Consumption Inequality Has Risen About As Fast as Income Inequality

Going back a few years, one thing you used to hear about America’s high and rising level of income inequality is that it wasn’t so bad because there wasn’t nearly as much inequality of consumption. This story started to fall apart when it turned out that ever-higher levels of private indebtedness were unsustainable (nobody could have predicted …), but Orazio Attanasio, Erik Hurst, and Luigi Pistaferri report in a new NBER working paper “The Evolution of Income, Consumption, and Leisure Inequality in the U.S., 1980-2010” that the apparently modest increase in consumption inequality is actually a statistical error.

They say that the Consumer Expenditure Survey data from which the old-school finding is drawn is plagued by non-classical measurement error and adopt four different approaches to measuring consumption inequality that shouldn’t be hit by the same problem. All four alternatives point in the same direction: “consumption inequality within the U.S. between 1980 and 2010 has increased by nearly the same amount as income inequality.”