Saturday, September 23, 2006

US income inequality: caused by financiers and tech entrepreneurs

Income inequality in the United States is at historic highs, after significant increases in the last decade. For example, in 2003-2004 the average income of the top 1 percent of the population increased by 17 percent while that of the remaining 99 percent increased by only 3 percent in real terms.

It is important to understand this phenomenon in more detail: is there a widening nationwide gap between the rich and all others? Data on incomes by county covering the mid to late 1990's, from the government Bureau of Economic Analysis, shows an interesting geographical pattern. Most of the gains enjoyed by the top 1% came from a small number of counties. In particular, income increases at the top end in tech hotbeds Seattle and Silicon Valley, and finance capital New York City, account for almost all of the aggregate nationwide increase. If four counties in those regions are removed, there is almost no increase in inequality during that period.

So, the good news is there isn't a national phenomenon at work here (and, perhaps, Bush is not to blame -- at least, if tax cuts were the cause I would expect the effect to be more uniform geographically; future data will tell). Let me be the first to welcome our financier and tech entrepreneur overlords! :-)

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6 comments:

  1. Anonymous11:05 PM

    This analysis focuses on the late 1990s -- before Bush took office.

    I'd like to see a similar analysis for the period 2001-2005.

    Steve

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  2. Anonymous5:15 PM

    Saying "inequality didn't increase if you don't count the fact that the richest people got richer faster than everyone else" is meaningless at best

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  3. rz1:22 AM

    Pardon if mine is too much an ignorant comment, I know close to nothing about economics. According to wikipedia, which in turn references the US Census Bureau, the Gini coeff for the US is as follows:

    1990: 0.428
    2000: 0.462
    2005: 0.469

    The increase is much sharper for the 90s than for 2000 - 2005, which seems to support what Prof. Hsu was saying in the post: it may not be the fault of Bush tax cuts. I would really like a data point at 1995, though.

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  4. Anonymous5:29 AM

    It's not at all clear from where wiki gets that 2005 figure. Certainly not the US Census Bureau.

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  5. Anonymous6:30 AM

    Great blog with good interesting informations.
    Thank you. I have bookmarked it.
    Greetz Elena

    ReplyDelete
  6. Anonymous3:10 PM

    A little late but more data points to consider. We are tied with China but behind Brazil and Mexico on Gini Index. Clearly not a good thing if we are to have a middle class in this country. Interestingly, one country that clearly is moving in opposite direction is France.

    http://wallstreetexaminer.com/
    blogs/winter/wp-content/uploads/2006/12/gini.JPG

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