Keeping tabs on financial inequality isn’t straightforward. For instance, should one focus on income alone or take other factors into account like wealth and debt? Timescale is another issue: snapshot data can be misleading, but longitudinal studies have their limitations too. Then there’s the question of what level at which to measure inequality: wages are earned by individuals, but personal finances tend to operate at the level of the household.
It is useful and convenient to measure inequality in terms of household income, but as Alex Pollock argues in a piece for the American Enterprise Institute there are complications:
“One of the most commonly cited numbers in discussions of inequality is the trend in median household income, often used as if it settled the issue. Using median household income poses a fundamental problem, however. It conflates two measurements — changes in the composition of households and changes in income — and thus can easily mislead us.”
In America – as in Britain – household composition is changing:
“The percent of married couple households has fallen from more than 60 percent in 1980 to less than 50 percent in 2010. One-person households have risen from 23 percent to 27 percent of households in this period”
This, in itself, can have a significant impact on household-based measures of inequality:
“Shifting from two-earner households to one-earner households lowers the median household income, even if everybody’s income is the same as before.
“The number of households has grown much more rapidly than the population. There were 52 percent more households in 2013 than in 1980, but only 39 percent more people. With fewer people per household, the same per-capita income means a lower per household income.”
Does this mean that the growth of income inequality is just a function of family breakdown (and of delayed family formation)? Not quite.
Other measures – such as those for median earnings – show that inequality is growing at the level of individual too. Then there’s the jaw-dropping fact that, under President Obama, 95 per cent of all the income gains since the start of the recovery have gone to the richest one per cent of Americans – which is something that can’t be explained by trends in household composition.
However, that doesn’t alter the fact that family structure makes a big difference to financial outcomes and, therefore, inequality:
“An excellent example of research along these lines is provided by Robert I. Lerman and W. Bradford Wilcox in a provocative new AEI study. ‘Between 1979 and 2012,’ they find, ‘among married parents, median [real] family income increased by 30%’ but overall median family income ‘rose by only 14%.’ How can that be? Well, ‘unmarried parents increased their share of families with children from 22% to 34%.’”
The evidence that family breakdown is a key driver of inequality cannot be dismissed. And yet the contemporary left, in both Britain and America, still refuses any sort of constructive engagement. One can only conclude that they care more about social liberalism than social justice.