A More “Equal” Inequality:  The falling tide.

By KOBI ABAYOMI

Kobi Abayomi is an Asst. Professor in ISYE-Statistics at Georgia Tech

To see more graphs depicting the race to the bottom go to: http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#the-gap-between-the-top-1-and-everyone-else-hasnt-been-this-bad-since-the-roaring-twenties-1

There has been more than just a bit of attention to the gross increase in economic inequality in the United States over the past forty some years.

Notwithstanding a debate about the causes — from an increasingly regressive tax policy, the dimunition of American educational quality at even the best institutions, to the post-industrial financialization of the economy — or the effects — recalcitrant, persistent malaise, a surprising maladjustment of local and national budgets, or, as Nicholas Kristof puts it, a “melancholy of the soul” — there is an interestingly complementary collateral phenomenon in wealth and income between and within American blacks and whites.

Using data on wealth and inequality from the University of Michigan’s Health and Retirement Survey (HRS) [i], via the Theil Index (an econometric measurement for inequality across and within groups) [ii], we find an apparent decrease in wealth (asset) and income (salary) inequality during the housing bubble boom years from 2000-2008.

This may not be surprising: while real differences between black and white household incomes and wealth remain shockingly disparate — we might expect some lessening of inequality in good times and worsening in bad.

More notable, perhaps, is the apparent increase in within group wealth inequality and the statistically significant increase in within group income inequality in the HRS data. This suggests a divergence of income and wealth share to the upper percentiles of the population, even after separating blacks from whites.

This seems to indicate the increasing presence of a black upper class, within the lower class status of blackness: blacks are becoming internally more unequal — more similar to whites vs. blacks — in income and wealth. [iii]

Any positive implications of these observations are not completely clear, especially as the barriers to black American wealth accumulation — employment, education, and parental support — have, if anything, grown larger.

More appropriately, perhaps, this phenomenon may be placed as further evidence of gross post-modern economic stratification, rather than some benign apparition of post-racial economic bonhomie.

This may not be the post-Obama society any of us are looking for, where even the poorest among us particulate into working poor and abjectly impoverished. It may be, sadly, the one we cannot avoid.

[i] Health and Retirement Study, public use dataset. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA U01AG009740). Ann Arbor, MI, (2010).

[ii] Theil, H. (1967) “The Information Approach to the Aggregation of Input- Output Tables”, 49, 4, 451-462.

[iii]Abayomi, K and Darity Jr., W. “A Friendly Amendment of the Theil Index and Consequent Test for Across and Within Theil Inequality”
available here.

February 9, 2011  
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