Growth of income and welfare in the U.S, 1979-2011

The major consistent findings include what in the colloquial is referred to as the “hollowing out” of the middle class. According to these estimates, the income of the middle class 2nd and 3rd quintiles increased at a rate of between 0.1% and 0.7% per annum, i.e., barely distinguishable from zero. Even that meager rate was achieved only through substantial transfer payments. In contrast, the income of the top 1% grew at an astronomical rate of between 3.4% and 3.9% per annum during the 32-year period, reaching an average annual value of $918,000, up from $281,000 in 1979 (in 2011 dollars). Hence, the post-tax, post-transfer income of the 1% relative to the 1st quintile increased from a factor of 21 in 1979 to a factor of 51 in 2011. However, income of no other group increased substantially relative to that of the lowest quintile. Oddly, the income of even those in the 96-99 percentiles increased only from a multiple of 8.1 to a multiple of 11.3. We next estimate growth in welfare assuming diminishing marginal utility of income. A logarithmic utility function yields a growth in welfare for the middle class of roughly 0.01% to 0.07% per annum, which is indistinguishable from zero. With interdependent utility functions only the welfare of the 5th quintile experienced meaningful growth while those of the first four quintiles tend to be either negligible or even negative.

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BobStackFan4Life said:

http://www.nber.org/papers/w22211

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Deacon923 said:

what does "welfare" mean in this context? without reading the whole paper I can't tell, but it doesn't seem to be referring to "welfare" as "government assistance programs" but rather the more general meaning of welfare as "how people are doing". Also - is the "5th Quintile" the lowest or the highest?

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BobStackFan4Life said:

http://www.nber.org/papers/w22211

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BobStackFan4Life said:

I assume they mean "government assistance programs". Think 5th quintile is the bottom 20%.

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