Thursday, April 30, 2009

Inequality at Birth

Emmanuel Saez’s work on income inequality has been getting a lot of attention recently, for good reason. He has shown the extent to which inequality has grown rapidly in recent years. The benefit of economic growth this decade has gone almost exclusively to the extremely rich. The top 1% of the population now earn 25% of all income.
Yet I fear that this work may underestimate the true nature of inequality in our society. One of the flaw of much of the work on income and wealth distribution is that it fails to account for age. For example, my income is currently below the median household income; yet as a 23 year old with no dependents I am financially better off than the average American. The way that income and wealth distribution vary throughout the lifecycle of an age cohort is an important area where further research is needed.
In a perfect world everyone would start at the same place, as time passed differences would emerge due to talent, hard work and other elements of the meritocracy. Of course, that is not the world that we live in. Children born in wealthier families start life with a huge head start.
Marion Nestle recently noted that half of the infants in America received food aid last year. It is no secret that fertility rates in America are negatively correlated with income and education. Given the stark level of inequality present in America today, it stands to reason that inequality is even greater among newborns and young children than among the population at large.
This reality could have severe consequences for the future of the American economy and society. Numerous studies have shown how growing up in poverty can adversely affect a persons prospects for life. Is the future generation of Americans going to disproportionately suffer these consequences. Will the relative scarcity of Children from affluent backgrounds give those fortunate few an even larger advantage than the well off currently enjoy. Or will new opportunities open up to the children of the poor.
More research needs to be done to uncover the rates of inequality among households with young children, and to see how this rate has changed over time. A cohort based approach to income and inequality studies would provide a better understanding of how our society and economy is likely to evolve.
While more research is needed, I think it is clear that a significant commitment needs to be made to ensure that our future generation does not disproportionately grow up in poverty.

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