Inequality, Consumption, Happiness, and Well-BeingSteven HorwitzIHS: Morality, Capitalism, & FreedomSummer 2010

An OverviewAre the rich getting richer and the poor

getting poorer? What about income mobility?

What exactly do the poor have in their houses and how does it compare past poor folks and the past middle class?

Are Americans happy? Does wealth make people happier? Is it just subjective?

Are we “objectively” better off? How does this relate to wealth?

Table 1: US Income Distribution by Quintile, 1997 Top 20% Second Middle Fourth Lowest

Percent of

Total Income 49.4% 23.2% 15.0% 8.9% 3.6%

Table 2: US Income Distribution to Top and Bottom Quintile: 1975 and 1997

Top 20% Lowest 20%

1975 43.2% 4.4%

1997 49.4% 3.6%

Change in income +$37,633 +$207

Table 3: Income Mobility 1979 to 1988  (US Treasury Data)

Bottom 20%

(1988)

Fourth 20% Middle 20% Second 20% Top 2-20% Top 1%

Bottom 20%

(1979) 14.2 20.7 25.0 25.3 14.4 0.3

Fourth 20% 10.9 29.0 29.6 19.5 10.8 0.3

Middle 20% 5.7 14.0 33.0 32.3 14.6 0.4

Second 20% 3.1 9.3 14.8 37.5 34.8 0.6

Top 2-20% 1.1 4.4 9.4 20.3 59.4 5.3

Top 1% 2.2 0.4 3.8 7.7 38.6 47.3

Table 4: Income Mobility 1975 to 1991  (PSID-UM Data)

Bottom 20%

(1991)

Fourth 20% Middle 20% Second 20% Top 20%

Bottom 20%

(1975)5.1 14.6 21.0 30.3 29.0

Fourth 20% 4.2 23.5 20.3 25.2 26.8

Middle 20% 3.3 19.3 28.3 30.1 19.0

Second 20% 1.9 9.3 18.8 32.6 37.4

Top 20% 0.9 2.8 10.2 23.6 62.5

Table 5: Absolute Average Income Change, by Quintile 1975-91 (1997 dollars)

Avg. Income

1975

Avg. Income

1991

Absolute

Change

Bottom 20% $1,263 $29,008 + $27,745

Fourth 20% $6,893 $31,088 + $24,195

Middle 20% $14,277 $24,438 + $10,161

Second 20% $24,568 $34,286 + $9,718

Top 20% $50,077 $54,431 + $4,354

Table 6: Income Mobility 1996-2005 (Treasury)

Lowest (2005)

Second Middle Fourth Highest

Lowest (1996)

42.4 28.6 13.9 9.9 5.3

Second

17 33.3 26.7 15.1 7.9

Middle

7.1 17.5 33.3 29.6 12.5

Fourth

4.1 7.3 18.3 40.2 30.2

Highest

2.6 3.2 7.1 17.8 69.4

Table 7: Household Consumption 1984-2005

% Households with: Poor 1984 Poor 1994 Poor 2003 Poor 2005 All 1971 All 2005Washing machine 58.2 71.7 67.0 68.7 71.3 84.0Clothes dryer 35.6 50.2 58.5 61.2 44.5 81.2Dishwasher 13.6 19.6 33.9 36.7 18.8 64.0Refrigerator 95.8 97.9 98.2 98.5 83.3 99.3Freezer 29.2 28.6 25.4 25.1 32.2 36.6Stove 95.2 97.7 97.1 97.0 87.0 98.8Microwave 12.5 60.0 88.7 91.2 1.0 96.4Color TV 70.3 92.5 96.8 97.4 43.3 98.9VCR 3.4 59.7 75.4 83.6 0.0 92.2Personal computer 2.9 7.4 36.0 42.4 0.0 67.1Telephone 71.0 76.7 87.3 79.8 93.0 90.6Air conditioner 42.5 49.6 77.7 78.8 31.8 85.7Cellular Telephone 34.7 48.3 0.0 71.3One or more cars 64.1 71.8 72.8 (2001) 79.5

source: http://www.census.gov/population/www/socdemo/extended-05.html and prior years

Table 8: Rich-Poor Gap in Consumption 2003-2005% Households with: Poor 2003 Rich 2003 2003 gap Poor 2005 Rich 2005 2005 gap Gap changeWashing machine 67.0 94.8 27.8 68.7 95.2 26.5 -1.3Clothes dryer 58.5 93.6 35.1 61.2 94.3 33.1 -2.0Dishwasher 33.9 86.1 52.2 36.7 88.4 51.7 -0.5Refrigerator 98.2 99.6 1.4 98.5 99.8 1.3 -0.1Freezer 25.4 44 18.6 25.1 43.7 18.6 0.0Stove 97.1 99.6 2.5 97.0 99.7 2.7 0.2Microwave 88.7 98.6 9.9 91.2 98.8 7.6 -2.3Color TV 96.8 99.5 2.7 97.4 99.5 2.1 -0.6VCR 75.4 97.7 22.3 83.6 98.5 14.9 -7.4Personal computer 36.0 87.9 51.9 42.4 92.7 50.3 -1.6Telephone 87.3 98.6 11.3 79.8 97.1 17.3 6.0Air conditioner 77.7 90.3 12.6 78.8 89.1 10.3 -2.3Cellular Telephone 34.7 88.6 53.9 48.3 92.4 44.1 -9.8

Table 9: Work Hours Needed to Buy Standard Consumption Goods

Figure 1: Economic Freedom and Self-Reported Happiness

Figure 2: Life Satisfaction and GDP per Capita

Happiness “set points”?

GDP per Capita and Well-Being“A large recent study by OECD economists

Romina Boarini, Asa Johansson, and Marco Mira d’Ecole focused on the relationship between GDP per capita and alternative measures of well-being in the OECD nations. The authors found significant positive correlations of GDP per capita with self-sufficiency, average years of schooling, life expectancy at birth, healthy life expectancy at birth, mortality risks, and volunteering. Further, GDP per capita was significantly negatively correlated with income inequality, relative poverty, child poverty, and child mortality.”

Source: Will Wilkinson, “In Pursuit of Happiness Research: Is It Reliable? What Does It Imply for Policy?” Policy Analysis 590, April 12, 2007, Cato Institute.