Macroeconomic Misery by Levels of Income in America

Abstract

Thirty years of distributional data are used to study the short-term impacts of popular macroeconomic indicators on real household incomes from the poorest to the richest Americans. The appropriate weights on unemployment versus inflation vary across the distribution. The unemployment rate matters at all levels, but especially so for the poorest. Inflation rates matter at middle incomes, though Okun’s famous Misery Index only performs well for the top income groups. GDP growth matters at all levels and proportionately more for the poorest, though only via the unemployment rate. Recessions are poverty-increasing, and skewness-decreasing, but with ambiguous effects on overall inequality. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.