On Measuring Changes inward Income

To divert attending from the disastrous rollout of his wellness reform, President Obama has decided to alter the national conversation to verbalize over increasing inequality.  This phenomenon is non new--the tendency started close 4 decades ago--but it is existent in addition to important.  In illustration y'all are a novel reader of this blog, y'all tin uncovering my personal views on the affair in this paper.

This national conversation has generated renewed attending to the highly influential Piketty-Saez data.  It is worth pointing out, therefore, merely about limitations of these data, which convey been stressed past times Cornell economist Richard Burkhauser: The information are on revenue enhancement units rather than households, they do not include many authorities transfer payments, they are pre-tax rather than post-tax, they produce not adjust for changes inwards identify size, in addition to they produce non include nontaxable compensation such equally employer-provided wellness insurance.

Does this matter?  Yes!  Here are merely about numbers from the Burkhauser paper:

1. From 1979 to 2007, median existent income equally measured past times pre-tax, pre-transfer cash income of revenue enhancement units rose past times alone 3.2 percent.  That is a paltry total for such a long period.  You mightiness conclude that nitty-gritty cast incomes convey been stagnant. But wait.

2. Households are to a greater extent than of import than revenue enhancement units.  Two married people are 1 revenue enhancement unit, whereas a pair shacked upward are 2 revenue enhancement units.  We would non desire to process the drive from matrimony to shacking upward as a drib inwards income.  If nosotros await at households rather than revenue enhancement units, that meager 3.2 per centum rises to a fighting to a greater extent than respectable 12.5 percent.

3. Now consider authorities transfer payments. If nosotros add together those in, that 12.5 percent number becomes an fifty-fifty better 15.2 percent.

4. What close taxes? The nitty-gritty cast received merely about revenue enhancement cuts during that period.  Factoring taxes in, the 15.2 per centum figure rises to 20.2 percent.

5. But non all households are the same size, in addition to the size of households has fallen over time. Adjusting for identify size increases that 20.2 per centum to 29.3 percent.

6. There is all the same 1 thing left: employer-provided wellness insurance, an of import fringe produce goodness that has grown inwards importance. Adding an approximate of that into income raises the 29.3 per centum figure to 36.7 percent.

So, during this period, has the nitty-gritty cast experienced stagnant existent income (a mere 3.2 per centum increase) or pregnant gains (a 36.7 per centum increase)?  It depends on which stair out of income y'all await at.  It seems clear to me that the latter stair out is to a greater extent than relevant, but the old stair out of income often gets to a greater extent than attending than it deserves.

Take this equally a cautionary tale.  When people verbalize close changes inwards income over time, brand certain y'all know what stair out of income they are citing.
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