Inequality V

by Russ Roberts on May 23, 2005

in Inequality

I want to close out this series on inequality by looking at one of the questions we started with—the question of opportunity in America.

In the first post, I pointed out that there are many different ways to think of opportunity.  One way is to look at whether people are getting ahead.  A second is to look at whether everyone has the same chance of getting ahead.  A third is whether than second measure is changing or constant over time—is it getting easier or harder to get ahead.

In the previous posts I wrote about how hard it is to measure these things—various demographic changes distort the measurement, particularly changes in family structure and immigration.  I want to try to tie up some loose ends in this post and give you some idea of why I’m more optimistic about the state of mobility and opportunity than the standard things you read or hear.

First question-is the average American doing better or doing worse?  A surprising number of people argue that the average person is actually falling behind in absolute terms and not just relative terms.  In this view, the rich get richer and the poor get poorer.  In this view, while the average goes up over time, that’s because the rich are getting all of the gains.  The average person is not gaining.  Most of the people who say this are talking about either household data that is confounded by the demographic issues I mentioned or they’re looking at hourly wages for a subset of the population.

On the household issue, here’s some cheerier data from the Census Bureau.  This is median annual family income (for some reason, the Census Bureau doesn’t have historical household data up on the web that is easily viewed, but the family data should be good enough for this purpose).  Using median income purges the data of the possibility that the rich are getting all of the gains.  Here’s what we find, corrected for inflation, and rounded to the nearest thousand:

2000  $54,000
1990  $48,000
1980  $44,000
1970  $40,000

Between 1970 and 2000, real income for the median American family rose 35%, not great, but not too bad.  Certainly the median family isn’t falling behind.  But as I pointed out in an earlier post, this number is distorted by changes in family structure.  Let’s hold family structure constant and look at the change in family income for just married couples where both spouses are working:

2000  $74,000
1990  $64,000
1980  $57,000
1970  $50,000

That’s a 48% increase in real median family income over 30 years.  What about female-headed households, the category that grew from 18% of all households in 1970 to 29% of all households in 2000:

2000  $27,000
1990  $23,000
1980  $22,000
1970  $21,000

Three things to point out.  Female-headed families are a lot poorer than the average family.  As I pointed out in an earlier post, a 50% increase in this poorer group will drag down the average even when everyone is actually doing better, merely from a compositional change.  Second, even among this group there has been economic progress, though most of it was in the 90s.

By the way, the only type of family that has stagnated over the last 30 years is male-headed households with no spouse present.  Median family income for this type of family is virtually unchanged over the last 30 years.  Why?  Could be demographics or it could be that male-headed without a spouse have a low level of education.  The last 30 years have been tough on people without a high school degree.

All of these numbers purport to correct for inflation.  But it’s generally accepted that the inflation numbers overstate inflation by failing to correct for quality changes.  So my guess is that these numbers understate how well we’ve done over the last three decades.

In what I expect to be the last post in this series, tomorrow, I’ll write about the question of mobility within economic strata and the why this issue is less important than the media claims it is.

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