The American Spectator

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Special Report

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Consider a hypothetical example. Suppose that you have three workers, John, Sally and Matt. John makes $11 per hour, Sally makes $9, and Matt makes $7. For inequality, let's use both a comparison of the highest and lowest paid workers and the difference between the median and mean. On the first measure, Matt makes about 64 percent of what John does. On the second, the median wage is $9, while the mean (27 divided by 3) is also $9, which means that the median is 100 percent of the mean.

Now let's assume that a number of years go by, and two new workers, Tony and Lisa, enter the workforce for the first time, Tony being hired at $7 per hour while Lisa is hired at $5. Meanwhile, the three other workers have received a number of raises, so that both John and Sally make $15 per hour and Matt makes $10.

Who under this situation is any worse off? John, Sally and Matt now make more money than they did a few years ago. Tony and Lisa have gone from having no income to having income, and they are on their way to earning valuable job experience which will benefit them later on. Indeed, everyone is better off.

Yet look at what has happened to our measures of inequality. A comparison of the lowest to highest paid worker shows that Lisa makes only 33 percent of what John does. The difference between the mean and median has also worsened. The median is now $10, while the mean (52 divided by 5) is $10.40. The median has dropped to 96 percent of the mean.

However, it is hard to argue with a straight face that inequality has really increased -- after all, the real gap between John and Lisa has declined, since Lisa went from earning $0 per hour to earning $5. Unfortunately, actual government wage statistics don't count the folks who are not yet in the workforce, leaving us with an inaccurate picture of inequality.

That one has to very careful with income statistics lest they be misleading is not the only lesson to be derived here. More important, as Diana Furchtgott-Roth recently suggested, is that income inequality isn't very important. Rather, our focus should be on whether entry-level jobs remain open and abundant for those at the bottom of the income scale and whether, over time, people are able to move up the income ladder.

David Hogberg is a senior analyst at the National Center for Public Policy Research. He also hosts his own website, Hog Haven.

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