Tuesday, December 05, 2006

Less Spending Inequality Than Income Inequality

According to the 2005 Consumer Expenditure Survey, just released by the Bureau of Labor Statistics, there's a lot less spending inequality than income inequality.

In 2005, the lowest income quintile (bottom 20%) spent an average of $11,247 per person, compared with $15,843 for middle income quintiles, and $28,272 for the top quintile (top 20%). The top group is spending only 2.5 times as much as the bottom group, and 1.8 times as much as the middle classes. That is not major inequality.

The differences between per person spending are even smaller for food and housing. Those in the top 20% of income earners spend $3,141 on food per person and those at the bottom 20% spend $1,792, i.e. the top group spends less than twice as much. Middle quintiles are somewhat in between.

With health care spending, an area where conventional wisdom holds that the poor are falling behind, the top group spends about 1.5 times the lowest group. For clothing, the top group spends just over twice the amount as the bottom group.

Why is spending inequality per person less than many popular measures of income inequality?

The average number of people for a household in the lowest quintile is 1.7. It increases to 2.5 people for the middle quintile and reaches 3.2 people for the highest quintile. If a larger amount of income is divided among more people, the spending per person falls.

Also, the top group has more earners. The top quintile averages 2.1 earners, compared with 1.4 earners for the middle quintile, and half an earner for the lowest quintile.

And per-person spending over the past 20 years shows that all groups are spending more in real terms.

The lowest quintile is spending 14% more in 2005 than it was in 1985, the second quintile 16%, the third quintile 11%, the fourth 13%, and the top quintile is spending an additional 16%.
There's no striking inequality there, especially since people don't just stay in one quintile. Many have moved up to other quintiles in the 20-year time period as they get older and more experienced and marry other earners.

Read more here.


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