by Scott Richter & Dr. Patrick Jones
“Money doesn’t grow on trees” is likely something many of us were told as kids when an adult wanted to teach a quick lesson about money – especially if we asked for $1. If not learned as a kid, it would probably be more disappointing as adults to learn income distribution centers do not exist, and income distribution does not conform to their expectations, as well.
Indicator 2.1.5: The Share of Total Overall Income Earned by Household Income Level, is probably one of the more complicated graphs on Chelan-Douglas Trends to understand, but a brief explanation will help make sense of it. Part of the reason it can be confusing is that there are two different shares involved in the same graph.
The first share divides all households into five groups, or quintiles, each representing 20% of households receiving income. This approach covers the entire range of incomes in a given year and divides the range of values into five segments. In the legend, quintiles are labeled as Lowest 0%-20% of Household Incomes; 21%-40% of Household Incomes; all the way to the Top 81%-100% of Household Incomes. They are essentially the lowest, second lowest, and top quintiles - needing the middle and second highest quintiles to make five.
The second share is the share of the total income earned by each quintile. The same number of households are in each quintile and each different shade of blue in the stacked bar for Chelan & Douglas Counties represents one of the five different population quintiles. The same principles apply to the state and U.S. benchmarks.
For this indicator, households are defined as everyone living at the same residence. They do not have to be related by blood or marriage, but simply share the same residence. Income is earned income - income, wages, and tips earned by working. It does not include unearned income sources such as interest or transfer payments.
One could argue a more even distribution of income would have far-reaching economic and social benefits. Redistribution of wealth already occurs in the U.S. at all levels of government in the form of taxes paid by wealthier American individuals and businesses that are used to fund social assistance programs.
The Congressional Budget Office (CBO) has a webpage showing the distribution of household income before and after transfer payments and taxes. During 2016 in the U.S., the lowest quintile for household income before transfer payments received and taxes paid averaged $21,000. After transfers and taxes, the average household income in the lowest quintile increased to $35,000 after transfer payments taxes paid. CBO estimates the highest quintile of household income earners dropped from $291,000 to $214,000.
If you go to the CBO webpage, be sure not to miss the interactive graphic showing the cumulative growth of average incomes for the highest and lowest quintiles of household income earners, and the three middle quintiles combined from 1979 to 2016. The interactive allows toggling between incomes before and after any transfer payments received and taxes paid.
With everything defined and explained, essentially this indicator divides all households evenly into quintiles and reports the share of the total income each quintile earned in an area, let’s consider the local findings.
During 2019, the quintile for the highest household incomes in Chelan and Douglas Counties combined (Top 81%-100%) took in 50.7% of total income accruing to all residents in Chelan and Douglas Counties. In contrast, the lowest income quintile (Lowest 0%-20%) claimed 4.0% of total income in Chelan and Douglas Counties. One way of summarizing this is the ratio of these two: the share of income taken by the highest to the share taken by the lowest quintiles. In 2019, it was 12.7, meaning the highest income quintile took in nearly 13 times more income than the lowest income quintile.
For a different view of the same data, use the dropdown menu above the chart title to see a pie graph of Chelan & Douglas Counties combined for 2019.
How did the two counties far against the state and U.S. benchmarks in 2019? The same ratio for Washington State was 14.2 and 15.2 for the U.S. In other words, income is a bit more equally distributed here than statewide or country-wide.
Over time, however, the distribution of income between the highest and lowest quintiles in the two counties has become more unequal. At the start of the indicator series, 2006, the ratio here was 10.2. Growing inequality over time is present in north central Washington as well.
From 2018 to 2019, only the highest and middle (41%-60%) quintiles had statistically significant changes in the combined counties. The lowest, second lowest (21%-40%), and second highest (61%-80%) quintiles were not statistically significant. Therefore, this indicator can confirm the highest earning households have earned a larger piece of the total income pie and the middle quintile earned a slightly smaller piece between 2006 and 2019.
While this indicator certainly offers insight into income inequality by highlighting the huge gap between the highest and lowest earning quintiles, it also goes without saying individuals with the drive to move up an income bracket or two (or more) have no better place than America to make it happen. In other words, this indicator will probably continue to reflect very little or gradual year-to-year change. However, one of the most beautiful things about America is no one is permanently relegated to a low earning quintile. Here, people can undertake more training and education to increase the chance of increasing the numbers on their paychecks.