The new recommendations for an integrated system of US inequality statistics present a bold path forward

A new report from the Committee on National Statistics of the National Academy of Sciences is full of recommendations for building an integrated system of national statistics that can provide accurate and timely measurement of the distribution of income, consumption, and wealth in the United States. Implementing the recommendations of this report would supercharge policymakers’ understanding of U.S. inequality and provide them with critical economic information to guide the U.S. economy.

There is not enough space here to provide a summary of all of the panel’s findings, but this column provides context on the importance of this report and its proposals while summarizing some of the panel’s findings. It also briefly addresses areas for future research that may support the goal of an integrated federal data system on income, wealth, and consumption.

The importance of a unified data system on income, consumption and wealth

Why have a unified system of income, consumption and wealth statistics? First, because each of these metrics tells a different story about how U.S. households are doing.

Equally important, in the context of an integrated set of statistics, these three metrics are linked together by the so-called budget identity “income = consumption + change in wealth”. That is, the amount households consume plus the amount they save (which is their change in wealth) must be added to their income each year.

This identity is fundamental to understanding household welfare in the United States. If, for example, we look only at consumption data, then a household that spends $60,000 in a year might appear to be doing well. But if that consumption was financed with just $40,000 in income, then it dramatically changes our view of that household’s well-being. They must either have existing wealth to finance this shortfall, or incur debt that may lead to reduced welfare in the future.

These considerations are what motivated recent research, funded by Equitable Growth, by Jonathan Fisher (now an economist at the US Census Bureau) and David Johnson (who led the National Statistics Board study) on economic mobility by income, wealth and consumption. This research revealed important findings that are only apparent when all three values ​​can be observed.

Fisher and Johnson find that children of wealthier parents are more upwardly mobile than their less wealthy peers in the same income bracket. A child born to parents who are in the bottom 30 percent of wealth and the fifth income decile, for example, will, on average, reach the 48th percentile of income by age 31 to 35 . If, however, the same child’s parents are in the top 30 percent of the wealth distribution, then the child can expect to reach the 63rd percentile of income—a difference of 15 percentiles. (See Figure 1.)

figure 1

This finding adds useful context to previous research on economic mobility, such as the findings from Harvard University’s Raj Chetty and his co-authors that the proportion of US children who earn more than their parents has fallen from 90% for children born in 1940 to 50% for children born in 1980. This finding examines only the incomes of parents and children, whereas an integrated system of statistics, with distributions of income, wealth, and consumption, would greatly expand our understanding of economic inequality and mobility in the United States, allowing researchers to tap into all three domains of financial well-being rather than analyzing them separately.

A guide and research agenda

The National Statistics Committee’s new study provides useful guidance for federal statistical agencies to modernize and integrate how they measure these three important concepts. To understand the current state of the federal statistical system in relation to these concepts, this may be the best place to start, as the report is filled with tables that provide detailed guidance on the types and quality of data available in the federal statistical system.

The report’s recommendations are equally sweeping. It urges federal statistical agencies to focus on data features that have been in particular demand among researchers since the start of the COVID-19 pandemic in early 2020, such as estimates for small geographic areas, estimates for different demographic groups, and data which are published. on a consistent and timely basis. The recommendations also suggest ways to improve current distribution products, including the US Bureau of Labor Statistics’ Distribution of Personal Consumption Expenditures, the US Bureau of Economic Analysis’ Distribution of Personal Income, and the Census Bureau’s new experimental National Welfare Statistics .

Chapter 5 of the National Statistics Committee report will be of particular interest to academic economists. The chapter examines methods and options for creating an integrated statistics system that meets the committee’s recommendations in previous chapters. There are several technical challenges that require more research, including linking methods, imputation and alignment to national accounts concepts and budgetary constraints.

The report calls for pilot studies to investigate some of these challenges. On pages 5–26, for example, the panel suggests various pilot studies, including on: “expanding (experimental national welfare statistics) to include in-kind transfer programs, health benefits, income and capital gains taxes;” (using) “trade data to improve consumer spending data in the EC survey”; or (comparisons) “of estimates of consumption (or expenditure) using the budget identity”. Researchers with access to the Census Bureau’s research data centers can contribute to this effort.

The Committee for National Statistics also expresses interest in an experimental system of public domain statistics created using publicly available data that could be investigated by researchers. Such a dataset could serve as a bridge to a more comprehensive dataset based on administrative data. It could also be a testing ground for data linking techniques that would be useful in building a more comprehensive data set.

Conclusion

Implementing the report’s recommendations will, of course, require resources. However, federal statistical agencies are consistently under-resourced. And when the federal budget becomes contractionary, as it has recently, statistical agencies are often the victims.

This is a mistake. Federal statistics are a critical resource for the US economy that costs relatively little. Gaps in the federal statistical system caused by insufficient resources impede national policy priorities. It is difficult to monitor the development of a national semiconductor industry, for example, when the US Department of Commerce and the US Department of Labor disagree about how many semiconductor workers and facilities there are in the country.

The National Statistics Committee’s new report is a valuable roadmap for developing statistics that will give us a better understanding of the distribution of resources in the United States—if policymakers can muster the will to follow through and fund the agencies that will do it . The development of an integrated system of data on income, consumption and wealth will open up a wealth of possibilities for researchers seeking to understand policy and household well-being, and guide policymakers as they work to address widespread inequalities across the economy. US.

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