Earlier this month, my colleague Ryan Greenfield wrote a
column decrying the supposedly increasing income inequality in Wisconsin and
offered a number of policy suggestions to fix the “problem.” I, for
one, pray our policymakers at the Capitol skipped reading that article. Not
only did Mr. Greenfield grossly exaggerate the income inequality gap, but the
suggestions he offered were also uninformed and detrimental to our economy.

The foundation of his column was built on a study put forth
by the Center on Wisconsin Strategy and the Wisconsin Council on Children and
Families, which claimed the income gap between the rich and the poor rose
dramatically between the late 1980s and the mid-2000s in Wisconsin.
Unfortunately for Mr. Greenfield, he constructed his assertions on a shaky
foundation.

The study argues that since the bottom 20 percent of the
population only experienced a 7 percent growth in real wages, and the real
wages of the upper 20 percent grew by 36 percent during this period, the rich
must be getting richer at a much faster rate than the poor. There’s one glaring
problem with this reasoning — the bottom 20 percent of the population in the
late ’80s is a much different group of people than those who make up the bottom
20 percent in the mid-2000s.

A brief example will illustrate this point. Suppose you’re
in a family in the bottom 20 percent of the population in 1990. You and your
family work hard, you get a raise, you get a new job, save your earnings and,
by 2005, there’s a very good chance you’re much better off than you were 15
years earlier. You’re probably not in the bottom 20 percent anymore.

However, the gains made by you and your family will not be
reflected in that bottom 20 percent. A family that moves into the middle
quintiles by 2005 will be counted as part of that group, rather than part of
the bottom 20 percent as it was in 1990. The bottom 20 percent is composed of
different people than it was two decades ago. This renders an analysis of the
“growth” of the different percentiles useless, since any growth by
the people in the bottom percentile will not be reflected in the data.

A skeptical response to this line of reasoning might go
something like this: “If people in the bottom 20 percent move up into the
higher quintiles, just who is making up that bottom 20 percent. Someone has to
be there, right?” True, there’s always going to be a bottom 20 percentile
— however, it’s not always going to be the same people in it.

From 1990 to 2006, a rise in immigration directly
contributed to the 13.6 percent growth in Wisconsin’s population. Because
immigrants tend to be worse off economically than the average population, they
consequently make up a significant portion of the bottom 20 percent of
Wisconsin in the mid-2000s. Therefore, the 7 percent growth reported by Center
for Wisconsin strategy underestimates the income growth of the people in the bottom
20 percent in the late 1980s.

So, then, is immigration the problem? On the surface, it
appears immigration is suppressing the growth of the bottom class of society.
However, for this statement to be accurate, the relative prosperity of
immigrants in the United States has to be compared to the economic situation
they left in their home country. I’m confident most recent immigrants have
experienced a far greater income growth than the mere 7 percent reported by the
study. This data is essential to offering a fair assessment of the economic
growth of the bottom 20 percent.

Studies like the one Mr. Greenfield cited in his column are
fatally flawed. They offer little other than excuses for economic hysteria,
which politicians so skillfully exploit to get elected.

I admit that I’m an optimist when it comes to the economy,
which is why I get so frustrated with studies like this one. Whether its goal
is to intentionally misrepresent the economic health of our state or the
authors simply lack the ability to effectively reason matters little to me.
It’s my hope that our elected officials implement policy that encourages
economic growth and development, rather than heeding the calls to implement
counterproductive policies advocated by the Center on Wisconsin Strategy and
Mr. Greenfield.

However, politicians who are optimistic on the economy
rarely get elected; let’s just say I’m not getting my hopes up.

Corey Sheahan ([email protected]) is a senior
majoring in economics and history.