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The Shrinking Health Gap

Tuesday, March 26, 2013

When considering trends in equality, income is important, but health is arguably a prerequisite for all other measures of well-being.

Inequality and economic insecurity have been at the forefront of the public's attention in recent years, taking center stage in debates about economic policy. Earlier this year in his inaugural address, President Obama emphasized that "our country cannot succeed when a shrinking few do very well and a growing many barely make it." Later, in his State of the Union address, he noted that "corporate profits have skyrocketed to all-time highs, but for more than a decade, wages and incomes have barely budged."

Remarks like these are based on two stylized facts, emphasized by pundits and academics alike: median incomes have been stagnant in recent decades, and the gap between the rich and poor has increased steadily. These ideas propelled the Occupy Wall Street movement, and they have influenced policymakers’ choices on budget issues.

These two facts are based on well-documented trends in household income over the past 40 years. For example, Emmanuel Saez notes that over the period from 1993 to 2011, average real income increased by 57.5 percent among the top 1 percent of families, but by only 5.8 percent among the bottom 99 percent. However, these statistics are misleading. As most of us readily admit, there is more to life than money. We tend to focus on monetary measures out of convenience. But we also need to consider trends in areas such as happiness, opportunity, leisure, government services, technology, and health. Indeed, equality and security in health is arguably a prerequisite for all other measures of well-being. Yet a remarkably positive trend has been all but ignored: the gap between the health haves and the have-nots has narrowed dramatically in recent years.

The haves are those who enjoy great health into their 90s. The have-nots are those who suffer from serious health problems and do not live to see adulthood. As we pointed out in a recent study, among those Americans who were born in 1975, the unluckiest 1 percent died in infancy, while the luckiest 1 percent can expect to live to age 105 or longer. Now let’s fast forward to those born in 2012. The bottom percentile of this cohort can expect to survive until age 18. At the other end of the spectrum, the luckiest 1 percent can expect to live to age 108. That’s a much bigger gain in life expectancy among the have-nots than among the haves. Of course, life expectancy is but one measure of health and well-being, but understanding these trends offers a more complete picture than considering income alone.

While health inequality across some demographic groups has increased, it has fallen over the entire population.

These findings run counter to headlines noting a widening gap in health outcomes between different demographic groups. For example, a study led by Jay Olshansky of the University of Illinois at Chicago recently demonstrated that the gap in life expectancy between less educated and more educated Americans has widened considerably.

While such studies are valuable in highlighting disparities between socio-economic groups, they do not tell us much about overall health inequality. That’s because most health inequality occurs within groups. In other words, if we look at a particular demographic group, the best outcomes for people in that group are dramatically different from the worst outcomes for people in the same group. These differences overwhelm any differences in average life expectancy across demographic groups. Thus, while inequality across some demographic groups has increased, it has fallen over the entire population. Overall, therefore, the health have-nots have made progress in catching up to the health haves.

What is the best way to measure inequality? The appropriate measure depends on why we care about inequality. For example, inequality may harm long-run economic growth by preventing talented individuals from pursuing an education. Alternatively, inequality may lead to an increase in conspicuous consumption and status seeking. However, often people just care about inequality as a measure of the overall well-being of society. For that purpose, understanding the pattern of health outcomes is important.

Philosopher John Rawls popularized the following thought experiment: suppose you have not yet been born. You might be born rich or poor, healthy or unhealthy, talented or untalented. What kind of society would you design? Rawls concluded that most people would prefer a society with less inequality because it reduces the chances of a bad outcome in the lottery of life. If we accept that logic, it is reasonable to think that we would care not just about income inequality but about health inequality as well.

Acknowledging trends in income inequality is important, but acknowledging trends in other areas of the human condition may be more important still.

Benjamin Ho is an assistant professor of economics at Vassar College, and Sita Nataraj Slavov is a resident scholar at the American Enterprise Institute.

FURTHER READING: Sita Nataraj Slavov also writes “Negotiation and the Gender Pay Gap” and “Could 9 out of 10 Economists Be Wrong?” James Pethokoukis contributes “The Rise in U.S. Income Inequality Hasn’t Been Because of the Tax Code” and “Is Rising Income Inequality Actually a Good Sign for the Economy?” Michael Barone observes that “Personal Well-Being Overshadows Income Inequality.”

 

Image by Dianna Ingram / Bergman Group

 

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