The American Spectator

Special Report

p>Income inequality has been an issue of considerable contention among intellectuals as of late. Unfortunately, there are few areas where the relevant statistics are fraught with so many shortcomings. Thus, people who are intellectually honest may unintentionally mislead because the numbers they use do not show what they think such numbers do. For example, a blog post by the American Prospect 's Ezra Klein shows why statistics on income inequality can make inequality look worse than it really is: br> /p>

I was thinking through Robert Reich's proposal to mandate that countries who want to trade with us set a minimum wage of half their median wage, and I ended up digging into some median wage statistics domestically. For those fuzzy on the terms here, median means, essentially, in the middle. If I make $6, and Matt makes $7, and Tom Friedman makes $150, the median wage is $7. The mean is the average, so in this example, it would be $54.33. If we outsource Tom's job to a bright Bangladeshi making $1, my wage is now the median, and the mean is $4.66.

America's mean wage in 2005 was $35,448.93. That's the number you generally hear quoted. Its median, however, was $23,962.20. And if you want another example of rising inequality, in 1990, the median was 71% of the mean. In 2005, it was 67%. Indeed, over the same time period, the mean wage increased by 75%. The median only increased by 65%.

br> The mean and median numbers Klein uses suggest that the incomes at the top are growing much faster than those at the bottom. However, data on wages are some of the most misleading as this excellent article by Tim Worstall shows.

The fact is our economy has expanded over the last two-plus decades so that people who previously would have a hard time entering the labor force now do so with much less difficulty. As a result, more housewives are able to get jobs (see table 584 of the 2007 statistical abstract (pdf)). Also finding access to such jobs are immigrants. This nation has seen more legal immigration in the last 25 years than at any time since the beginning of the last century (see table 5 of the 2007 abstract (pdf)). However, such jobs are often low wage because those getting them usually either want part-time work or are entering the labor force with few skills.

This increase in low-wage workers results in downward pressure on means and medians. Yet the numbers Klein points to have gone up. That can only happen if those already in the workforce are seeing their wages rise. When those two phenomena converge, it's also likely the difference between the mean and median will, as Klein noted, increase, making inequality appear as though it has risen.

topics:
Trade, Immigration