Quintiles and “Class.”

Economists when looking at large data sets like to divide the data into quintiles. A quintile is a statistical value of a data set that represents 20% of a given population, so the first quintile represents the lowest fifth of the data (1-20%); the second quintile represents the second fifth (21% – 40%) and so on.

Economists aren’t the only individuals that love “quintiles.” Politicians also are enamoured by them. For example, when the government sponsors an economic study it likely will use quintiles to determine the maximum “wealth” a family can possess and still reside within the lowest quintile of society. In other words, how much money does one need to have TO BE POOR. Importantly, the cut-off point typically is used as the prerequisite for a family to receive a subsidy – i.e., welfare.

It is important that my readers understand that I am not portraying myself as either a statistical or economic expert. However, the use of quintiles raises some obvious questions for me. If the government defines “being poor” as residing in the lowest quintile, then by definition 20% of Americans are “poor.” More importantly, we can never change that statistic. It’s always 20%. Therefore, we can expect our government to subsidize 20% of our population for as far as the eye can see.

The result of this can be seen in the growth of certain welfare programs like Medicaid.

Therefore, there are 73.5 million Medicaid enrollees and 326 million Americans, thus 23% are on Medicaid. While that is somewhat more than the lowest “quintile,” it is important to remember that Obamacare expanded Medicaid to include more than the “impoverished.” My point is that Americans can expect that 20% of our population (give or take) will be Medicaid recipients in perpetuity – particularly if Obamacare remains the law of the land (and sadly the news today is that is likely to be the case). Why is that, ask you? Because, answer I, it’s all in THE QUINTILES!

The median earnings of someone in the lowest quintile (without the addition of government subsidies, food stamps, housing, Medicaid, etc.) was $12,457 in 2015 (garnered from the 2016 census, therefore the latest available data). The upper limit of earnings to remain in the lowest quintile was $22,800. I think we can all agree that that doesn’t sound like much money on which to live.

Let’s briefly look at the highest quintile – the “rich.” The lowest quintile and, indeed, all quintiles except the highest quintile have upper limits. So if one earns $22,801 instead of $22,800 you instantly enter the second quintile – you are middle class! Congratulations! Just one measly dollar and you’re NOT POOR. But more importantly, the highest quintile has no upper limits as do all the others. Thus, a person who earns $22,801 does not influence the mean, median, or other statistical parameter of the “poor.” But 1o Americans who earned 5 billion dollars each last year would have a significant impact on the mean and median income of the “rich.” Just saying. (And, by the by, if the combined household income of your family is $112,262 you are RICH! However, if one’s family resides in San Francisco or Manhattan I can assure you – YOU ARE NOT RICH! Our government, in all of its wisdom, does not take cost of living by area of residence into consideration.

However, consider that the world’s average salary is $1,480 a month or $17,760 per year. Therefore, the average human is considered “impoverished” by US government standards. Importantly, these “dollars” are not normal US “dollars.” The economists use specially adjusted exchange rates – the average salary is calculated in Purchasing Power Parity dollars. Recall that $17,760 is the average earnings worldwide. However, when we look at being poor worldwide we find that 71% of the world’s population live on $10 or less a day ($3650 per year), according to a new Pew Research Center report that looked at changes in income for 111 countries between 2001 and 2011.

Again, do not mistake my point. I agree that the US government should provide assistance to the impoverished as do the overwhelming majority of Americans. My question, and I suspect you share my quandary, is the definition of “impoverished.” Certainly food, shelter and clothing should be available to all in our society. But what about personal computers, cellphones, and video game systems? These comparisons below may be of interest to you.

Therefore, as I conclude, my question is whether using “quintiles” necessarily means that 20% of Americans will always be “poor?”

Roy Filly


About Roy Filly

Please read my first blog in which I describe myself and my goals.
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3 Responses to Quintiles and “Class.”

  1. jbm says:

    Thank you Roy! I always learn something from you. You are amazing! jbm

  2. Loved the post!, But it gets even better: The quin-tiles are based on income, not wealth accumulation, right? Take the theoretical case of “Joe.” Joe owns a garage. Business is OK, and he pays himself a salary of $60K per year. He’s solidly middle class this year. Next year he decides to sell the garage, pay off his home mortgage, and retire. He sells it for $800K. Now he’s rich! The year after that, he has no job and is living off investment returns, but he also has no house payment. His income is now $20K. Oh, no, now he’s poor!
    So we have the same guy go from being classified as middle class one year, rich the next, then poor from then on – all without ever changing his lifestyle. The “annual income” criteria for designating who is rich and who isn’t are almost meaningless.

  3. Good article. One point on mean and median. The example you gave of having some $5 billion folks…only the mean is affected, the median would not. All your points are dead on

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