The good news about income inequality

The headline from the US Census Bureau’s report on health insurance coverage was that the ranks of the uninsured swelled by almost 2 million Americans in 2018. But the larger trends illustrated in the report are more consequential — and more positive — for the US economy.
First, about those health-insurance numbers. More than half of the decline in insurance comes from a loss in Medicaid coverage. However, the number of uninsured households eligible for Medicaid actually fell by 145,000. Medicaid coverage declined because the number of households eligible for Medicaid also declined, by just under 2.5 million.
Medicaid is available only to those making less than 138% of the poverty threshold. Yet nearly half of the increase in the uninsured came from households making more than 400 percent of the poverty line. That group expanded by more than 2.3 million. These numbers suggest that a rising number of higher-income people are deciding not to purchase health insurance.
The upshot is this: The number of uninsured is growing because more people are moving out of poverty and thus losing Medicaid coverage.
That’s consistent with another piece of good news in the report. The average incomes for those in the second quintile — a proxy for the working-class — rose faster than any other group. Indeed, over the last five years incomes for all quintiles have risen nearly in unison, with incomes for the working class slightly edging out all other groups.
This could be a run of good luck, of course. But there is reason to believe that it reflects fundamental changes in the economy. Over the same period, US workers’ compensation as share of GDP has been rising or stable. That’s the longest such period since this figure peaked in 1970.
By the late 1970s, however, incomes were stagnating. Then came nearly two decades of neoliberal reforms, including tax cuts, deregulation and an emphasis on inflation control by the Federal Reserve. Real incomes exploded from 1981 to 1999 — but so did inequality. The entire population did better, but the top 20% outstripped the rest.
Every income quintile lost ground. Once again, however, the poor and the working class were hardest hit. The financial crisis accelerated the process, and the overall downward trend was only briefly interrupted when the housing boom raised incomes in the mid-2000s.
Since then, however, the trajectory of US income has changed fundamentally. All quintiles are rising roughly together, and the working class is doing particularly well.
Much of the populist anger in US doesn’t stem from inequality per se. Instead, the current obsession with inequality is a hangover from the shock of the first decade of the 21st century, when falling incomes were widespread but especially crushing for those at the bottom. That created very real pain and justifiable outrage at the system.
Now the economic tide has turned. The working class is doing better, not just in real terms but relatively. This is news worth recognising — and celebrating.
—Bloomberg

Ferdinando Giugliano writes columns on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times