Tuesday, January 20, 2015

US Individual Income Inequality Has Not Changed For The Last 50 Years: Family And Household Income Inequality Increased Due To Social Factors (Increasing Divorce, Later Marriage, Single Parenthood, Assortative Mating) And Not Due To Unequal Income Gains

From TownHall.Com, Political Calculations, "The Major Trends in U.S. Income Inequality Since 1947:"
Income Inequality Chart: 1947 - 2012
Source: TownHall.Com

In the chart above, we see that the amount of income inequality among individual Americans increased in the years from 1947 to 1960. This corresponds to the period of time following the end of World War 2's wage and price controls on 9 November 1946, which had prevented Americans from being able to earn incomes that matched the value of their true level of productivity.
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After 1960 however, the post-war income adjustments reached their natural limits and the level of income inequality among U.S. individuals stabilized. The Gini coefficient for U.S. individuals has been essentially flat ever since, falling within a very narrow range.

That observation is significant because if income inequality in the United States was really rising as a result of economic factors that concentrate an increasing amount of income into progressively fewer hands, we would not observe this outcome because income payments are made to individuals, not to households and not to families.
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We do however observe such a rising trend in measured income inequality in the Gini coefficients calculated for U.S. households and for U.S. families. Interestingly, we don't see much of that change occurring when economic factors were actually driving up the level of income inequality among individual American income earners in the years from 1947 through 1960. Instead, we see that the overall trend for household and family inequality was basically flat during this time, which then continued through the 1960s. It's not until 1970 that we find that a rising trend in the amount of income inequality for U.S. households and families begin to take hold.

From 1970 through 1992, we see that the amount of income inequality among U.S. households and families increases steadily - and since we don't observe a similar trend among individuals, we must conclude that social factors, such as the changing composition of the nation's families and households over time, are the primary cause of that trend.

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