HLEG workshop on Measuring Inequalities of Income and Wealth, 15-16 September 2015, Berlin, Germany, More information at: http://oe.cd/hleg-workshop-inequalities-income-and-wealth
HLEG thematic workshop on Measuring Inequalities of Income and Wealth, David Johnson
1. A Consistent
Data Series
to Evaluate
Growth and
Inequality
in the
National
Accounts
David Johnson with D. Fixler, A. Craig, K. Furlong, Bureau of Economic Analysis
HLEG Workshop on Measuring Inequalities in Income and Wealth
September 16, 2015
3. bea.gov
What happens when growth and median
household income diverge?
CBO Median before tax income
NYTimes, Sept 17 2014
4. bea.gov
What happens when growth and median
household income diverge?
CBO Median before tax income
NIPA Adjusted Median income
NYTimes, Sept 17 2014
6. bea.gov
Distributional Measures are important
in US and Internationally
Stiglitz-Sen-Fitoussi Report (2009):
Recommendation 4: National statistical offices should “give
more prominence to the distribution of income,
consumption, and wealth.”
“…Developing distributional measures of full [national
account] income is, however, a formidable task. The most
difficult challenge is to allocate to various groups those
income flows that have been imputed at the macro level…for
example, imputed rents from own-occupied housing.” (pg.
136)
The Organization for Economic Development and
Cooperation (OECD) created an “expert group” (2010 –
present) to examine the feasibility of constructing
such estimates 6
7. bea.gov
Goal is to measure the distribution of both
income and consumption in the National Accounts
8. bea.gov
Purpose of Research
• BEA FY11 budget proposal, which included producing “a
decomposition of personal income that presents median as
well as mean income…”
• Demonstrate that one can use NIPA data to adjust survey
data to obtain alternative distributions and measures of
inequality.
• Because survey data suffer from under-reporting, determine
how to deal with measurement error in income
9. bea.gov
Under-reporting in CE and CPS
(ratio of survey totals to national aggregates)
0.5
0.55
0.6
0.65
0.7
0.75
0.8
0.85
0.9
0.95
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
CPS/PI - Katz (Fixler/Johnson)
CE/PCE - McCully
10. bea.gov
Purpose of Research
• BEA FY11 budget proposal, which included producing “a
decomposition of personal income that presents median as
well as mean income…”
• Demonstrate that one can use NIPA data to adjust survey
data to obtain alternative distributions and measures of
inequality.
• Because survey data suffer from under-reporting, determine
how to deal with measurement error in income
• Build on earlier work at BEA to produce distributional
estimates (mean, median, Gini and by quintile) fully
consistent with the national accounts
11. bea.gov
BEA (and OBE before) produced regular
estimates of the distribution of personal income
12. bea.gov
Need a Consistent Measure of Income
SOURCE Haig/ Simons Census PI (BEA) CBO SCF
Employment income Yes Yes Yes Yes Yes
Employer contribution to Soc Sec Yes No Yes Yes No
Employer-provided benefits Yes No Yes Yes Yes
Investment income Yes Yes Yes . Yes Yes
Imputed investment income Yes No Yes No No
Government cash transfers Yes Yes Yes Yes Yes
Employee contribution to Soc Sec Yes Yes No (subtract) Yes No
Retirement income Yes Yes No (only int.) Yes Yes
Cash assistance from others Yes Yes No Yes Yes
Realized capital gains Yes No No Yes Yes
Lump sum (IRA disbursements) Yes No No Yes Yes
In-kind government transfers* Yes No Yes Yes Yes (housing)
Other In-kind transfers* Yes No No No No
Home production Yes No No No No
Imputed rent* Yes No Yes No No
Unrealized capital gains Yes No No No Yes (stock)
Savings withdrawals Yes No No No No
13. bea.gov
Data and Methods
Begin with Household Income from Current Population
Survey (CPS), 2000-2012
Integrate spending, benefits and housing data from the
Consumer Expenditure (CE) Survey, 2000-2012
Statistically match CE to CPS microdata using a variety of
demographic characteristics.
Create a concordance for Personal Income for over 65
detailed categories
Ratio adjust each category for each household so that
total Personal Income matches NIPA totals.
