Do people worry more about income volitility or inequality?

A U.S News & World Report article proposes several possible sources for the economic anxiety felt by many Americans, including rising income inequality. But what caught my eye was a comment by a political scientist (Jacob Hacker):

It may just be that income inequality isn't the real story. Instead, suggests Hacker of Yale, it may be income volatility. "While the gaps between the rungs on the ladder of our economy have increased, what has increased even more quickly is how far people slip down the ladder when they lose their footing," Hacker says. According to his research, pretax family income volatility peaked in the early to mid-1990s at a level between four and five times as high as its level in the early 1970s. Although volatility fell during the strong economy of late 1990s, it remained well above 1970s levels, and it's on the rise again. "I just analyzed the 2002 data," he says. "Family income volatility increased by 50 percent over the past two years, so it is now three times its early-1970s level." Hacker says the median decline in income for families that suffer a drop has increased from more than 25 percent in the 1970s to about 40 percent today. Moreover, research by Princeton University economist Henry Farber found that people who lost their jobs after the Internet bubble popped--and then found new ones--earned on average 13 percent less in their new positions.

 

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