ByJosh Zumbrun
Shoppers—who probably do not even know the shape of the U.S. income distribution or the Gini coefficient—look at jewelry at the Cartier store on Rodeo Drive in Beverly Hills, Calif.KEVORK DJANSEZIAN/GETTY IMAGES
A small cottage industry of experts and academics likes to trumpet just how little Americans (and citizens all around the world) know about key social statistics, such as economic inequality and poverty. A new study released this month by the National Bureau of Economic Research shows that when it comes to inequality and poverty “ordinary people have had little idea about such things. What they think they know is often wrong.”
The researchers write that this widespread ignorance undermines theories that inequality should affect the way people vote. Voters can’t respond to inequality if they’re unaware of it. But are people as ignorant as this research suggests?
What’s the U.S. income distribution?
The first example of the research shows that people around the world were asked whether they could identify the shape of their country’s income distribution. Here’s the question. Can you guess the U.S. income distribution?
Most people around the world got this question wrong, according to the authors. Seems like a simple question whether society is a “Type A” barbell, a “Type B” pyramid, a “Type C” pear, a “Type D” diamond or a “Type E” tornado. And the U.S. Census Bureau produces a detailed table on the income distribution so we can see the correct answer for the U.S.
Wait a second, that’s not clearly any of those shapes.
The first thing that jumps out viewing this chart is the “Type A” barbell–the U.S. has a vast upper-middle class–with around six million families earning $200,000 or more. That wealthy group is surely an important aspect of the U.S. income distribution. But then, the U.S. also has important characteristics of that “Type C” pear. There are far more Americans bringing in modest incomes than next to nothing. This helps explain, perhaps, why the middle- and working-class doesn’t do more to support antipoverty programs.
Someone incredibly well-informed about the U.S. income distribution–someone looking at the chart above–could reasonably conclude that “Type A or “Type C” best describes American society. But what’s the “correct” answer that the vast majority of silly Americans don’t even know? Perhaps grouping people into just seven buckets, the way the original diagram did, will make the correct answer clear:
Alas, no. The income distribution changes dramatically based on the income ranges used, but none of them clearly match the original options.
It’s worth noting that the question doesn’t specify whether these shapes are based on wealth or income, pretax or posttax, or what ranges are represented.
The authors of the research say that the “correct” answer for the U.S. is the “Type B” pyramid. But A and C are clearly defensible answers, too. The clearly indefensible “Type E” was picked by only 2% of Americans.
How much do CEOs earn?
The next example of ignorance comes from the inability of people to guess the earnings of different occupations, such as CEO. The authors write that, when people were asked to guess the pay of the executive of a large corporation, “in all countries with data, respondents underestimated the pay of top businessmen; the average shortfall was 57%.”
Do you know what CEOs make? According to the NBER paper, the answer is $5.3 million. According to the Bureau of Labor Statistics, median CEO pay is $173,320. Of course, it depends what your definition of “large” is. This, too, is unspecified in the original questionnaire. So anywhere between $173,000 and $5 million would seem to be a defensible answer, given the vagueness of the question.
What’s the poverty rate?
A third example is that people can’t even guess the poverty rate. Can you guess the U.S. poverty rate?
Here’s some information to help you out. For 2014, the poverty threshold is $12,316 for a person under age 65 and $11,354 for a person over age 65. And for a family of four it’s $24,008 if the family is two parents and two kids but $24,091 if the family has one parent and three kids. For a couple with no kids it’s $15,853 if they’re under age 65 and $14,309 if they’re over 65. And for a family of six it’s $31,633 if there are four kids but $31,041 if there are five kids and it’s $32,631 if there are three kids and…you get the picture: The U.S. poverty rate is complex!
That’s the official threshold, but a person might reasonably wonder if it’s too low. Two parents and two kids getting by on $24,000 is a struggle any way you slice it. Many researchers therefore prefer to look at 125% of the threshold, or 150% of it, or even 200%. The Census Bureau produces statistics on each of these different thresholds too, for different demographic groups:
The official rate is 14.5% (not that you could tell from the chart above unless you know U.S. racial demographics and a calculator). Or using the Census Bureau’s supplemental poverty measure, which isn’t official but is designed to “provide deeper understanding,” it’s 15.5%. Or, with methodology using recommendations of the National Academy of Sciences to factor in things like geographical cost-of-living differences, it’s as high as 16.6%. Or, using another method that measures poverty as less than 50% of median income, it’s 23%.
The authors of the NBER piece conclude from all this that we shouldn’t assume people know the answers to these questions. Fair enough. It’s probably flawed if anyone’s economic model relies on assuming that most Americans know the distinction between the poverty rate and the supplemental poverty rate, or that they know the Gini coefficient, or the income distribution of CEOs or, for that matter, of the overall population.
These are vague but complex questions, with multiple unstated assumptions required to determine which answers are “correct.” How could this possibly be general knowledge?
Related reading:
Which States’ Tax Laws Widen Inequality
Interactive: Inequality in America
Economic Mobility Trumps the Income Gap as Bigger Worry — WSJ/NBC Poll
Income Inequality Is Wider in Atlanta Than in San Francisco or Boston
Income Inequality Pressures State Tax Revenue, S&P Says
