The Agenda

A Quick Note on Average Market Incomes

A few days ago, I was reading “Redistribution Policy and Inequality Reduction in OECD Countries: What Has Changed in Two Decades” by Herwig Immervoll and Lisa Richardson, and I was struck by a chart on average market incomes for different income groups. It should go without saying that this isn’t a perfect measure — it is hard to find truly comparable data, and averaging all households in, say, the bottom quintile is not necessarily the most intuitive thing to do. Moreover, scholars tend to focus on post-tax, post-transfer incomes to give a better picture of how households are faring, i.e., how much disposable income they have to secure various goods and services, etc.

The chart uses an index. The earliest data point available is assigned 100, and numbers are given relative to 100 in later years. For Denmark, average market incomes for the bottom 20% deteriorated from 100 in the mid-1980s to 84 in the mid-2000s. Chile, remarkably, went from 100 in 1990 to 173 in the mid-2000s. Note that this comparison isn’t apples-to-apples, as the starting time periods are different.

For the top 20%, in contrast, the average market income for Danish households climbed from 100 in the mid-1980s to 130 in the mid-2000s. For Chile, the top 20% climbed from 100 in 1990 to 155 in the mid-2000s.

So how did the United States fare? Between the mid-1980s and the mid-2000s, average market incomes climbed to 111 for the bottom 20% and to 139 for the top 20%. Let me stress that we shouldn’t draw any sweeping conclusions, as the mid-2000s were the height of the housing boom, which provided employment for a large number of less-skilled men, including undocumented workers, etc. One assumes that there has been considerable backsliding in terms of average market income since then. And of course an average of the top 20% isn’t going to capture gains in market income at the top 1 or top 0.1 or 0.01 percent of the income distribution.

Regardless, I found these numbers interesting, as post-tax and post-transfer numbers tend to obscure a sense of the changing structure of underlying economic opportunity. In Denmark, for example, it is possible that market incomes have deteriorated as a larger number of less-skilled young men have gone on disability, etc. We’ve certainly seen a parallel development in the United States, and in the context of ex-offenders, etc.