Arnold Kling  

Baker vs. Reynolds

New World Apocalypse... Jefferson on the Indians...

In a comment on my earlier post, Dean Baker chided me for using anecdotes rather than data to make my claim that economic suffering is overstated in the media.

Apparently, if I wanted to make my claim using data, I could buy Alan Reynolds' new book. In a review essay, David Henderson writes,

the CBO data show that between 1979 and 2000, average after-tax income in each quintile (fifth) of the household income distribution rose. For the lowest quintile, it rose from $13,500 to $14,600 [all numbers in this sentence are in 2003 dollars]; for the second-lowest quintile, it rose from $27,300 to $30,900; for the middle quintile, it rose from $38,900 to $44,800; for the second-highest quintile, it rose from $50,900 to $63,600; and for the top quintile, it rose from $89,700 to $138,500.

In fact, this way of looking at the numbers understates the improvement. Most of the people in the bottom two quintiles in 1979 were in the higher quintiles in 2000. They had been replaced in the bottom quintile by new immigrants and young families.

I will be on travel, and posting little or nothing for the next 10 days. When I get back, I'll try to remember to look at the rest of the articles in Henderson's series and to check out Reynolds' book.

UPDATE: Here is Reynolds himself.

UPDATE 2: My point about quintiles is explained here.

Comments and Sharing

CATEGORIES: Income Distribution

COMMENTS (9 to date)
John Thacker writes:

The counting of househld income instead of per capita makes sense for certain things-- particularly issues where families decide to have more children if they have more money, or vice versa. (It doesn't make too much sense to consider a family poorer because the family income went up, causing them to decide to have another child, decreasing per capita income.)

However, since women now largely work, and marriage is more assortive than ever, and people spend more time as college and grad students, all of which increase household income inequality (since college and grad school students trade extra years of poverty-level student income for greater income once they get out), additional factors come into play.

For one thing, the average age of marriage keeps rising. Young people already tend to make less than those in middle age. If young people are more likely to be single and in school, then that really puts downward pressure on the lowest quintile income group, particularly if they get married after graduating and getting their first "real job." The gap between young single students and graduates married to each other in household income grows, increasing the overal inequality but not meaning much over an entire life.

As a social thing, Professor Kling has already noticed the problems when the upper middle class keeps marrying at a high rate, but young students and the poor are both less likely to marry.

Chris writes:

Is there any way to track the incomes of the actual individuals in the lowest quintile between 1970 and 2000 to see how they really did?

Brad Hutchings writes:

Most of the people in the bottom two quintiles in 1979 were in the higher quintiles in 2000. They had been replaced in the bottom quintile by new immigrants and young families.

Arnold, this is a brilliantly stated insight into how these quintiles work. When people talk about class mobility, they generally say that the lowest tend to move up over time, with the implication if you don't think about it too much, that the highest tend to move down. The concept really didn't click. But you have people exiting the pool of workers, many of whom worked their way up to high salaries. And you have new people entering, usually at lower salaries. What the class warriors do is take static snapshots, discount gains in productivity and leisure that technology has yielded, and ignore the dynamism of people moving in, up, and out. Their constituencies don't see these things, making them easy believers that the rich are out to screw everyone.

spencer writes:

There is a considerable body of very good research by Bash Mazunder and others that look at lifetime earnings and inequality that says your estimate that most of the people in the bottom quintile in 1979 were in the top quintile in 2000
is completely wrong.

Glen Raphael writes:

Spencer: Arnold didn't say most people in the bottom quintile were in the top quintile later. He said most people in the bottom two quintiles were in higher quintiles later. Moving from the lowest to second-lowest or from second-lowest to third-lowest would meet the requirement.

Income varies over time, so think of it as regression toward the mean. Some people have years of unusually low income when they lose their job and take a year to find another, or if they take off a year to travel or attend school. Other people have years of unusually high income when they sell their house. At any specific isolated point in time, a fraction of the people in an extreme quintile are there essentially by accident and won't be there the following year. A larger fraction are there because of where they are in their career life-cycle - a struggling grad student or a recent immigrant starts at the bottom and moves up. These people will be doing better in subsequent years even if they don't reach the top quintile, so looking at what happens to the quintile they are in doesn't reflect the progress of the individuals that quintile represents.

Some Guy in St. Louis writes:

For Chris, the answer is yes, it's called your Annual Social Security Statement.

In 1979, I was making $7,000, the median income
was $17,300. I didn't make the median income until
1985. As of today, my income is 10 times that of 1979 or 2 times the median income of $44,700.

ettubloge writes:

Sowell has written that since 1900, 10% of the bottom quintile remain there permanently. The rest move or down as much as year to year (for those entrepreneurs creating star-ups after cashing in from high income salaried positions or those who retire).

Walter Williams wrote in 9/8/04 in

There's considerable income mobility in our country. According to Internal Revenue Service tax data, 85.8 percent of tax filers in the bottom fifth in 1979 had moved on to a higher quintile, and often to the top quintile, by 1988. Income mobility goes in the other direction as well. Of the people who were in the top 1 percent of income earners in 1979, over half, or 52.7 percent, were gone by 1988.

Alan Reynolds writes:

Faulty data about shares of pretax, pretransfer income earned by the top 1% of taxpayers (not households) tells us next to nothing about how everyone else is doing. There is much talk about "wage stagnation" but even the Economic Policy Institute's narrow measure of real median wages was up 3% from 2000 to 2005 and is surely up big in 2006. I get the impression that journalists can say anything they want about typical living standards as long as they never suggest most folks are doing O.K. Always ask for the facts, and be skeptical.

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