Inequality

 

Renegade

This jig is up the news is out
They've finally found me
The renegade who had it made
Retrieved for a bounty
Never more to go astray
This will be the end today of the wanted man

The moral arc of the universe may be long but it bends towards justice.

Mean income can increase if there is an increase in total income and no, or much less of an, increase in the median income. The mean will be equal to the median income only if the income distribution follows a statistical normal, i.e. bell shaped, distribution.  This is not possible because a truly normal distribution would require negative income, and no income less than zero is reported.  Therefore the ratio of the mean to the median income should be slightly greater than 1. This ratio could be a useful indication of income inequality. This is traditionally measured by the Gini Index, but means and medians are more commonly encountered.  To determine what ratios should be expected, the mean and median income for counties were examined using  the Luxembourg Income Study database (LIS). It is the largest available income database of harmonized microdata collected from about 50 countries in Europe, North America, Latin America, Africa, Asia, and Australasia spanning five decades. http://www.lisdatacenter.org/data-access/key-figures/

Based on an analysis of this database, it appears that most stable countries have a ratio of mean to median income of 1.2 or less.

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Even in those countries where the ratio of mean to median income is reported to be high, e.g. South Africa, Chile, Mexico, etc., that ratio has been declining over time.  Only two countries show an increase in the ratio that has endured more than a few years: the United States and the United Kingdom. Those ratios are

The increase in the United Kingdom appears to have been during the 1980s to the mid 1990s when it became cyclic.  The increase in the United States began at roughly the same time but continues to this day.  It is notable that the supply side economics became the basis for economic and tax policies in both counties in the early 1980’s, but the tax policies have endured in the United States up to the present.

The LIS data does not show data points for the United States for every year particularly before 1990.  US Census reports were examined to provide this annual information.  Publicly available US Census reports on mean and median income were obtained for the period 1975 to 2019.  It confirms that the ratio of mean to median income was increasing in each year.  While median income, adjusted for inflation has increased during this period, mean income has increased at a faster rate, which suggests that incomes greater than the median have increased more rapidly. 

The gap between mean and median income has been increasing over time.  This is reflected in the mean income for each quintile of income as well as the top 5% of households by income.  As expected, a review of this Census data shows that the median income of the highest 20%, particularly the incomes of the top 5%, have increased over time, while the other mean incomes, adjusted for inflation, have remained virtually flat.

 

All income groups experienced a drop between 1979 and 1980.  Beginning in 1981, the income of the highest 20% and particularly the highest 5% have increased dramatically.  It appears that growth has been flat during this period , which coincided with a reduction in overall government spending, which also included a reduction in the marginal tax rate in the top tax brackets and the size of the brackets with the post1981 tax acts.   At that time, a misunderstanding of statistics led to a reduction in the marginal tax rate of the top tax bracket and an increase in the marginal tax rate of the lowest tax bracket, as well as a change to smaller income ranges for the lower tax brackets.  This meant that the distribution of incomes did not reflect the distribution of taxes. The lower income groups paid a larger share of taxes than the highest income group.  Prior to that time, the tax brackets had largely reflected the distribution of income.  Since the 1980s the income tax brackets did not reflect the distribution of income, taxes raised less governmental revenue that might have contributed to higher growth, and income inequality has increased.  The fact that it happened over the period of half a century only means that changes from year to year were less noticeable.  The fact that change was gradual did not mean that the change did not happen.  The jig is up, the change has been noticed.