Income Inequality is NOT increasing

If you turn on CNN or MSNBC you will hear constant reference to "increasing income inequality". If this were true and not just propaganda, you'd expect real data to support that claim. Yet it doesn't. The level of income inequality in the United states hasn't changed in the last 25 years. So, if this wasn't keeping you up at night in 1998, why is it in 2019?

The Gini index, or Gini ratio, is a measure of statistical dispersion intended to represent the income or wealth distribution of a nation's residents, and is the most commonly used measurement of inequality. It was developed by the Italian statistician and sociologist Corrado Gini.

A Gini coefficient of zero expresses perfect equality, where all values are the same (for example, where everyone has the same income). A Gini coefficient of 1 (or 100%) expresses maximal inequality among values .

The Myth of Growing Income Equality

You hear more and more chanting that income distributions are becoming more unequal. Is that really so? Those who like to think so focus on the distribution of household income, and, indeed, at the household level this is true. The chart below shows a statistical measure of distribution called the Gini Coefficient (a value of zero would occur when every member of the set was exactly equal. A value of 1 would mean one person in the set has all the income). So why is this number increasing? If it were, as the hysterics suggest, a function of increasing income for just a few, the Gini Coefficient would be rising when calculated at the individual level. But it's not. It's flat to down a bit.

The reason the household number is rising while the individual number is flat/down is entirely a function of how people organize themselves into households. This should not be terrible surprising. Like tend to attract like. What's been happening is that those who have higher earning potential are increasingly likely to form families with other people who have higher earning potential. For example, those who went to college are increasingly likely to form households with others who went to college. In fact, Charles Murray recently wrote an entire book about this called Coming Apart.

So if you're really upset for some reason about increased household income equality, you're going to have to focus your attention on the real underlying drivers. Maybe you should suggest to your daughter at college that she look for a husband among the dining hall staff rather than among her fellow students.