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Tuesday, February 17, 2015

Inequality Has Actually Not Risen Since the Financial Crisis???

David Leonhardt reports on a study showing that income inequality has not increased since the Financial Crisis:

Inequality Has Actually Not Risen Since the Financial Crisis: The notion that income inequality has continued to rise over the past decade is part of the conventional wisdom. You’ve no doubt heard versions: The rich just keep getting richer. Inequality is higher than ever. Nearly all of the gains from the economic recovery have gone to the top 1 percent.
No question, inequality is extremely high from a historical perspective – worrisomely so. But a new analysis, by Stephen J. Rose of George Washington University, adds an important wrinkle to the story: Income inequality has not actually risen since the financial crisis began. ...

Amir Sufi , on Twitter, says not so fast, this study has flaws:

Amir Sufi @profsufi Who takes biggest income hit in recessions? @DLeonhardt takes a look at some research, but I don't think it's the best stuff out there.
Amir Sufi @profsufi The ideal thought experiment is to sort households ex ante on income (or wealth), and then track same households through recession.
Amir Sufi @profsufi The best study that actually does this uses SSA data and is here: fguvenendotcom.files.wordpress.com/2014/04/guvene…
Amir Sufi @profsufi All the research typically cited looks at percentiles of distribution, not same households over time. This can lead to strange results
Amir Sufi @profsufi During recessions, poor see bigger decline in wages than rich through entire distribution except very top. Very richest see biggest decline.
Amir Sufi @profsufi A technical figure, but it is incredibly important so worth taking time to look at it. From: fguvenendotcom.files.wordpress.com/2014/04/guvene…
Amir Sufi @profsufi The poor see larger decline in wages during recessions across entire distribution except for very top: pic.twitter.com/hbh8gzH0NL
Amir Sufi @profsufi Again, ideal experiment is sort households by income in 2006, then track SAME households through recession. Don't use percentiles.
Amir Sufi @profsufi @JedKolko authors say because those recessions were much more severe, so more typical patterns of "severe" recessions
Amir Sufi @profsufi Want to understand income inequality during recessions? Read Section VI.B.1 of this study. Best stuff I've seen. fguvenendotcom.files.wordpress.com/2014/04/guvene…

    Posted by on Tuesday, February 17, 2015 at 09:42 AM in Economics, Income Distribution | Permalink  Comments (36)


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