Income and Consumption Inequality (crossposted at CT)
I’ve spent a lot of time trying to work out what’s been going on with income and consumption inequality in the United States. Partly that’s because the subject is of interest in itself and partly because social and economic developments in Australia often (not always) follow the lead of the US.
However, there seem to be lots of contradictions in the data, and between data and popular perceptions, for example regarding social mobility and consumption inequality. I’ve finally managed to sort out what seems (to me, at any rate) to be a coherent account of what’s going on. A list of the main points follows, with supporting links, some of which may require registration/subscription. I’ve tried to indicate which bits of the story reflect my judgements, and which are drawn from the literature.
Comments and criticism on this are most welcome.
Here’s the outline
- Measures of inequality, mobility and so on reflect a combination of transitory variations and more stable effects arising from social class, occupation, education and so on.
- Although the US displayed exceptionally high social mobility in the 19th century, social mobility declined from the beginning of the twentieth century the US and is now comparable to that in European countries.
- Because of greater income inequality in the US, mobility within the income distribution is lower in the US than elsewhere.
- Wage inequality in the US has grown greatly since 1970. Income inequality has also grown, but not as much since low-wage households have increased hours worked.
- (Annual) Consumption inequality has not changed much since 1970. In my judgement, this reflects increased use of credit markets to smooth out short term fluctuations in income, which offsets increased long-run inequality
- In my judgement, increased reliance on credit has been the main cause of the dramatic increase in bankruptcy, particularly evident since 1990.
- Bankruptcy laws act as a kind of income insurance, and generous (to debtors) bankruptcy laws are a substitute for redistributive taxation.
Obviously, More Research Is Needed™