Income Inequality: Do We Care? It Depends on What You Measure, Part 2

Why do we care about income inequality? I previously discussed much of the first reason we care: inequality may be a sign of losing the bottom part of the distribution. But measuring income has its own issues in the modern age.

The second issue is a concern about income mobility, that is, the ability of someone to make a better life for themselves and their families despite their background. This gets us back to the issue of measurement.

There are two types of mobility that we tend to care about: 1) making sure that everyone has a chance to be better off in absolute terms, meaning that someone who is poor has the chance to live better; and 2) relative mobility, or the ability of someone from a lower income category to move up in the income rankings.

Absolute Mobility

It’s often cited that our national median income is less now that it was in the 1980s. But does that mean we haven’t experienced upward mobility? Think about what exists at low cost now that did not in the 80s. Last time I discussed healthcare premiums paid by employers have increased. In addition to these benefits, would the total value of benefits and pay received be far higher than that in the 1980s? What about standard of living? Clothing is cheaper than ever before.

Tech companies have driven down the cost of computing and internet access, and we now have the ability to hold the equivalent of a 1970s supercomputer in the palm of our hands. Just take a moment to breathe in that reality.

In fact, the “basket” of items used to calculate the consumer price index, which measures inflation, has in many ways changed to something unrecognizable in 1980s America. That puts the whole concept of “real” (or inflation-adjusted) income into perspective. Median “real” income may be lower, but what we can really buy with that income is pretty astounding, and more and more people are granted access to those goods and services every day.

Relative Mobility

This has been a big discussion lately, especially in scholarly circles. For a straightforward explanation of the differences in measurement, the Brookings Institution has a great primer.

In lay terms: what has been considered a standard measure of relative mobility that compares the United States to places like Sweden has some serious shortfalls that penalize America’s measurements because of larger distances between rich and poor.

In other words, even if someone can move very easily up the economic ladder in the United States, because the rungs are further apart, many measures declare that mobility is lower in the US than elsewhere.

Using a slightly different but technically more straightforward measurement, we find that the United States has a very similar mobility measure to other countries considered more “egalitarian.” And yet, some are declaring that the American Dream is not alive.

The American Dream is alive for most people. That still leaves work to do in order to incorporate those for whom it does not appear viable. But let’s be more careful in what we measure before we talk policy changes.

A doctor does not resort to surgery until they have run the necessary tests to understand exactly where surgery is needed and develop a plan. If your leg is ailing you, most of the time we don’t resort to brain surgery. Policymakers should be considering all credible angles of measurement before acting, and when they do, they should target the issue. If not, we run the risk of doing serious damage by putting the scalpel to a system that may need less invasive and more targeted treatments.


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