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Distorted Income Gap

“This means that many of these families have no one working and earning a salary at all. (It’s hard to have a very impressive income if you don’t work.) By contrast, the average high income family has on average two people working—usually a husband and a wife. So it should not be too surprising that the rich have more income, since for every hour worked in a low income family, the members of a high income family work four hours.

Here’s another statistic that distorts the income gap. The average poor household consists on average of about one and a half people. This means that a lot of low income households consist of a single person living alone. By contrast, the average high income household has about three people living under the same roof. An income of say, $15,000 a year presents much more a situation of acute financial distress for a family of four than it does for a single person living alone.

So when we adjust for the number of people in the household and the number of workers in the household, we find that at least two-thirds of the income gap ‟magically” disappears.”

Excerpt From: Moore, Stephen. “Who’s the Fairest of Them All?.” Encounter Books, 2012. iBooks.
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Check out this book on the iBookstore: https://itunes.apple.com/us/book/whos-the-fairest-of-them-all/id549259072?mt=11

HKO

Some of the gap is also explained by hours worked, the value of benefits, government transfers and after tax effects.  A better determination of household wealth is spending.  Disposable income automatically filters income distortions from the wealth picture. And even this does not recognize the impact that technological progress that has put consumable items in the hands of the poor that were once out of reach from all classes but the wealthiest.

Much of the reporting  pertaining to important public policy is very biased.  The media has done a very poor job on analyzing such data on income distribution, health care statistics, and gun crime.  The best source of careful analysis on income distribution data in Income and Wealth by Alan Reynolds.  Use the search feature of the blog to find other postings on the subject.

Category: Economics

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