Income Inequality For Households: A Long Biased History Of Gini Ratio. 2021 Revision

The Census Bureau measures incomes and reports the estimates. One of the main questions is income inequality – personal and households. We published a post in 2012 on the bias in the household Gini ratio. Here we revise the previous study with new data.

In 2012, our first point was that the Gini ratio for personal incomes reported by the Census Bureau from the very same data set (CPS ASEC conducted every March) does not change much since 1994. The upper panel in Figure 1 reproduces the Gini ratio from the previous post, which varies from 0.494 to 0.512 – a relatively narrow window. In the lower panel, the dataset is extended to 2019 and the rise from 0.494 in 2007 to 0.524 in 2013 is a challenge for an economic explanation. This is a catastrophic and unexpected change in inequality. The years after the Great Recession (say, after 2010 with G=0.503) were not characterized by some outstanding economic processes or events. These were the years of President Obama.

In another post on January 17, 2001, we reported an unprecedented fall in the share of “compensation of employees” in the total personal income (PI) as reported by the Bureau of Economic Analysis. Figure 2 presents the corresponding curve, which demonstrates the accelerated decrease from 0.660 in 2006Q3 to 0.614 in 2016Q3. The 0.046 drop in the share of income from jobs reported by BEA is synchronized with the personal Gini rise by 0.03. The trough in 2020 related to the COVID-19 pandemic may be an interesting economic experiment for income distribution. Personal income in 2020 does not change much (even increase in Q2 and Q3 against pre-crisis expectations) despite the drop in compensation of employees. The question is where we will find the government social benefits to persons (+2.5 trillion in Q2 and +1 trillion in Q3 compared to the previous year). My current guess – stock market.

Figure 1.  Personal incomes:  Upper panel: Gini ratio evolution between 1994 and 2010 as presented in this post. Lower panel. Gini ratio evolution between 1994 and 2019. Between 2007 and 2013 the Gini ratio raised from 0.494 to 0.524, i.e. by 0.03.

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