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August 1995, Vol. 118, No. 8
L ast fall, the Census Bureau announced that in 1993 incomes had dropped and poverty had increased. The Agency also reported that income inequality had risen.1 The latter piece of news received much attention, similarly to other reports in recent years that have focused on the growing dispersion in the distribution of household incomes.
Inequalities of various kinds in the United States have become a popular topic in the media. But growing income inequality is particularly worrisome because of its immediate implications for social conflict and tension. The economist Paul Krugman recently wrote: "The ultimate effect(s) of growing economic disparities on our social and political health may be hard to predict, but they are unlikely to be pleasant."2 Krugman's statement is significant because the size of the 1992-93 increase in income inequality reported by the Census Bureau could be easily characterized as a surge. The Gini index, one of the tools the Agency uses to measure income inequality, rose from .434 in 1992 to .447 in 1993, the largest 1-year increase since the statistical series on household income inequality began in 1967.3 (See chart 1.) But this apparent surge was qualified by the Census Bureau in its analysis of the data.
The Census Bureau cautioned that the size of the increase may have been an artifact of technological changes made in how the data on income were collected in the Current Population Survey (CPS).4 In addition, other changes to the CPS could have affected the income data for 1993.
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1 See "Census Bureau Announces Number of Americans in Poverty Up for a Fourth Year although Poverty rate Unchanged; Household Income and Health Care Coverage Drop," United States Department of Commerce News, CB94-159 (Bureau of the Census, Oct. 6, 1994). See also Daniel H. Weinberg, press briefing statement on the 1993 income and poverty estimates (Bureau of the Census, Oct. 6, 1994).
2 See Paul Krugman, "Long-Term Riches, Short-Term Pain," The New York Times, Sept. 25, 1994, p. F9.
3 The Gini index is a bounded measure of income inequality that ranges from 0 (all households receive the same share of aggregate income) to 1 (one household receives all income). There are many other measures of inequality , such as the ratio of incomes to households at the 90th percentile of the distribution to those of households at the 10th percentile, the variance of the logarithms of incomes, the coefficient of variation, the Theil index and so on. While all of these measures are constructed differently and have different properties, each has indicated a growing dispersion in household income distribution in recent years.
4 See Weinberg's press briefing statement, p. 5.
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