Daily Management Review

Experts: Statistics can help solve economic inequality problem


Economists and scientists have long used different data to estimate inequality. The Gini coefficient, one of the most famous such indicators, was invented in 1912. It shows the degree of social stratification, usually in terms of annual income.

David Evers
David Evers
However, some countries, such as Australia and the Netherlands, are trying to systematize the approach and form indicators that allow calculating how the economic benefits are distributed among different groups of the population. The Organization for Economic Cooperation and Development (OECD) is also trying to develop a standard methodology. 

In the United States, the Bureau of Economic Analysis (BEA) at the Department of Commerce is developing criteria for calculating what proportion of income from all goods and services produced in the country are received by the rich, poor, and middle classes. The US GDP in 2018 was $ 20.5 trillion, but this figure "tells us how fast the cake is growing, but not about size of the pieces that go to groups with different incomes," Congressman Carolyn Maloney told the newspaper.

After the financial crisis, BEA realized that they did not see how differently the recession and the subsequent economic recovery affected living standards of rich and poor households. In November 2018, the bureau experts published a paper where they tried to answer this question. They found that from 2007 to 2012, the average income of 10% of the richest households grew by 5.8%, while that of the remaining 90% decreased by 0.4% (taking inflation into account). This helped explain why most Americans did not feel improvement in life as a result of the economic recovery.

The Census Bureau is already calculating income distribution indicators. But the BEA approach is more comprehensive, it will take into account factors that it does not include, such as medical benefits and pension contributions, the WSJ notes. The experts are trying to identify all sources of income and determine how they are redistributed among households. This is not only salary, but also other sources, including assistance with government programs such as Medicare (health insurance for the elderly) and grocery cards, as well as benefits derived from financial assets, businesses that people own, living in own home without paying for rent.

Oddly enough, accounting for more data can reduce inequality. One of the most famous inequality researchers, Thomas Piketty of the Paris School of Economics, and co-authors showed that in 1960–2014 the share of 1% of the richest Americans in total income increased from 10 to 15.7%, but decreased from 68.6 to 60.9% for the least rich. But Gerald Auten from the Ministry of Finance and David Splinter from the Joint Committee on Taxation got other numbers: in both groups, the share almost did not change over the same period, amounting to about 8.5% and about 71%, respectively. Those who did not agree with conclusions of Auten and Splinter indicated that they took into account payments that cannot be considered disposable incomes, such as ration cards or health insurance subsidies.

The debate about inequality and how to deal with it has flared up with a new force. In recent decades, size of the middle class in developed countries has decreased, and the standard of living of its representatives has declined. According to a recent OECD report, this threatens economic growth. at that, data on the distribution of gains and losses during times of economic growth and downturns, as well as increasing or reducing inequalities, can be taken into account in policy implementation. 

source: wsj.com