by Alan Cole
August 13, 2014
Internal Revenue Service income data is collected for the purpose of raising revenue annually in the manner that Congress directs. It was not intended to be a measure of one’s overall well being. In the absence of better data, some social scientists are tempted to use IRS data that way. This is a mistake. Income data has massive confounding factors; not minor technical nitpicks, but big glaring issues so plain and so relevant that they can be expressed in terms of the lives of ordinary people. People develop professionally with age. People go to college. People think about where rents are high and where they are low. People save in retirement accounts. Income data would be a reliable measure of social inequality if it weren’t distorted by virtually every major decision people make in their lives.