When it comes to income inequality in Rochester, many of us have come to terms with what sometimes seems like unrelenting bad news. In 2018, for instance, the Brookings Institution’s Metropolitan Policy Program pointed out that Monroe County ranked fifth-worst in the nation in the median household income gap between white residents and residents of color. Another study found that for the 2017-2021 time period, the median income of African Americans in Monroe County was only $36,168 even though the corresponding number for New York was $53,697. Similarly, even though the median income of Asians—the highest earners—in Monroe County was $64,700, the corresponding number for Asians in the Empire State was $83,399.
Even though these income figures for Rochester and Monroe County are dispiriting, we know that misery loves company. As such, some of us have taken comfort in knowing that even though the degree of income inequality in Rochester may be more than what it is in other places, Rochester is like the United States generally in that income inequality in both has been rising in the past couple of decades.
This rise in income inequality in the U.S. has been much publicized with the media reporting on it copiously. According to one report, between 1979 and 2020, the average income of the richest 0.01 percent of American households, a group that represents approximately 12,000 households, grew 17 times as fast as the income of the bottom 20 percent of earners. This and similar findings have given rise to populist left-wing movements such as Occupy Wall Street in 2011 and many Americans have made a clear distinction between the one percenters (the very wealthy) and the 99 percenters (the rest of the population).
Given the wide publicity about this “rising income inequality” story, it is time to ask whether it is actually true. The intellectual case for the popular line that inequality has been increasing in the U.S. has been provided primarily by the empirical research of a trio of economists: Thomas Piketty based in France and Emmanuel Saez and Gabriel Zucman, both based in the University of California at Berkeley. These scholars have looked at income tax data to measure the distribution of income and generate conclusions about income inequality.
It is important to comprehend that measuring the distribution of income over time is very difficult because of a variety of issues such as changes in social conditions (marriage rates and household composition), demographics (age distribution), and rising education standards. Even so, if the finding that income inequality in the U.S. has been rising over time is empirically true and robust then it must be possible for other scholars, also working with income tax data, to come to broadly similar conclusions.
This is where things get interesting. Very recently, Gerald Auten of the Treasury Department and David Splinter of the Joint Committee on Taxation have altered the methodology of the trio of economists mentioned above and have addressed some of the inherent difficulties associated with work based on income tax data. Their findings are noteworthy: It looks like post-tax income inequality in the U.S. has hardly gone up since the 1960s! This finding has generated considerable debate in the economics profession about which result—rising income inequality vs. little change in income inequality—one ought to put one’s faith in.
The salient point is not that there is discussion and debate about the verity of one set of empirical results versus another. Instead, the key point to grasp is that as noted by The Economist, “the idea that inequality is rising is very far from a self-evident truth.” It is unclear what this contrarian finding about income inequality at the level of the entire nation means for inequality in Rochester. What is clear is that we need to do a much better job of addressing a point that is specific to Rochester—we need to make the link between overall inclusion and racial inclusion a strong and enduring one.
Amitrajeet A. Batabyal is a Distinguished Professor, the Arthur J. Gosnell professor of economics, and the Interim Head of the Sustainability Department, all at Rochester Institute of Technology, but these views are his own. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected].