21 September 2010

Where do you fit in the income distribution

An interesting post by Paul Krugman discussing your subjective sense of where you are located in the income distribution. For example, rising inequality at the top (top 1%) in the past two decades has meant that people in the top 10% underestimate their true position in the income distribution.

Below I provide two examples of an income profile and their location in their income distribution, using a tool available on the Institute for Fiscal Studies website. A household living in the UK with 3,000 pounds a month, two children between 0 and 13, and a council tax of about 200 a month, would have a higher income than about 64% of the population. The red bar indicates the position of the relative position of the household:


But say you are a young professional living by yourself and earning 1,800 pounds a month and paying a council tax equal to 150 pounds a month. You then have an income higher than 75% of the population, about 44 million people. 


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