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Income Inequality In the United States Information

Unequal distribution of income between genders, races and the population in general in the United States has been the subject of study by scholars and institutions. Inequality between male and female workers in the US has decreased considerably over the last several decades[1], inequality between black and white Americans has stagnated during that time [2](although not among other races), but data from a number of sources [3] indicate that income inequality over all has grown significantly since the late 1970s, [4][5][6][7][8] after several decades of stability[9][10]. While inequality has risen among most developed countries, and especially English-speaking ones, it is highest in the United States.[11][12][13]

While post 1970s increase in inequality (sometimes called the Great Divergence) has not been caused by a widening gap between the poor and middle class[14], but between the middle class and top earners, with disparity becoming more extreme the further one goes up in the income distribution.[15] A 2011 study by the CBO found that the top earning 1% of households gained about 275% after federal taxes and income transfers over a period between 1979 and 2007, (although this number has decreased somewhat since 2007 as a result of the Great Recession[16]). From 1992 to 2007 the top 400 earners in the U.S. saw their income increase 392% and their average tax rate reduced by 37%.[17] The share of total income in America going to the lower earning 80% of American households (also after federal taxes and income transfers) has dropped to less than 1/2 in 2007.[18]

Scholars and others differ as the causes, solutions, and the significance of the trend,[19][20] which in 2011 helped ignite the "Occupy" protest movement. While education and increased demand for skilled labor is often cited as a cause,[21], some emphasize public policy; others believe its causes are not well understood.[22] Inequality has been described both as irrelevant in the face of economic opportunity (or social mobility) in America and as a cause of the decline in that opportunity.[23][24]

Contents

History

Share of pre-tax household income received by the top 1%, top 0.1% and top 0.01%, between 1917 and 2005.[25][26]

The level of concentration of income in America has not been constant throughout its history. Going back to the early 20th Century, when income statistics started to become available, there has been a "great economic arc" from high inequality "to relative equality and back again," in the words of Nobel laureate economist Paul Krugman[27]. In 1915, an era in which the Rockefellers and Carnegies dominated American industry, the richest 1% of Americans earned roughly 18% of all income. By 2007, the top 1% account for 24% of all income.[28] In between, their share fell below 10%.

The first era of inequality lasted roughly from the post-civil war era ("the Gilded Age") to sometime around 1937. But from about 1937 to 1947 -- a period that has been dubbed the "Great Compression"[29] -- income inequality in America fell dramatically. Highly progressive New Deal taxation, the strengthening of unions, and regulation of the National War Labor Board during World War II raised the income of the poor and working class and lowered that of top earners.[30] This "middle class society" of relatively low level of inequality remained fairly steady for about three decades ending in late 1970s[9][29][31], the product of relatively high wages for the US working class and political support for income leveling government policies.

Wages remained relatively high because of lack of foreign competition for American manufacturing, lack of low skilled immigrant workers[32], competition for US workers in general, and — arguably most important — strong trade unions. By 1947 more than a third of non-farm workers were union members,[33] and unions both raised average wages for their membership, and indirectly and to a lesser extent, raised wages for workers in similar occupations not represented by unions.[34] Scholars believe political support for equalizing government policies was provided by high voter turnout from union voting drives, the support of the otherwise conservative South for the New Deal, and prestige that the massive mobilization and victory of World War II had given the government.[35]

The return to high inequality -- or what Krugman and journalist Timothy Noah have referred as the “Great Divergence”[28] -- began in the late 1970s. During this time income grew more unequal almost continuously except during the economic recessions in 1990-91, 2001 (Dot-com bubble), and 2007 sub-prime bust.[36] The Great Divergence differs in some ways from the pre-Depression era inequality. Before 1937 a larger share of top earners income came from capital (interest, dividends, income from rent, capital gains). Post 1970, income of high-income taxpayers comes predominantly from "labor", i.e. employment compensation.[37]

Until 2011, the Great Divergence had not been a major political issue in America, though stagnation of middle class income was. In 2009 the Barack Obama administration White House Middle Class Working Families Task Force convened to focus on economic issues specifically affecting middle-income Americans. In 2011, the Occupy movement drew considerable attention to income inequality in the country.

Measurement

Indicators

Inflation adjusted increase in after-tax household income between 1979 and 2005 for the top 1% and the four of the five quintiles.[38] This graph shows the income of the given percentiles from 1947 to 2010 in 2010 dollars. The 2 columns of numbers in the right margin are the cumulative growth 1970-2008 and the annual growth rate over that period. The vertical scale is logarithmic, which makes constant percentage growth appear as a straight line. From 1947 to 1970, all percentiles grew at essentially the same rate; the light, straight lines for the different percentiles for those years all have the same slope. Since then, there has been substantial divergence, with different percentiles of the income distribution growing at different rates. This plot was created by combining data from the US Census Bureau[39] and the US Internal Revenue Service[40]. There are systematic differences between these two sources, but the differences are small relative to the scale of this plot.[41]

A number of studies by the US Department of Commerce, Congressional Budget Office (CBO), and Internal Revenue Service, have found that the distribution of income in the United States — most commonly measured by household or individual — has become increasingly unequal since the 1970s.

