By Dennis Fixler
Gross Domestic Product tells us how a country’s economy is doing based on things like the amount that businesses are investing and how much consumers are spending. What measure can tell us about how households are sharing in the economy’s growth?
One option I explored with fellow economists Marina Gindelsky and David Johnson in a Discussion Paper published by ESCoE today is the distribution of people’s income. Specifically, our paper uses data from surveys, tax records and administrative records to improve earlier distributional measures based solely on survey data.
By expanding our sources of data, we were able to build a set of statistics that show how total personal income in the United States is distributed across households. We calculated the contribution of each income quintile for 2012 and 2007.
Here are some of our findings:
Of the $14 trillion in total U.S. household income generated in 2012, approximately 52 percent of that income flowed to households in the top 20 percent bracket, those earning at least $156,023. In contrast, the bottom 20 percent, those earning no more than $39,745 a year, accounted for 5 percent of the total amount of personal income generated in 2012.
Household current transfer receipts, such as Social Security benefits, Medicare payments, and unemployment benefits, was a source of total personal income across all U.S. households. Of the $2.4 trillion in total transfer payments recorded in 2012, approximately 16 percent of the monies flowed to the top 20 percent, the same share reported for the bottom 20 percent.
The paper also looked at the distribution of personal income geographically – across all 50 states and the District of Columbia. To do this, we used the U.S. Bureau of Economic Analysis’ Regional Price Parities, which allow for comparisons of buying power across the 50 states and the District of Columbia.
When median income is adjusted for price differences, Minnesota led the way in 2012, Indiana fell in the middle and Hawaii was the lowest. That’s in contrast to the rankings when median income isn’t adjusted. In that case, the District of Columbia ranked the highest, Michigan was in the middle and Arkansas was the lowest.
The paper, originally written in 2018, builds on earlier work that created a framework for measuring the distribution of personal income in the United States. Next steps include developing a time series of distribution of income estimates and creating distributional measures for consumer spending, also known as personal consumption expenditures.
Dr Dennis Fixler is chief economist at the BEA, Dr Marina Gindelsky is a research economist at BEA, and Dr David Johnson, a former chief economist at BEA, is with the University of Michigan. The views expressed in their research paper are solely those of the authors and do not necessarily reflect the official positions or policies of the BEA or the University of Michigan.
ESCoE blogs are published to further debate. Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the ESCoE, its partner institutions or the Office for National Statistics.