The Demography of Inequality:Income, Wealth and Consumption (1989-2010)

While there has been an increased interest in economic inequality, and especially the differences in trends for the top 1 percent vs. the other 99 percent, this increase in inequality is not a new issue. Most recent research shows that income and wealth inequality have increased over the past three decades. Researchers, however, dispute the extent of the increase. The extent of the increase depends on the resource measure used (income, wealth or consumption), the definition of the resource measure (e.g., market income or after-tax income; overall wealth or financial wealth), and perhaps most important, the population of interest. If the distribution of the population across the distributions of income, wealth and consumption are the same, one can summarize the demography of inequality—where various groups reside in the distribution— by considering just one measure. But they are not the same and therefore multiple dimensions need to be considered. This paper examines the demography of the distribution of income, wealth and consumption using data that obtains measures of both income and consumption from the same set of individuals, closely aligned with analogous wealth data from a different survey.

Inequality differentially affects different groups and the index by which we view inequality can matter quite a lot. Children and the elderly are worse off than non- elderly adults in income terms, but only children and their parents are increasingly and disproportionately found in the lower reaches of the wealth and consumption. And sometimes all lenses show the same picture, as children in single mother households, blacks, and those with a high school education are worse off than other children in terms of income, wealth or consumption. And there is a definite age pattern as well. The relative positions of children and elders can and do differ when using consumption or net worth instead of income. For example, the elderly are in a worse relative position than children using income, but the elderly are in a much better relative position than children using consumption and especially wealth. Even starker, children are worse off using consumption than they are using income, while the elderly are considerably better off using consumption than income. Intergenerational patterns of asset transfer in vivos, inheritances and bequests reinforce these patterns for the children and grandchildren of the high wealth elderly.