Adjust measures to 2006($) using PCE deflator
14. bea.gov
Creation of Pseudo Income – basically Money
income less retirement and some disability
Category Source
Addition/
Subtraction
Wage and salary disbursements CPS Add
Farm CPS Add
Nonfarm CPS Add
Other private business rental income (includes tenant-occupied housing & royalties) CPS Add
Received by persons including fiduciaries, IRA-KEOGH, mutual fund private pensions CPS Add
Household dividend income CPS Add
Social security /1/ CPS Add
Unemployment insurance CPS Add
Railroad retirement CPS Add
Pension benefit guaranty CPS Add
Veterans' life insurance CPS Add
Workers' compensation CPS Add
Temporary disability insurance CPS Add
Veterans pension and disability CPS Add
Veterans readjustment (education & training) CPS Add
Black lung benefits CPS Add
Supplemental security income CPS Add
Other public assistance and income maintenance CPS Add
Education assistance CPS Add
All other government social benefits CPS Add
Household current transfer receipts from NPISHs CPS Add
Alimony received CPS Add
Child support received CPS Add
15. bea.gov
Personal Income is Pseudo income plus/minus
these items (from both CPS and CE)
Medicare /2/ CPS Add
Medicaid CPS Add
Group health insurance CPS Add
Old-age, survivors, disability, and hospital insurance CPS Add
Military medical insurance CPS Add
Military medical insurance CPS Add
Other state & local medical care CPS Add
Supplementary medical insurance (Medicare) CE Subtract
Pension and profit sharing CPS Add
From employee pension plans CPS Add
Imputed interest received by households from depository institutions CE Add
RICs to persons CE Add
RICs to private pensions CPS Add
Life insurance carriers CE Add
Imputed interest received from property and casualty insurance companies CE Add
From employee pension plans CE Add
Group life insurance CPS Add
Rental value of owner-occupied dwellings CE Add
Intermediate expenses CE Subtract
Taxes on production & imports less subsidies CPS Subtract
Current transfer payments (net insurance settlements) CE Subtract
Net interest CE Subtract
Consumption of fixed capital CE Subtract
Alaska dividend payments CPS Add
Workers' compensation CPS Add
Supplemental unemployment CPS Add
Other CPS Add
Supplemental Nutrition Assistance Program (SNAP) (formerly Food Stamps) CPS Add
Refundable tax credits CPS Add
Energy assistance CPS Add
WIC Food CPS Add
Retired military personnel & dependents at nonmilitary facilities CPS Add
State & local employment & training CPS Add
Other current transfer receipts, from business (net) CE Add
Employer’s actual social contributions CPS Subtract
Employee’s actual social contributions CPS Subtract
Self-employed CPS Subtract
16. bea.gov
Comparison of income measures
CPS NIPA
Money Income (Census) $63,593
Wages and Salaries $47,857 $50,091
Finance and Business $6,058 $17,003
Government transfers $5,924 $7,779
Retirement and Other $3,754 N/A
Less
Retirement and Other $3,754 N/A
Comingled factors $213 N/A
Equals
Pseudo Income $59,626 $76,137
Plus
Financial $13,765 $13,765
Health and Other Transfers $5,517 $8,304
Health $9,370 $12,274
Net Transfers -$3,853 -$3,970
Personal Income $78,908 $98,206
17. bea.gov
Comparison of income measures
CPS NIPA
Money Income (Census) $63,593
Wages and Salaries $47,857 $50,091
Finance and Business $6,058 $17,003
Government transfers $5,924 $7,779
Retirement and Other $3,754 N/A
Less
Retirement and Other $3,754 N/A
Comingled factors $213 N/A
Equals
Pseudo Income $59,626 $76,137
Plus
Financial $13,765 $13,765
Health and Other Transfers $5,517 $8,304
Health $9,370 $12,274
Net Transfers -$3,853 -$3,970
Personal Income $78,908 $98,206
23. bea.gov
Comparison to Expert Group on the Distribution of
National Accounts, CE vs. EGDNA (2012)
23
-50,000
0
50,000
100,000
150,000
200,000
250,000
All Q1 Q2 Q3 Q4 Q5
Income after tax Annual expenditures
Savings
-50000
0
50000
100000
150000
200000
250000
All Q1 Q2 Q3 Q4 Q5
Disposable Income Annual expenditures
Savings
EGDNACE Published
Results*
(2012)
*Money income concept
Saving Rate =
-64%
CE
24. bea.gov
Issues and Future work
Extend the estimates back to 1979
Complete construction of distribution for PCE, and obtain
the average propensities to consume
Differential under-reporting -- scaling factors may be
larger for higher income
Account for under-reporting of receipt of income
Compare to the distribution in the tax data, and link to
IRS income data
Continue to evaluate income, consumption and wealth
and link the distributions to the national accounting
framework
26. bea.gov
Need Income, Consumption and Wealth
Workhorse Life-cycle model
Need a consistent measure of C, I and ∆NW.
