Real Clear Markets

Life Expectancy and Rising Income Inequality: Why the Connection Matters for Fixing Entitlements

Nearly all indicators of inequality show American income disparities have increased since the late 1970s. The magnitude of change in inequality is sensitive to the particular income measure we use, but essentially all measures imply that income gaps are bigger today than they were three decades ago.

Statisticians analyzing the most comprehensive income measures find that much of the jump in inequality was due to gains at the very top of the distribution. More than three-quarters of the relative income gains enjoyed by Americans in the top fifth of the income distribution were obtained by people in the top 1% of the distribution. We saw an uptick of inequality among households in the bottom 95% of the income distribution in the 1980s, but this trend seems to have run its course by the end of that decade.

The growth in inequality has been a topic of intense interest to social scientists for the past quarter century. More recently it has become the focus of political debate and press attention. Although the effects of increased inequality remain uncertain, there has been a flurry of research aimed at understanding possible links between inequality and a variety of social and economic trends.

One of the most basic indicators of well-being is life expectancy. Analysts have long recognized the powerful association between personal income and expected life spans. People with higher incomes tend to live longer than people with lower incomes. Statistical tabulations suggest that the relationship is nonlinear. A $10,000 increase in annual income does more to lift the life expectancy of someone who lives on a meager income than it does to boost the life span of someone who is already well off. This suggests that transferring $10,000 a year from someone who is rich to someone who is poor should lift the expected life span of the poor recipient more than it hurts the life span of the rich donor. It therefore seems logical to expect that a more egalitarian income distribution would lift average life expectancy.

We can conceive of societies where a reduction in inequality would surely add to average life spans. Of course, we can also imagine societies where the attempt to reduce inequality through redistribution would reduce economic growth, generate political turmoil, and slow the rise in average incomes. If you oppose income redistribution because you fear its potential impact on politics or growth, you may not be impressed by the argument that longevity would improve a bit faster if there were less inequality.

As many observers have noted, the United States has exceptionally wide inequality for a high-income country. It also has relatively low average life expectancy. Among 34 countries in the Organization of Economic Cooperation and Development (OECD), the U.S. ranks 27th in life expectancy at birth. If we limit our comparison to the 21 large OECD countries with high incomes, America ranks dead last. This lowly rank is especially surprising because average income in the U.S. is about 40% higher than it is on average in other OECD countries, and real health spending per person is about 150% higher than it is in the other countries. Of course, wide income disparities in the U.S. mean that low-income Americans have lower incomes than people in comparable positions in the income distributions of many other rich countries.

A recent study of American life expectancy uncovered trends that may be partly traceable to increased income inequality. S. Jay Olshansky and his colleagues found evidence that white men and women who lack high school diplomas have seen a noticeable drop in life expectancy over the past three decades. These groups have struggled as job prospects for less educated workers have dried up. Their declining economic position may be worsening their chances of living a long life. Another interpretation is that the fraction of whites who fail to complete high school has shrunk, so the apparent decline in dropouts’ life expectancy may be a result of shifts in the composition of the population that lacks a high school diploma. Expected life spans for whites in general, and indeed for Hispanics and African Americans, continue to improve.

An older study of changes in life expectancy used Social Security records to determine the relationship between workers’ position in the wage distribution and their mortality rates. Hilary Waldron, a Social Security Administration researcher, estimated mortality rates of white men born between 1912 and 1941 who had earnings between ages 45 and 55. She divided these men according to their average position in the earnings distribution when they were between 45 and 55, and she then determined the effects of their income position on their mortality rates between ages 60 and 89. Between ages 60 and 80 men with a worse earnings position had a higher mortality rate. More disturbingly, the mortality differential between low-earnings and high-earnings men increased substantially over time. The mortality rates of both low-earnings and high-earnings men improved during the period Waldron examined. However, improvements in life span overwhelmingly favored the men at the top of the earnings distribution. Men born in 1912 who had earnings in the top half of the wage distribution lived 1.2 years longer than men born in the same year who had earnings in the bottom half of the earnings distribution. For men born in 1941 the difference in life expectancy soared. Better paid men in the younger birth cohort can expect to live 5.8 years longer than men born in the same year who are in the bottom half of the wage distribution.

It is not clear whether the growing life expectancy gap between the affluent and less affluent can be traced to widening inequality. It may be due instead to growing differences in eating habits, smoking, exercise, and lifestyle habits that favor the affluent over the less affluent.

Even if we cannot be confident of our explanation of the trend, some of its policy implications should be plain. If gains in expected life spans are increasingly concentrated among the well-to-do, we should not ask the less affluent to bear the main burden of an aging society. One proposal to deal with the financial problems of Social Security and Medicare is to lift the age of eligibility for benefits. This policy makes sense if the gain in life spans is enjoyed equally by the rich and poor. It makes less sense to ask the poor to wait longer for retirement benefits when a disproportionate share of the life span improvement is concentrated among the affluent.