Shares of Income Received by Quintiles When Equivalent Income Is Used as the Measure of Income

John McNeil


Data on the shares of aggregate income received by the various income quintiles are frequently calculated using households as the reference unit. That is, households are ranked by their level of income in order to determine which households are in the bottom quintile of the income distribution, and which are in the second, third, fourth, and top quintiles. It is then possible to determine the share of aggregate income that is received by each group of households.

A criticism of this method of measuring income shares is that the the average size and composition of households may change over time. For example, if there is a very large increase in the proportion of households with only one member, it may be that an observed change in the share of income received by households in the bottom quintile may be a reflection of this change rather than a real change in the distribution of economic well-being.

The tables below attempt to control for the effect of changes over time in the size and composition of households by adopting a modified measure of income. In this document, the modified measure is called "equivalent income." The modified measure assigns to each individual (regardless of age), the income of his or her family. The income that is assigned to each individual is then modified by applying a value from an equivalence scale.

For the purpose of presenting a time series of average equivalent income that can be compared to more traditional income time series, the equivalent income assigned to each individual in each year has been raked by a factor equal to median household income in 1969 ($8,241) divided by the median unraked equivalent income in 1969 ($3,936).

For additional information on the calculation of equivalent income, see the appendix following the two tables of data. The appendix is taken from a 1999 paper by John McNeil presented at the Annual Meeting of the Western Economic Association, "Changes in the Economic Status of Children: 1969 to 1997."