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IMAGINE a society with only three people. Each of them has an annual income of $50,000. At some point, two of them marry. Has the income distribution changed?
The answer, of course, is no. Before and after the marriage, each person has $50,000 in income. The distribution remains exactly the same.
But government statistics would suggest otherwise--that the share of total income has shifted dramatically in favor of the rich. That's because most government surveys track data for "family units," not individuals. And the number of individuals per family unit can vary greatly, depending on marital status, children, and other factors.
My colleague Aparna Mathur and I have presented evidence in these pages that many of the statistics commonly used to paint a picture of middle-class misery are misleading. The best measure of how the middle class is doing, we argued, is consumption, and consumption has been doing just fine.
Our earlier work accepted the standard assumption that the family unit is the correct level of analysis. In a new paper we have just completed, however, we find that this assumption is highly misleading.
The problem is that, much to our surprise, there is enormous variation in family size across income distribution. Family units with higher incomes are more likely to contain a married couple, and more likely to include children. In 2005, for example, the average family unit in the lowest quintile had 1.8 individuals. The average family unit in the top quintile ...
Source: HighBeam Research, Family time.(income distribution according to fammily size)