Russ Roberts was kind enough to respond to my email asking him how he analyzed changing income distributions over the past several decades. I was pretty sure I had remembered him writing some things about it, and he pointed me to those things. Over the course of a couple posts I’ll review them.
The chart could use some more labels, but basically it shows the annual percentage growth rate, in constant dollars, of mean* family income by quintile, and on the right, for the top 5% of families, for the 1947-1973 period and the 1973-2005 period. The claim is that this shows that all the benefits of growth have been going to the wealthy, and not to the middle and lower classes.
I think the data do demonstrate the stagnation in household income that we’ve seen in other data. But Roberts argues the chart is meaningless because it’s too abstract. Taken as abstract groups, the lowest quintile’s income has increased much more slowly in recent years than the lowest quintile’s income in previous years, but that doesn’t tell us how actual individuals have done because it’s not measuring the same groups of people.
Specifically, Roberts notes something that supports an idea I’ve had rolling around in my head (and which I mentioned, partly, in my discussion at Dispatches), which is that some of the stagnation of family income is surely attributable to an increase in single-family households (contra one commenter’s claim that income stagnation had happened despite an increase in two family incomes as women moved into the workforce). I noted that there were more single-income households because people were marrying later, but I missed the more obvious point Roberts made:
The number of families increased dramatically simply because of divorce. There was also an increase in the number of families headed by single women with children. The quintile breaks-points changed, not because the economy was growing or shrinking but simply because of changes in the types of families.
True enough. What would median household income growth have looked like if households in the 1980s and ’90s contained fewer broken homes and single-mothers? Certainly, as Roberts notes, the quintile break points would be different.
I doubt that explains away all the stagnation in median household income growth rates, but it’s certainly part of the story, and a part that’s not attributable to some kind of economic malaise or nefarious socio-political scheme to shift wealth upward.