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  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
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  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
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Upside of Inequality Oxford Unintended Consequences

Erik Hurst MIT
Date Posted:
Is Database:
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Income inequality rose markedly btw 1980-2010, but consumption inequality remained stable. Leisure inequality also widened, with low-educated men gaining 2.5 hours of leisure per week by 2007, while high-educated men saw a 1.2-hour decline.

Between 1980 and 2010, the US experienced significant shifts in income, consumption, and leisure inequality. Income inequality rose markedly, with the standard deviation of log household income increasing dramatically. However, consumption inequality did not mirror this trend, as the standard deviation of log consumption remained relatively stable after an initial rise between 1982 and 1983. The disparity in consumption distribution across income levels was less pronounced than income inequality, with differences between the 75th and 25th percentiles being smaller for nondurable consumption. Leisure inequality also widened, particularly after 1985, as low-educated men gained 2.5 hours of leisure per week by 2007, while high-educated men saw a 1.2-hour decline. This divergence highlights the complex interplay between economic factors and social behaviors over the three decades.

“The evolution of income, consumption, and leisure inequality in the US, 1980-2010” is an attempt to evaluate the evolution of “wellbeing” over the last 30 years in the US. The paper looks at different measures of wellbeing: income, consumption and leisure in order to see if they paint similar pictures in regards to trends in inequality.

The authors break down these measures by different indexes and population groups in order to help understand movements in the entire distribution and effects on certain groups within the population; they believe that much of the methodology for scoring consumption is flawed and has been shielding the rise in inequality of consumption. Their data suggests that the rise in income inequality has been matched by an increase in consumption inequality as well as a divergence in leisure time by educational attainment.

They find a rise in income inequality much like most the literature. However according to their data there has been a significant change in consumption patterns in that consumption inequality has increased:

The level of the standard deviation of log consumption is considerably lower than the standard deviation of log household income in all years of the survey… The dramatic increase in the standard deviation of log income was not matched by any meaningful increase in the standard deviation of log consumption…. Starting in 1983, there was essentially no increase in the standard deviation of log consumption. The bulk of the increase from 1982 through 2010 occurred between 1982 and 1983. (NOTE This strikes me as odd)

They note that the distribution of consumption has also played out differently across income levels but is still pretty tight (rich save more?):

As with income, of the three differentials, the largest is the one between the 50thand the 10th, followed by that between the 75thand 25thand then by the one between the 90thand the 50th.The differences between the three lines, however, are much less pronounced that in the case of family income. This is particularly true for the differences between 50thand 10thand 75thand 25thpercentile that, the second part of the sample are actually very close to each other….The increase in the difference between the 75thand 25this again about 0.2 points in the case of income and less than 0.1 points for nondurable consumption.

At the same time they also find widening “inequality” in leisure with low educated households were spending much more time in leisure relative to their high educated counterparts:

…in 1985, low educated men took only slightly more hours per week of leisure than high educated men…A similar pattern holds for women. However, by 2007, the leisure differences between high and low educated men are substantial. Specially, low educated men experienced a 2.5 hours per week gain in leisure between 1985 and 2007. High educated men, during the same time period experienced a 1.2 hour per week decline in leisure. The new effect is that leisure inequality increased dramatically after 1985. Again, similar patterns are found for women.

They draw their data from Consumer Expenditure Survey which they adjusted in order to bring its numbers in line with National Account data. They limit their sample to households whose household head is aged between 25 and 65.

Attanasio, Oranzio, Erik Hurst and Luigi Pistaferri, “The evolution of income, consumption, and leisure inequality in the US, 1980-2010” NBER, March 2012. Available at:http://www.nber.org/papers/w17982

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