Keeping up with the Joneses

Why don’t people in the top 10% of the income distribution feel particularly rich? The answer is simple: because any Americans who are richer than this band are so much richer.

From the graph you can see, for the bottom 90 to 95 percent of Americans, the income distribution is relatively flat. For a household in bottom 30 percent of the distribution, a move upward of five percentiles (to the 35th percentile) would mean an increase in cash income of a just few thousand dollars. Same goes for a family at the 40th percentile, and at the 60th percentile. But notice what happens on the right side of the graph, around the percentiles in the mid-90s, when the line suddenly shoots upward.The line gets much steeper because at the very top of the income scale, the monetary divisions between percentiles grow much greater. Those in the middle earn a little less than people a few percentiles up from them, whereas those at the top earn a lot less than their counterparts in nearby, higher percentiles. Someone in the 80th percentile is a lot closer, in dollar terms, to someone in the 20th percentile than to someone in the 95th percentile. For example, those who aspire to hop from the 30th percentile to the 35th percentile would need to increase their cash income by $4,000 annually (or by about 17 percent); those who aspire to hop from the 91st percentile to the 96th percentile would require an increase of $324,900 (or 171 percent).

In other words there is much greater inequality at the very top of the income scale than at the bottom or in the middle. Indeed, the gap between the rich and the very rich has been growing in the last few decades.

When evaluating their own incomes, most families are trying to keep up with the Joneses: they envy the wealthier neighbor whose lifestyle they aim to match. And in dollar terms, the rich are falling far shorter of their respective Joneses than the middle-income and lower-income are. So when the 95th-percentilers think of their incomes in the context of what their richer neighbors are earning, this section of the population doesn’t feel very rich. It is no wonder, then, that so many people who are statistically rich call themselves “upper middle” or even “middle class.” They are much, much richer than lots of poor people, but also much, much poorer than some very visibly rich people.

Confirmation of Marx's observation " A house may be large or small; as long as the neighboring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut. The little house now makes it clear that its inmate has no social position at all to maintain, or but a very insignificant one; and however high it may shoot up in the course of civilization, if the neighboring palace rises in equal or even in greater measure, the occupant of the relatively little house will always find himself more uncomfortable, more dissatisfied, more cramped within his four walls."