My Wall St Journal Comment On Inequality Measurements

My posted comment to The Wall Street Journal, Real Time Economics, "How Do You Measure ‘Inequality’?" by Damian Paletta:

All inequality measures including the GINI index have many known problems. All members of demographic groups can see no change in their income and yet if the number of members in each group changes, Household and Family GINI will change. Inequality measurements are point in time measurements that do not adjust for changing demographics. Increases in the number of retirees, adult immigrants, college graduates with starting salaries, part-time working students, high school drop-outs, non-college attending HS graduates, college drop-outs, unwed mothers, divorces, returning to work parents, part-time working parents, long term experienced workers with yearly raises, and other groups will increase Household and Family GINI without any increase in Individual income GINI.

Individual income GINI in the US has remained constant and unchanged since 1962. Household and family GINI have increased. Social and cultural factors play a huge role in the increase of US Household and Family inequality and not wage or other economic factors.

Size of a country also matters since a larger developed country will show a higher GINI measurement of inequality than a smaller developed country. For example, in the US, GINI compares places like the wealthy suburbs of NYC and Palo Alto with less wealthy places like Biloxi or Bangor. Imagine if Greece's income is combined with Germany or Sweden, the GINI measurement would increase without any change to worker income.

GINI also does not adjust for cost of living differences. Does anybody believe that the same income can pay the astronomical rents of NYC or San Francisco as in Detroit or Tampa? Equalizing for cost of living disparities is a necessary adjustment before one can make any statement about US inequality and it will show a lower level of US inequality.