Identifying Economic Inequality

Exploring Different Measures of Inequality

Jun 19 2012

Associated Image

The misuse or mischaracterization of good economic data can lead to policy outcomes as poor as those made using bad or incomplete data.  This is especially true on the issue of economic inequality.

The distribution of wealth and income inequality has been a point of concern since the time of Adam Smith, and the issue has been on the minds of U.S.  policymakers since its initial mention in the Senate in 1898.  One of the most difficult issues despite the plethora of data on income today is defining income inequality and determining whether it is a consistent, pervasive problematic issue marring the link between productivity and earnings.  This is the first in a series of commentaries surveying income inequality and determining its causes.

There are five major problem areas that make changes in income inequality over time difficult to determine:

 

1)     There is a lack of consensus on what definition of income analysts should use to measure inequality;

2)     Household demographics have changed over time;

3)     Consumption patterns have also changed over time;

4)     The use of different price deflators yields significantly different results; and

5)     Other policy changes directly and indirectly affect the measurement of income inequality.

Policymakers need an understanding of how America stands today in terms of economic inequality before considering any public policy changes to redress economic inequality. Specifically, policymakers should consider what are the facts about income inequality under the traditional definition of money income; how income inequality has changed through time; what is lacking from this analysis; what are other definitions of economic inequality; and what are the underlying causes of economic inequality. This commentary provides policymakers with a snapshot of economic inequality in the United States in terms of income and other measures of economic well-being including earnings and wealth.

 

See the full report in pdf format below:

Related Files: