Exploring Income Inequality, Part 2: The Loss of Shared Prosperity

November 29, 2011 at 2:35 pm

The slideshow below — the first in this week’s series on income inequality — shows that the years from the end of World War II into the early 1970s saw substantial income growth and broadly shared prosperity.  But this trend ended in the early 1970s, when income disparities started widening as incomes began to grow much faster at the top than in the middle or bottom.

The slideshow presents family income data from the Census Bureau.  While these data are useful for illustrating the widening of income inequality beginning in the 1970s, other data are superior for assessing more recent trends, as we explain in our new guide on examining income inequality.

Tomorrow, we’ll examine income growth in recent decades.

Income Mobility Can’t Explain Away Evidence of Increased Inequality

November 29, 2011 at 8:29 am

Some policymakers, like House Budget Committee Chairman Paul Ryan, have tried to dismiss studies like this one from the Congressional Budget Office showing a large rise in income inequality in recent decades by arguing that these studies do not account for income mobility in America.

Here’s their argument:  the data we have showing rising inequality is based on successive “snapshots” of the income ladder over time, but people are not stuck on the same rung over many years; they move up and down the ladder.  Increased income inequality means the rungs of the ladder are further apart, but if there is enough movement up and down that income ladder, where people are in a particular year would tell us very little about where they were a few years earlier or where they will be a few years later.  If mobility has increased enough, the dramatic rise in income inequality over the past thirty years is not an obvious problem.

The problem is, there’s just no evidence that mobility is increasing, and quite solid evidence to the contrary.

A new paper by Federal Reserve economist Katharine Bradbury clearly documents a statistically significant decline in the rate of mobility.  The slowdown isn’t dramatic; Bradbury accurately labels it “slight.”  But it’s there.

This graph, based on Bradbury’s analysis, shows two measures of family income mobility over ten-year spans:  the share of families in the richest fifth who move down the income scale to the middle or lower fifths and the share of families in the poorest fifth who move up to the middle or higher.

The lines basically drift down starting in the late 1970s, meaning there’s less movement between the rungs on the income ladder.  Bradbury found that the downshift over time was statistically significant (see Table 5 of her paper).

The argument that mobility offsets higher inequality may sound plausible, but the facts don’t support it.

Exploring Income Inequality, Part 1: Overview

November 28, 2011 at 5:00 pm

To provide some historical context to the current public discussion of income inequality, we’re releasing a series of posts this week that examine trends in income inequality in recent decades and outline different data sources to examine the issue.

The broad facts of income inequality over the past six decades are easy to summarize:

  • The years from the end of World War II into the 1970s saw substantial economic growth and broadly shared prosperity.
    • Incomes grew rapidly and at roughly the same rate up and down the income ladder, roughly doubling in inflation-adjusted terms between the late 1940s and early 1970s.
    • The income gap between those high up the income ladder and those on the middle and lower rungs — while substantial — did not change much during this period.
  • Beginning in the 1970s, economic growth slowed and the income gap widened.
    • Income growth for households in the middle and lower rungs of the ladder slowed sharply, while incomes at the top continued togrow strongly.
    • The concentration of income at the very top rose to levels last seen more than 80 years ago, during the “Roaring Twenties.”
  • Wealth is much more highly concentrated than income, although the wealth data do not show a dramatic increase in concentration at the very top the way the income data do.

This broad overview reflects data from a variety of sources.  Different data sources tell different parts of the story; no single source is best for all purposes.  CBPP issued a guide today that discusses the strengths and limitations of various data sources in understanding trends in income and inequality.  It also highlights the trends that those key data sources reveal and gives additional information on poverty measurement and the distribution of wealth.

Stay tuned.  The next post in this series will look at income growth in the post-World War II decades and the widening of income disparities starting in the 1970s.

In Case You Missed It…

November 23, 2011 at 2:14 pm

This week on Off the Charts, we discussed the congressional deficit-reduction “supercommittee,” taxes and the economy, and hardship in America.

  • On the supercommittee, Robert Greenstein explained why the automatic cuts scheduled to start in 2013 are split equally between defense and non-defense programs.  He also noted that former OMB head Peter Orszag was right to say that locking in the Bush tax cuts was not worth a $1.2 trillion deficit-reduction deal.  Paul Van de Water pointed out that a proposal by supercommittee Republicans last week called for $181 in spending cuts for each $1 in tax increases.
  • On taxes and the economy, Chuck Marr warned that workers’ paychecks will shrink starting in January if Congress fails to extend the payroll tax cut.  Hannah Shaw highlighted new Congressional Budget Office figures showing that up to 2.4 million people owe their jobs to the Recovery Act.
  • On hardship in America, Arloc Sherman detailed the major hardships that many poor children face, such as hunger and failure to receive needed medical care.  Liz Schott documented the erosion of cash assistance benefits for low-income families with children, while Douglas Rice highlighted the recent rise in homelessness.  Stacy Dean described how SNAP (formerly food stamps) is helping millions of needy families afford an adequate diet.

Off the Charts is taking a break for the holiday but will return on Monday.

Hardship in America, Part 4: SNAP Helping Millions Afford an Adequate Diet

November 23, 2011 at 1:38 pm

As many Americans celebrate Thanksgiving by sharing an elaborate meal with friends and family, it’s important to remember that many other Americans lack the resources to meet their basic food needs.  Nearly 46 million individuals — one in seven Americans — get help affording a nutritionally adequate diet through the Supplemental Nutrition Assistance Program (SNAP), formerly called the Food Stamp Program.

The Agriculture Department provides detailed data on SNAP participants both on a national basis and in individual states and congressional districts.  These figures show:

  • The overwhelming majority of SNAP households are poor families with children, seniors, or people with disabilities.

    • Three-quarters of SNAP participants are in families with children.
    • Over one-quarter are in households that include senior citizens or people with disabilities.
    • Almost 60 percent of the SNAP families that include a working-age adult who is not disabled are working families; many others recently lost their jobs and rely on SNAP to feed their children while they look for work.
  • SNAP households have very low incomes. Some 85 percent of them have gross incomes below the poverty line.  (This year the poverty line is about $22,000 a year for a family of four and $11,000 for a single person living alone, such as an elderly widow.)  Two of every five SNAP households have incomes below half of the poverty line.

  • SNAP benefits are extremely modest. They average only about $1.44 per person per meal (this figure will drop to $1.30, in today’s dollars, when the temporary increase provided by the 2009 Recovery Act expires in November 2013).  The average monthly benefit that SNAP households receive is about $285.

These data tell a compelling story about the extraordinary need of millions of Americans.  Thankfully, SNAP is available to help them.