# On Income Disparity

Author: KaiserPublished: Oct 10, 2005 at 9:51 am 6 comments

Income distribution is often presented in "Lorenz curves".  The following is an attempt to defy conventional wisdom:

A few elements of this chart are confusing.  The same set of shading is used to classify two different variables.  The annotation of "Top" and "Bottom" appears arbitrary.  The rightmost column, representing top 0.1% of taxpayers, has the same width as the leftmost column, representing the bottom 20%.

Why not stick with a Lorenz curve?  This presentation is versatile.  The diagonal is a line of "equality": for example, the (20%,20%) point on this line indicates that the top 20% of the population (ranked by decreasing income) took exactly 20% of the income growth in 2003.

A lot of information can be read off this chart: the top 0.1% earners took about 25% of all income increase; the top 1% took 40%; the top 20% took almost 80%.  In general, a curve that bends away from the diagonal (like this one) depicts severe inequality.

However, in many practical situations as is here, comparison with the diagonal is meaningless.  The "ideal" society would probably not be one in which annual income growth is equally distributed among all taxpayers.  (I'll leave the rationalization to economists and sociologists.)
More helpful is a graph that shows relative changes in inequality.  If I add a second curve (orange) showing the distribution of income (as opposed to income growth), then we see a trend of increasing inequality!  The large bend from the diagonal indicates that income distribution is far from "equal"; what's more, the distribution of incremental income is even more skewed.

For more analysis of graphs in the media: Junk Charts

Reference: "At the Very Top, a Surge in Income in '03", New York Times, Oct 5 2005.

Ed/Pub:LisaM

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• ### 1 - Dave Nalle

Oct 10, 2005 at 12:57 pm

Very dry and not particularly informative. You might want to add these little tidbits to your charts. How about a chart of the total dollar increase in income in each income group?

You might also point out that the fact that the rich got richer by more than other groups, that the other groups increased in income is a very good thing in and of itself. And remember the rich don't get rich at the expense of the rest of the population.

dave

• ### 2 - Maurice

Oct 10, 2005 at 1:42 pm

I would hope the rich get richer! Otherwise they are doing something wrong. Also it is natural in a free market system for wealth disparity to increase. Low level jobs requiring no trainning will continue to drop in value as more and more specialized trainning is required for the workforce.

• ### 3 - alpha

Oct 11, 2005 at 7:02 pm

David is right. There is a lot more to be added to a group of charts.

Also, I recently realized (has everyone else?) that in the spectrum/continuum of wealth and poverty there is a meeting ground. One end is "dirt poor" and the other is "filthy rich".

Interesting.

The recent years has concentrated, obviously, on the filthy rich to the detriment of the (middle class and...) the dirt poor.

• ### 4 - Kaiser

Oct 12, 2005 at 11:31 pm

If you refer back to the NYT data table, you'll find that every segment except the top 1% experienced negative real income growth during this period. The income growth of the bottom 99% could not keep up with inflation. If I adjust the data for inflation, the graph would look worse.

• ### 5 - Dave Nalle

Oct 13, 2005 at 10:31 am

Actually, the CPI only increased by 1.8% in 2004, so every group except the two lowest gained more money than their expenses went up. In addition, the Bush tax cuts have increased effective income by an average of 5% over the last 4 years, with the increase weighted towards the lower end of the income scale. So the reality is that between tax reductions and income increases everyone is significantly better off.

I suggest you familiarize yourself with some of the figures in this document: Budget Chart Book

Dave

• ### 6 - Kaiser

Oct 16, 2005 at 3:15 pm

The data came from 2003 not 2004.

Personal attacks are NOT allowed.

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