SNAPSHOTS OF SOCIAL CHANGE
MARCH 28, 2007:
THE DISTRIBUTION OF HOUSEHOLD INCOME
How do you measure inequality? The discussion can get technical, and political as well. To start off, we should look at the distribution of income — how income varies across all households in the country. A common approach to thinking about this distribution divides the population into fifths, or quintiles — five groups each containing about 20% of U.S. households. In terms of income, the lowest 20% of households (first quintile) might be called “lower class.” The next three quintiles (middle 60%) comprise the “middle class,” and could be subdivided into lower, middle and upper middle class. The richest 20% of households make up the “upper class,” for this purpose.
Figure 1 graphs the distribution of household incomes reported by 2.8 million people who were surveyed in connection with the 2000 Census (IPUMS data; see Ruggles et al. 2004). The bar heights in this histogram indicate that about 17% of the people lived in households with incomes below $20,000, 24% in households with incomes between $20,000 and $40,000, and so forth. Red vertical lines mark off the lower 20% (first quintile, or lower class), middle 60% (second, third and fourth quintiles, or middle class) and upper 20% (fifth quintile or upper class). Although the great majority lived in households making less than $100,000, the right-hand tail of this distribution continues to much higher numbers, $500,000 and beyond.
Figure 1: Distribution of household income, from the 2000 U.S. Census.
Figure 2 takes a different look at these data. We crudely estimate the wealth of each class by dividing up total household income. Each quintile, of course, has a greater share of the wealth than the quintile below it — but the upper class stands out. Lower-class households, by this reckoning, received only 4% of the total income. The remainder was evenly divided, 48% each, between the combined middle classes and upper class. That is, the total income received by the top 20% of households in this survey equals that received the middle 60%.
Figure 2: Share of total household income by quintile. The upper class (highest quintile) received 48% of the total, equal to the proportion of the combined middle classes.
Figure 2 gives only a rough calculation, but it illustrates a more general approach to measuring inequality. If we repeat such measurements for successive years, they reveal patterns in how inequality is changing.
Inequality exists not only between households, but between geographic regions as well. Figure 3 depicts variation in median household income across U.S. regions and metropolitan/nonmetropolitan areas. Median income is highest in the Northeast and lowest in the South, overall. Within each region, metropolitan-area households have higher median incomes than their nonmetropolitan counterparts. Nonmetropolitan households in the Northeast, however, are slightly better off than even metropolitan households in the South. Southern nonmetropolitan households tend to be much poorer than other parts of the country.
Figure 3: Median household income across U.S. regions and metropolitan/nonmetropolitan areas.
Based on a variety of methods, including more detailed versions of the quintile analysis shown above, many researchers have concluded that income inequality in the U.S. increased over recent decades (for example see Levy, 2002). Some authors have criticized this conclusion (Reynolds, 2007), but the weight of evidence from both statistics and everyday experience lends support to the increasing-inequality view (see comment on Reynolds by Burtless, 2007). How to measure inequality lies at the center of these discussions.
References
Burtless, Gary. 2007. “Comment on ‘Has U.S. income inequality really increased?’ by Alan Reynolds.” Brookings Institute, http://www3.brookings.edu/views/papers/burtless/20070111.pdf
IPUMS Web site http://www.ipums.org
Levy, Frank. 2002. “Distribution of income,” in The Concise Dictionary of Economics. http://www.econlib.org/library/ENC/DistributionofIncome.html
Reynolds, Alan. 2007. “Has U.S. income inequality really increased?” Cato Institute, http://www.cato.org/pubs/pas/pa586.pdf
Ruggles, Steven, Matthew Sobek, Trent Alexander, Catherine A. Fitch, Ronald Goeken, Patricia Kelly Hall, Miriam King and Chad Ronnander. 2004. Integrated Public Use Microdata Series: Version 3.0 [Machine-readable database]. Minneapolis, MN: Minnesota Population Center [producer and distributor].
Author
Snapshots of Social Change is written by Lawrence Hamilton, a Senior Fellow with the Carsey Institute and Professor of Sociology at the University of New Hampshire.