Incomes and inequality: what the numbers don’t tell us

Here is my NYT column from today (right now the on-line piece has some typos/broken links, I hope they will be fixed), excerpts:

Much of the measured growth in income inequality has resulted from
natural demographic trends. In general, there is more income inequality
among older populations than among younger populations, if only because
older people have had more time to experience rising or falling

Furthermore, more-educated groups show greater income
inequality than less-educated groups. Uneducated people are more likely
to be clustered in a tight range of relatively low incomes. But the
educated will include a greater range of highly motivated breadwinners
and relaxed bohemians, and a greater range of winning and losing
investors. A result is a greater variety of incomes. Since the United
States is growing older and also more educated, income inequality will
naturally rise.

Thomas Lemieux, professor of economics at the
University of British Columbia, estimates that these demographic
effects account for about three-quarters of the observed rise in income
inequality for men and 69 to 95 percent of the observed rise in income
inequality for women (AER June 2006, earlier version at, "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill")…In other words, rising income inequality is not just a result of
unfairness or bad public policy…

Studies of personal happiness, based on questionnaires and
self-reporting, indicate that the inequality of happiness is not
growing over time in the United States. Furthermore, the United States
has an inequality of happiness roughly comparable to that of Sweden or
Denmark, two nations with strongly egalitarian reputations. (See the
symposium in Journal of Happiness Studies, December 2005.) American
society offers good opportunities for people to be happy, even if not
everyone becomes rich.

My conclusion?

What matters most is how well people are doing in absolute terms.  We
should continue to improve opportunities for lower-income people, but
inequality as a major and chronic American problem has been overstated.


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