Landsburg on Median Income
Steve Landsburg has an excellent post today showing that to know what has happened to incomes of various groups, you have to look behind the median. Of course, anyone who has used statistics carefully knows this, but it’s amazing how many people, even economists, don’t bother to do it. Steve draws on a recent book by Edward Conard, Unintended Consequences: Why Everything You’ve Been Told About the Economy is Wrong. It’s sitting on my review pile but I haven’t got to it yet. Now that I’ve seen this excerpt, it’s higher up in my pile.
Conard points out that between 1980 and 2005, median incomes for non-white women, white women, non-white men, and white men all rose substantially, by 62%, 75%, 16%, and 15% respectively (all in real terms.) That’s every adult, right? So how did the median income rise by only 3%? Answer: the composition changed. So white women and non-white women, who started out low, went up a lot, but there was a big of influx of them into the labor market during that time.
One of Steve’s commenters says, in essence, “big deal.” Specifically, he wrote:
As we both know 31% growth over 25 year [is] about 1% growth per annum (.10859628) whereas the real GDP has grown 2.4% per annum (.024791764), the GINI coefficient, even adjusting for government transfers, has grown accordingly.
What’s interesting here is that this commenter knew enough to do compounding and knew enough to know what the Gini coefficient is, but didn’t do one basic correction of the GDP growth. He/she didn’t look at GDP growth per capita. Between 1980 and 2005, the U.S. population grew from 227 million to 296 million, a growth of 30.4%. That works out to an annual population growth of 1.07%. Of course, with a higher percent of the population working (which is what led to that divergence between median income growth and growth of all the “subset” income groups in the first place), I would be over-adjusting by looking at strict population growth. But you get the point, I’m sure.