Types of economic inequality

Date posted: December 26, 2012

Economic inequality is a big issue today, with some statistics suggesting the richest households have moved up the economic ladder much faster than other households. But do all the ways of looking at economic inequality give us the same answer? N.C. State University economist Mike Walden answers.

“Well …, the common way that you see in most of the literature or most of the press discussions of this is to use income. And when you do that, you’re absolutely right: What we’ve seen over the last really four decades is higher-income households have been getting richer faster than other households. Everyone’s been moving up, on average, the economic ladder, but clearly higher-income households have been moving up much faster.

“But some economists say, ‘Well, that’s one way to look at it. Another way to look at it, however, is … to look at consumption inequality — what people are able to buy and use in terms of products and services — and to look at whether there is a similar gap.’ And when you do that, you find actually there is not the same kind of result. Every group, every income group has moved up the consumption ladder at about the same rate over the last four decades.

“And so I think what this suggests is a couple of things: One, we do have a lot of income redistribution programs in our country whereby higher-income people are taxed some of those revenues provided to people farther down the economic ladder. And obviously those folks can access those resources to increase their consumption. Secondly, I think that this is a very important lesson … the answer you get depends on what you look at. If you look at income, yes, we’ve had a widening gap in income inequality. If you look at consumption, the answer is probably not so much.”

 

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