When discussing the increase in income inequality
economists forget those people who have no income at all. According to the
Census Bureau, there are tens of millions reporting no income every year and
this number has been really growing since 1990 as Figure 1 shows. Notice also the
dramatic fall in 1978, which was caused by a revision to income definition –
more than 15,000,000 were added to income gainers in a few seconds.
The total population has been also growing
by approximately 1% per year. Figure 2 depicts the ratio of the number if people
without income and the total working age population (15 years of age and over).
This ratio has been growing since 1990
as well and there was no specific acceleration after 2007. It is not clear why these people have been
excluded by the Census Bureau from the reported measure of income inequality in
the U.S. – the Gini ratio. Figure 3 displays three estimates of the Gini ratio.
Black line presents the estimates published by the Census Bureau which are
obtained for people with income only. Red line shows our estimates obtained
from personal income distributions (PID) published by the Census Bureau. The difference with the official figures
between 1998 and 2011 is 0.011. This difference is likely related by the fact
that we introduced a more accurate approximation of the PID in the lower and
higher income bins. In any case, this difference is constant and negligible - one
may correct any of the estimates by 0.011 and compensate the gap. Therefore, we can use our method to estimate the
Gini ratio and apply it to the PID including those without income.
When more than 30,000,000 people with zero
income are added one should expect a dramatic increase in Gini ratio. Essentially,
thirteen percent of working population adds to zero income what shifts the
Lorenz curve further from the bisecting line. Blue line shows the estimates of
Gini ratio for the whole working age population. Unlike the red line, the blue line has been
rising since 1990. The period after 2007 is characterized by an accelerated
growth, which is obviously associated with the increasing number of zero-incomers.
For people with income, the Gini ratio is rock solid over the whole period
between 1967 and 2011 (with an almost negligible negative trend).
Interestingly, there is no sign of the revision to income definition in 1977.
Despite those 15,000,000 who were added in 1978 likely had negligible incomes
they did not change the overall personal income distribution. This effect deserves
a detailed investigation.
In terms physics, this is a mistake to neglect
a substantial part of a closed system when calculating aggregate variables. Such
aggregates are intrinsically biased and can not characterize the system and its
behaviour. Currently, the income inequality in the U.S.
is much higher than the Census Bureau reports: the Gini ratio is rather 0.58.
Figure 2. The portion of population without
income
Figure 3. Three estimates of Gini ratio as
described in the text.
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