Inequality in Ability to Read Statistics

by Don Boudreaux on September 10, 2006

in Inequality

Alan Reynolds, writing in today’s Washington Times, points out why some recent laments over growing income inequality should be discounted.  Here’s an especially important passage in which Reynold’s uncovers a significant error in Sebstian Mallaby’s recent column on inquality:

[Mallaby] confuses the number of households with the number of workers. That’s
100 percent wrong. He wrote: "Economic growth no longer seems to help
the majority of workers; the proceeds flow to the top fifth or so of
the work force." Not so. Half the proceeds from work and savings (not
counting taxes or transfer payments) flow to the top fifth of
households, not the top fifth of workers.

"Work Matters" is a chapter in my forthcoming book, "Income
and Wealth," from Greenwood Press. Among much else, that chapter notes
that Bureau of Labor Statistics surveys show an average of 0.6 workers
per household in the lowest fifth, one in the second, 1.4 in the third,
1.7 in the fourth, and two in the top fifth. This is partly because
there are many more singles in the lower-income groups (including
students and widows), and many more two-earner couples with older
children toward the top. There are 1.8 persons per household in the
lowest fifth, but 3.1 in the top fifth.

The Census Bureau found that within the lowest quintile, the
number of people who worked full-time all year in 2005 amounted to 3.2
million in the poorest fifth of households, compared with 9.3 million
in the second fifth, 13 million in the third, 15.3 million in the
fourth and 16.7 million in the top quintile.

That uniquely industrious top fifth — every couple with an
income above $91,705 — accounted for 29.1 percent of all full-time,
year-round workers. The top fifth surely accounts for more than half of
all two-earner college-educated families over the age of 25. It should
be neither a surprise nor complaint that they collect half of all
income — before taxes. If work did not pay off, the top fifth would
not work so hard to produce at least half the U.S. economy’s goods and

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beeper September 10, 2006 at 3:33 pm

The question is: is anyone on the left, those who want more and more government control over the economy, at all concerned with the truth anymore?

John Thacker September 10, 2006 at 8:10 pm

An interesting thought exercise is to consider the effect of different divorce rates and practices on the inequality statistics. Since they measure households, not individuals, a higher divorce rate among the poor than the wealthy can make inequality look much worse without having nearly so large an effect on "true" inequality on a per capita basis.

Another interesting effect is the increasing trend towards more young people going to college and grad school, and the trend towards the highly educated marrying later. By remaining poorly paid single students for longer, but getting much higher incomes after graduating, these students increase their "personal" income inequality over their own lifetimes, which in the aggregate increases inequality over society… even though the individuals, judged over their entire lives, are better off.

John Booke September 10, 2006 at 9:14 pm

Does this discovery of a "significant error" change your views on income inequality? How and to what degree?

Xmas September 11, 2006 at 3:18 pm

Well I think that the bottom 1/5 should get a free sprint ringtone with the car loan for their used car.

My actual point is that even without being highly educated, a household that pools their resources will obviously do better than one that doesn't. One way to get out of the poverty trap is to aggregate the incomes of several working adults into one household.

Kevin September 12, 2006 at 11:37 pm

So what REPUBLICAN, it's STILL a fact that most benefits of economic "growth" flow to people who work, while those of us who sit around doing the "Numa Numa" dance all and eating Doritos are getting totally screwed.

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