ONe of the most recent and comprehensive studies on the change in income inequality in America was a 2011 study by the Congressional Budget Office (CBO) -- "Trends in the Distribution of Household Income Between 1979 and 2007". (It chose the two years because they both preceded an economic recession and so both were periods of "similar overall economic activity"[42]). The report found that real household income after federal taxes and including government transfers (payments from Social Security, unemployment insurance, etc.[43][44]) grew by 62%. However, income of households in the top 1 percent of earners grew by 275%, compared to 65% for the next 19 percent, just under 40% for the next 60 percent, 18% for the bottom fifth of households. “As a result of that uneven income growth," the report noted, "the share of total after-tax income received by the 1 percent of the population in households with the highest income more than doubled between 1979 and 2007, whereas the share received by low- and middle-income households declined … The share of income received by the top 1 percent grew from about 8% in 1979 to over 17% in 2007. The share received by other 19% of households in the highest income quintile (one-fifth of the population as divided by income) was fairly flat over the same period, edging up from 35% to 36%.” [45]

Looking at the issue of how frequently workers or households move into higher or lower quintiles as their income rises or falls over the years[46], the CBO found income distribution over a multi-year period "modestly" more equal than annual income.[47] The CBO study confirms earlier studies.[38]

Emmanuel Saez, a Berkeley economist from France, has been called the single most influential economist in demonstrating the growth in inequality.[15] A 2006 analysis of IRS income data by Emmanuel Saez and Thomas Piketty at the Paris School of Economics showed that the share of income held by the top 1% was as large in 2005 as in 1928. The data revealed that reported income increased by 9% in 2005, with the mean for the top 1% increasing by 14% and that for the bottom 90% dropping slightly by 0.6%.[7] Other sources that have noted the increased inequality included economist Janet Yellen who stated, "the growth [in real income] was heavily concentrated at the very tip of the top, that is, the top 1 percent."[48]

Economist Timothy Smeeding summed up the current trend of rising inequality on the pages of the Social Science Quarterly:[49]

Americans have the highest income inequality in the rich world and over the past 20–30 years Americans have also experienced the greatest increase in income inequality among rich nations. The more detailed the data we can use to observe this change, the more skewed the change appears to be ... the majority of large gains are indeed at the top of the distribution.

United States Census Bureau studies on inequality of income measure both households[50] and individuals.[51] In 2010, a census study showed the top 20% of Americans earned 49.4% of the nation’s income, compared with the 3.4% earned by Americans living below the poverty line (roughly 15% of the population). This earnings ratio of 14.5 to 1 was an increase from the 13.6 to 1 ratio just two years earlier, and a significant rise from the historic low of 7.69 to 1 in 1968.[52] The Census Bureau has shown lower levels of inequality[53] but do not include data for the highest-income households where most of change in income distribution has occurred.[19][54]

Data Total gain Percent gain 2003 2000 1997 1994 1991 1988 1985 1982 1979 1976 1973 1970 1967
20th percentile $3,982 28.4% $17,984 $19,142 $17,601 $16,484 $16,580 $17,006 $16,306 $15,548 $16,457 $15,615 $15,844 $15,126 $14,002
Median (50th) $9,980 29.9% $43,318 $44,853 $42,294 $39,613 $39,679 $40,678 $38,510 $36,811 $38,649 $36,155 $37,700 $35,832 $33,338
80th percentile $34,602 62.6% $86,867 $87,341 $81,719 $77,154 $74,759 $75,593 $71,433 $66,920 $68,318 $63,247 $64,500 $60,148 $55,265
95th percentile $65,442 73.8% $154,120 $155,121 $144,636 $134,835 $126,969 $127,958 $119,459 $111,516 $111,445 $100,839 $102,243 $95,090 $88,678
SOURCE: U.S. Census Bureau, 2004[55] (Page 44/45)

Wage inequality

According to Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco, {{quote.....real hourly wages of those in the 90th percentile—where most people have college or advanced degrees—rose by 30 percent or more... among this top 10 percent, the growth was heavily concentrated at the very tip of the top, that is, the top 1 percent. This includes the people who earn the very highest salaries in the U.S. economy, like sports and entertainment stars, investment bankers and venture capitalists, corporate attorneys, and CEOs. In contrast, at the 50th percentile and below—where many people have at most a high school diploma—real wages rose by only 5 to 10 percent – [48]}}

