’s Readings. Schiller, Ch. 2: Inequality “Income, Poverty, and Health Insurance Coverage in the United States,” Current Population Reports, P60-235 or most recent report, pp. 1-11, 29-30; and 31-40 available at http://www.census.gov/hhes/www/income/income07.html

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Lecture 2: Inequality

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  1. Lecture 2: Inequality

  2. Today’s Readings • Schiller, Ch. 2: Inequality • “Income, Poverty, and Health Insurance Coverage in the United States,” Current Population Reports, P60-235 or most recent report, pp. 1-11, 29-30; and 31-40 available at http://www.census.gov/hhes/www/income/income07.html • U.S. Census Bureau, Historical income tables—Income Inequality http://www.census.gov/hhes/www/income/histinc/ineqtoc.html (See especially table IE-1) • U.S. Department of Labor, Bureau of Labor Statistics, Consumer Price Indexes at http://www.bls.gov/cpi/home.htm

  3. Today’s Topic’s • Schiller’s major points • Introduction to Census data

  4. Schiller’s Major Points • Questions raised: • Why does economic inequality matter? • What problems do we encounter if we measure economic inequality with gross income? • How do we summarize income to reflect inequality? • How much inequality is there in the U.S.? • How much inequality is there across nations? • What is income mobility and why is it important? • How much income mobility is there in the U.S.? • How does income mobility in the U.S. compare to other developed nations?

  5. Why does economic inequality matter? • Costs of inequality • Benefits of inequality • Equity versus efficiency

  6. What problems do we encounter if we measure economic inequality with gross income? • Ignores fringe benefits • Includes realized capital gains but ignores unrealized capital gains • Consumption is often greater than income, particularly for persons receiving non-cash transfers such as poor families and professionals who barter services • Gross income exceed the amount of disposable income (taxes cannot be consumed)

  7. Is there a better measure than income? • Other possible candidates: • Wealth? • Consumption?

  8. Is there a better measure than income? • Other possible candidates: • Wealth: reflects economic power • Consumption: reflects current living standards What does income reflect?

  9. Is there a better measure than income? • Other possible candidates: • Wealth: reflects economic power • Consumption: reflects current living standards • Income: reflects market participation • Which concept is superior when measuring inequality conceptually? Practically?

  10. How do we summarize income to reflect inequality? • Between group averages • Income shares • Lorenz curves and Gini coefficients • http://en.wikipedia.org/wiki/Gini_coefficient

  11. How much inequality is there in the U.S.? Between group averages • See pages 5-11 in Income, Poverty, and Health Insurance Coverage in the United States: 2007http://www.census.gov/prod/2008pubs/p60-235.pdf • Black household median income ($33,916) was only 62 percent of the median for non-Hispanic White households ($54,920).

  12. How much inequality is there in the U.S.?Income Shares http://www.census.gov/hhes/www/income/histinc/ineqtoc.html

  13. Sources: 1947-79: Analysis of U.S. Census Bureau data in Economic Policy Institute, The State of Working America 1994-95, p. 37. 1979-2001: U.S. Census Bureau, Historical Income Tables, Table F-3: http://www.census.gov/hhes/income/histinc/f03.html Thresholds: U.S. Census Bureau, Historical Income Tables, Table F-1: http://www.census.gov/hhes/income/histinc/f01.html Sources: U.S. Census Bureau, Historical Income Tables, Table F-3: http://www.census.gov/hhes/income/histinc/f03.html Thresholds: U.S. Census Bureau, Historical Income Tables, Table F-1: http://www.census.gov/hhes/income/histinc/f01.html

  14. New evidence on increasing inequality Source: Emmanuel Saez, Striking it Richer: The Evolution of Top Incomes in the United States, (Update with 2007 estimates), August 5, 2009, http://elsa.berkeley.edu/~saez/saez-UStopincomes-2007.pdf

  15. How much inequality is there in the U.S.?Gini Coefficient Trends • Gini coefficient increased every year between 1967and 2001 • Gini coefficient increased by 17 percent between 1967 (0.397) and 2001 (0.466) • Gini coefficient fell to 0.462 in 2002 but rose to 0.470 again in 2006, then declined to 0.463 in 2007. • Source: P60-229, pp. 40-41, http://www.census.gov/hhes/www/income/histinc/ineqtoc.html

  16. How much inequality is there across nations? • Income inequality is greater in the U.S. than in other industrialized nation. • Inequality is generally more severe in developing nations. • In 1992, the richest top 10 percent of the world’s population received 53 percent of the total world income. • World inequality increased substantially between 1920 and 1950. No significant change since 1950.

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