Two on Inequality
by Will Wilkinson on June 4, 2010
Jason Shafrin notes a new NBER paper (gated) by Richard Burkhauser and Kosali Simon on the implications of including health insurance in measures of income:
Burkhauser and Simon (2010) … shows that inquality is in fact decreasing once one taking into account health insurance costs. This chart provides information on changes in income and total income between 1995 and 2008. Income includes only raw wages, but “total income” also takes into account workers compensation in the form of health insurance. The authors use this evidence to claim that “…ignoring the value of health insurance coverage will substantially understate the level of economic well being of Americans and its upward trend and overstate the level of inequality and its upward trend.”
Meanwhile, Scott Winship replies to Mike Konczal by clarifying the upshot of Christian Broda and friends’ work on trends in food prices and their effect on real income growth and income inequality. Winship:
Broda and his colleagues find that the prices of what the poor buy (that is, “price” when the satisfaction derived, or utility, is held constant) have risen less than the prices of what the rich buy. That’s because when prices of related goods change, the poor are more likely to switch to cheaper goods, all the while maintaining their overall level of satisfaction with their purchases. If it becomes cheaper to maintain a constant level of satisfaction, then one’s wages have effectively grown. So poor consumers may switch from Green Giant frozen veggies to generics when the latter go on sale, or they might buy their frozen veggies at the chain a couple of neighborhoods over rather than the local grocery store when the latter’s prices go up. Rich consumers, on the other hand, may be relatively unlikely to stop buying Whole Foods vegetables when the plebian chain’s prices are cut. They may not switch to generics as those products become cheaper relative to those on offer at the farmer’s market.
It’s not that we should be excited about how great the generic frozen veggies bought by the poor are compared with the Whole Foods produce. It’s that we should be excited that the poor are either more willing or more able to economize to maintain a constant lifestyle than the rich are, and so inflation eats into their quality of life to a lesser extent than it does among the rich, holding in check other forces that would increase inequality.
Now, Broda’s research is based on purchases of a limited number of commodities and over a limited number of years, but if his findings extend to other goods and services and to earlier periods (which he believes they do), then the implication is that inequality between the poor and the well-off — though not necessarily the richest of the rich — has not grown. We can still worry about the quality of the food purchased by the poor and their health outcomes, but that’s a story about poverty and deprivation, not about inequality or growth in inequality.
?I’m still waiting for good data on the effects of the recession on incomes at the top of the distribution. Have you seen any?
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