The chart above, courtesy of Census Bureau data, illustrates household income distribution in the United States based on the most recent information available. You can click on the chart for a larger version. I find this chart interesting for any number of reasons. Note that it illustrates in one compact form the distribution of income, median income, the five income quintiles, and the incomes of the top 10%, 5%, and 2% of income earners.
There are any number of observations I could make about this chart. I’ll limit myself to just four.
- Why aren’t there more households to the left of the highest bar in the chart?
- Why is the highest bar in the chart, representing 6% of households, the $15,000-$20,000 bar?
- What’s with the two bars at the far right of the chart, the highest income earners?
- How has the chart changed over time?
Last question first. The first time I saw a chart like this was a little over 40 years ago. I found it a bit shocking back then. It was actually pretty similar to this chart other than that the income numbers were all smaller. The biggest change I can recall is that those two bars at the far right are both higher than they used to be and, if I remember correctly, the several bars just to the left of them are lower.
Now, why aren’t there more households to the left of the highest bar? I think that’s an artifact. It’s been created by policies like the minimum wage and various policies that produce non-wage and non-taxable compensation, e.g. Medicaid. Below a certain level earning taxable income doesn’t make any sense since it lowers non-wage, non-taxable income. It also might be an artifact of reporting.
I think it’s pretty clear why the highest bar in the chart is where it is: essentially, that represents household with one wage earner, working full-time, earning minimum wage. They don’t comprise a vast number of household but there are enough of them to make it the highest bar. I also think that the several bars just to the right of that one largely consist of households with more than one wage earner, both earning minimum wage or, possibly, slightly above minimum wage.
That brings us to the real question. Why are those two bars at the far right of the chart so high? Beats me. I can’t think of any likely natural explanation. Note that the second bar from the right should actually be thought of as ten bars. Each of those bars would be quite a bit lower than that single bar but as depicted it neatlly illustrates a point I’ve made around here fairly often around here: you’ve got to think beyond the top 1% of income earners.
As I say although I can’t think of any likely natural explanations I can think of explanations. It isn’t intelligence. Intelligence isn’t distributed in the population that way and after you get beyond two standard deviations the correlation between income and intelligence just isn’t that close. The explanations I can come up with include inherited wealth and various other forms of rent-seeking. There are about 115 million households in the United States. 1% of that is 1.15 million households. 2% of that is 2.3 million households.
Remember that the tail on the right is actually very, very long. To my eye that still doesn’t explain why the second bar (actually ten bars combined) is as high as it is. Even if you divide it by ten it’s still too high as is the bar on the right which is actually many, many more bars.
There are roughly a half million physicians in the country. Nearly all of them are in those last two bars in the chart. My inference is that although they comprise a big chunk of those bars they don’t comprise all of them. Lawyers who graduated from the top 15 law schools comprise another chunk of those two bars as do middle and upper level managers of medium-sized and large companies and some top managers at small companies.
How much of what’s being illustrated by those two rightmost bars is the distortionary effect of our outsized financial sector?