Growth vs. Distribution

Lane Kenworthy has a very useful post on the decoupling between average (mean) income and median income. Average income, or GDP per capita, has been growing much faster than median income over the last 30+ years. Here’s his first graph:

But as Kenworthy notes, this could be caused be a number of statistical issues:

One objection is that the price deflator typically used to adjust GDP per capita for inflation differs from the deflator used for median family income…A second concern has to do with GDP per capita as an indicator of economic advance…Also, the number of persons has increased less rapidly than the number of households, so a per capita (per person) measure of GDP could mislead…A third worry is that the income measure used to calculate median family income is too thin. If a growing portion of GDP has gone to employer benefits, that would help middle-class households, but it wouldn’t show up in these income data.

He then corrects for these concerns with the red lines in the following graph:

And concludes that decoupling is a real issue.

From my point of view, the interesting thing to note is that growth, in per capita GDP or household income, looks remarkably steady in this picture, contra to Cowen’s Great Stagnation hypothesis. “Technological growth,” or being able to produce more per person, seems to be quite healthy.

So the slow down in median income seems to come not from a slow down in technological growth, as Cowen would have you believe, but from a change in the distribution of income.



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