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Tuesday, August 14, 2012

Are Americans Better Off Than the Dutch? Yes and No.

Dani Rodrik:

Are Americans better off than the Dutch?, by Dani Rodrik: For a lot of questions, comparisons of per-capita GDP yield the correct answer to a first-order of approximation. ... But what about the following question: Are Americans richer than the Dutch? The average income in the U.S. is about 20 percent higher in the U.S. (...adjusting for cost-of-living differences). So our inclination may be to answer in the affirmative. But when average incomes do not differ by a large margin, income distributions do matter a lot. It turns out that the answer to the question depends very much on where in the income distribution we look at.
The following chart shows the average incomes of different income groups in the two countries. In each country, population is split into 20 equally-sized groups (“ventiles”), ranked from the poorest to the richest.

The two distributions cross, roughly at the middle. The bottom 40% or so of the population is better off in the Netherlands, especially as we go lower in the distribution of income. The bottom 5% have nearly double the income in the Netherlands. The top 50%, by contrast, are significantly better off in the U.S.
So are the Americans better off than the Dutch? I cannot tell you. But I can say that per-capita GDP or aggregate productivity numbers cannot answer the question.
By the way, these data on income distribution come via Branko Milanovic. Check his book and web page. ...

    Posted by on Tuesday, August 14, 2012 at 12:21 AM in Economics, Income Distribution | Permalink  Comments (64)


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