𝛽 𝑡 U(𝑐𝑡, 𝛼 𝑡)
s.t. 𝑐𝑡 + 𝑎 𝑡+1 ≤ 𝑦𝑡 + 𝑎 𝑡(1 + 𝑟𝑡)
Hence
𝑦𝑡 = 𝑐𝑡 + 𝑎 𝑡+1 - 𝑎 𝑡(1 + 𝑟𝑡)
𝑦𝑡 = 𝑐𝑡 + ∆NW
Y = C + ∆NW - Haig-Simons measure
27. bea.gov
Ginis for income, consumption and wealth
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Money Income
(Census)
After tax and
Transfer Income
(CBO)
Consumption
(PSID –
Attanasio/
Pistaferri)
Consumption
(CE - FJS)
SCF Household
Income
(Wolff)
SCF Household
Wealth
(Wolff)
28. bea.gov
Is Inequality related to Growth
Is there a Kuznets Curve
0
10000
20000
30000
40000
50000
60000
0.36
0.38
0.4
0.42
0.44
0.46
0.48
Gini Coefficient
Per capita GDP
Source: US Census Bureau, Equivalent money income; Bureau of Economic Analysis
30. bea.gov
Ratio of reported CPS AGI and IRS 1040 AGI
(less capital gains) by percentile, 2010
Fixler, D. and Johnson D., 2012, “Accounting for the Distribution of Income in the U.S. National Accounts”
Editor's Notes
And hence the purpose of our research…
And hence the purpose of our research…
What is income. Think about yours. What would you include in income – your social security benefits, would you subtract your contributions? These are treated differently in national accounts and household data.
The focus of this paper is to evaluate the level, trend, and distribution of personal income (as measured by BEA).
Personal income, which consists mainly of compensation, transfer payments received, and investment income, has averaged about 85 percent of GDI over the period 1980 to 2010.
There are a multitude of income measures used by researchers and the government. This Table compares Personal Income, Census money income, the CBO income measure, and Adjusted Gross Income (AGI) to a Haig-Simons measure and the international measure recommended by the Canberra Group (Canberra (2011)). As
Table 1 shows, there are many components of income that are included in the measures. The first column shows those included in a Haig-Simons definition of income. Only three components are included in all income measures – employment income, investment income, and cash transfers from the government.
Looking at Table 1, the main differences in the income definitions are the treatment of imputed income, retirement income, capital gains (realized and unrealized), unrealized interest on property income and the inclusion of government and in-kind transfers. Even the Canberra definition, which is viewed as the standard in international comparisons, is different than the BEA definition, which follows the SNA.
As discussed this morning, home production is usually excluded.
What we do is use the Current Population Survey (CPS) to obtain the distribution of income and then adjust each household’s income by an underreporting factor so that the totals match the Adjusted personal income
Use PCE deflator
Use NIPA pre-revision.
Then use SOI tables (see …)
Median income falls 6.2%, yet personal income increases 4%
And bottom decile increases 8.5%, instead of falling 9.4%
Top decile increases 11.6, not 1.7
Here we try to visualize the averages vs the distribution.
Yet, this figure suggests that inequality has increased with economic growth.
Other researchers … have suggested that these are negatively correlated across countries
Or that increases in inequality yields to decreases in growth
But the key issue that the Stiglitz report suggests is that this increase in growth coupled with the increase in inequality may mean that only the rich got richer – we don’t know without more information
As Angus states, we need to understand the numbers. Hence, this picture and comparing these numbers may give suggest no problems when there is one. Afterall, real per capita more than doubled over these 4 decades and inequalty only increased 24%
BUT – one should never make this comparison since the numbers are based on completely different measures of income – but this figure has been a challenge ever since Kuznets first help create BEA.
