GINI: Income Mobility and Disparity

Much has been said during the last few years about income disparity.  And not just the disparity, but the mobility of people from one income group to another.

I’ve done some reading last night and this morning a thought struck me:

GINI measures the disparity in household income.  Consider Dick and Jane and their neighbors John and Mary.

Dick works in retail and is making \$28,000 a year.  Jane works in service and makes \$32,000 a year.

John works as a manager in a factory making \$70,000.  Mary stays home and cares for their family.

The disparity between Dick and Jane vs. John and Mary is low.  Dick and Jane earn \$60,000 a year while John and Mary earn \$70,000.

Now, consider Dick and Jane get divorced.

The disparity between two households earning \$28k and \$32k compared to the one earning \$70k is much higher, and the GINI goes up.  But nothing changed as far as economic earnings are concerned.  In fact, if you take this one step further, consider John and Mary also suffer divorce.  Now the incomes for FOUR households is:

• \$0
• \$28,000
• \$32,000
• \$70,000

A very disparate view when compared to the initial comparison of \$60,000 and \$70,000.

In the same way that the demographics of America impact life expectancy statistics [Japanese Americans live as long as native Japanese] I suspect that demographics impact the GINI.  I also suspect that this isn’t calculated into the analysis when people discuss the GINI.

5 responses to “GINI: Income Mobility and Disparity”

1. Size of households and the like is taken into account. Moreover this is also a comparative index, used by the CIA as it is the best model of income equality. WIkipedia has a good entry on it, read down past all the equations and it gives a solid listing of the advantages and disadvantages of the GINI index: http://en.wikipedia.org/wiki/Gini_coefficient

Note that the pre-tax and transfer GINI index for the US is .46, while Germany’s is .51 and Denmark’s is .42. After tax and transfers the US GINI index drops to .38 while Germany’s drops to .30 and Denmark’s to .23. The post tax and transfer level in the US is the most unequal of the advanced industrialized states with Poland and Portugal at similar levels. That means only that our tax and transfer system doesn’t equalize wealth as much as anybody else’s in the advanced industrialized world. Whether that’s good or bad will depend on your ideology. Also class mobility is low in the US. Anyway, I have a post with the pre and post tax and transfer GINI indices here: http://scotterb.wordpress.com/2011/04/12/fixing-the-budget/

• Size of households and the like is taken into account.

I did read that stuff, but will again. However, none of it mentioned any normalizing for number of working adults in the household. There is a slick breakdown I’ve seen that shows each quintile of earners. As you go from the bottom to the top, the number of earners increases. From less than in the lowest 20% of households to more than 2 for the highest households.

That means only that our tax and transfer system doesn’t equalize wealth as much as anybody else’s in the advanced industrialized world.

Correct. Now, question. What is the word to describe the state taking money from one group of people and giving it to another in an effort to “equalize wealth”? The lazy conservatives, I am one, call it Socialism.

Clearly.

Also class mobility is low in the US.

Well, we’ll see. I have seen GINI used as a descriptor of income mobility.

• Actually traditional conservatism created the first social welfare systems because conservatives viewed society as a collective organic whole, with government responsible for maintaining social order, protecting customs and traditions (usually related to religion) and making sure there weren’t too many people hurting or suffering. That traditional form of conservatism still exists in Europe and thus conservatives tend to support social welfare programs and universal health care. But it’s not socialism, socialism is something very different.

Your definition of socialism leaves no real distinction between traditional conservatism and socialism, while in reality the two are set against each other.

• Your definition of socialism leaves no real distinction between traditional conservatism and socialism, while in reality the two are set against each other.