> As I said before, the main reason for my question is this: I've read a lot
> of stuff on the left which claims that rising income inequality means that
> people have lost ground economically over where they were 10, 15, or 20
> years ago. The authors usually mean individuals. Another incarnation:
> individuals work harder for less purchasing power, so the standard of
> living for most people has declined over the last 2 decades.
>
> This might be correct, or it might not be. I'm interested in the narrow
> answer to this narrow question.
Brett,
Rising income inequality means nothing of the sort. It not only doesn't necessarily mean a reduction in real income for anyone, it can accompany falling incomes for everyone. Rising inequality is a relative concept; it tells you *nothing* about the absolute measure of the real income of any cohort in the system being measured. It can accompany movement of incomes in either direction.
For example, the Great Depression of the 1930s in the US was a time of increasing income inequality, accompanied by rapid, widespread declines in income and real income. Between 1929 and 1933 per capita income dropped 46%, per capita consumption dropped 43% (the difference was dissaving), and real per capita consumption dropped 27 % (deflation). Amazing figures, hard to comprehend now. Many people were devastated. Many rich folk got poorer too, just usually not as much, accounting for the rise in inequality. The Depression is not a perfect example, however; not all rich folk suffered. Did you know that during the same period, bank service charges, trust services, and safe deposit box rentals *rose* 4%!
More recently, real incomes of workers, by various measures (e.g., production workers in manufacturing) declined for a couple of decades in the face of strong growth in total per capita income. Thus rapidly rising inequality by income. Yet, as Doug has pointed out, the last couple of years shows rising real incomes of workers, while inequality continues to grow. Again, inequality rises; real income of a particular group, or society as a whole, can go in either direction.
Your second "incarnation"--individuals have less purchasing power so the standard of living has declined--is a tautology. A standard of living is defined by what people consume out of real disposable income (their purchasing power).
RO