Consumption

Will Wilkinson of the libertarian Cato Institute argues that "the weight of the evidence shows that the run-up in consumption inequality has been considerably less dramatic than the rise in income inequality," and consumption is more important than income.[56] However since consumption in excess of income usually means debt, Timothy Noah argues that "the thought that the have-nots are compensating for their lower incomes by putting themselves (and the country) in economically ruinous hock is not reassuring."[57] The CBO agrees that household consumption numbers show more equal distribution than household income but finds the data do not "adequately capture consumption by high-income households" as it does their income.[58]

Gini index

Further information: Gini coefficient Further information: List of U.S. states by income equality

The Gini coefficient summarizes income inequality in a single number and is one of the most commonly used measures of income inequality. It uses a scale from 0 to 1 -- where 0 represents perfect equality (everyone having exactly the same income), and 1 represents perfect inequality (one person having all income). Index scores are commonly multiplied by 100 to make them easier to understand.[59] Gini index ratings can be used to compare inequality within (by race, gender, employment) and between them. Different sources will often give different gini values for the same country or population measured.

International comparisons

Between 1981 and 2008, income inequality rose significantly in two-thirds of OECD countries, mostly because of rising incomes in the top percentiles and stagnating incomes at the bottom half of the income distribution.[1]

The UN, CIA World Factbook,[60] and OECD have used the gini index to compare inequality between countries, and as of 2006, the United States had one of the highest levels of income inequality among similar developed or high income countries, as measured by the index.[11] While inequality has increased somewhat since the mid-1980s[61], most developed countries are in the lower, more equal, end of the spectrum, with a Gini coefficient in the high twenties to mid thirties.[62] The gini rating of the United States is sufficiently high, however, to put it among less developed countries. The US ranks above (more unequal than) South American countries such Guyana, Nicaragua, and Venezuela, and roughly on par with Uruguay, Nicaragua, and Venezuela, according to the CIA.[63] (although some developed countries have higher gini ratings before taxes and transfers.[12])

Between 1985 and 2008 the OECD-24 countries with the fastest-rising Gini coefficients were Sweden, New Zealand, Finland, Israel, Germany, and Luxembourg.[64]

Organization US gini rating International range US ranking in income equality Year(s) rated
Most equal (lowest gini) Least equal (highest gini)
UN[65] 40 24.7 (Denmark) 74.3 (Namibia) 32nd out of 39 2007
The World Factbook (CIA)[60] 45 23 (Sweden) 70.7 (Namibia) 100th out of 140[66] 1994–2009
OECD[12] 37.8 23.6 (Slovenia) 49.4 (Chile) 31st out of 34 (in OECD) “late 2000s”

Among the 34 "developed" countries of the OECD the US gini rank in income equality (27th) is higher before taxes and "transfers" are measured,[67] then after (31st) [68] -- i.e., the US has less income redistribution by government than some other post-industrial economies. However some developed countries, such as the Netherlands and Greece, have less inequality simply because incomes are more equal than in the US even before taxes.[69]

Some have argued that inequality is higher in other countries than official statistics indicate because of unreported income. European countries have higher amounts of wealth in offshore holdings.[70][71][72][73]

Careers of high income professionals

People in the top 1% are three times more likely to work more than 50 hours a week, they are more likely to be self-employed, and they earn a fifth of their income as capital income.[74] The top 1% is composed of many professions and has an annual turnover rate of more than 25%.[75] The five most common professions are managers, physicians, administrators, lawyers, and teachers.[76]

In the top 10%, female incomes rose twice as fast as male incomes between 1981 and 2005.[1] Furthermore, the United States has a high level of assortative mating, which means that highly educated males marry highly educated females rather than lowly educated ones.[1]

People in the top 1% are three times more likely to work more than 50 hours a week, they are more likely to be self-employed, and they earn a fifth of their income as capital income.[74] The people in the 1% change every year because of temporarily surge in salary or once off income from selling assets. The turnover rate in the top 1% is more than 25% every year.[75]

The 30 most common professions in the top 1% are:[76]

  1. Managers
  2. Physicians
  3. Administrators
  4. Lawyers
  5. Teachers
  6. Supervisors and proprietors
  7. Sales
  8. Accountants and auditors
  9. Financial specialists
  10. Management analysts
  11. Secretaries
  12. Retail sales clerks
  13. Miscellaneous occupations
  14. Financial services occupations
  15. Registered nurses
  16. Real estate sales
  17. Artists
  18. Dentists
  19. Engineers
  20. Miscellaneous administrative support services
  21. Bookkeeping and financial records processing
  22. Computer scientists
  23. Office supervisors
  24. Purchasing, inspecting, and management support
  25. Writers
  26. Computer software developers
  27. Personal services
  28. Insurance sales
  29. Cashiers
  30. Police, fire and protective services

Doctors are more likely than any other profession to be in the 1 percent.[74]

In the top 0.1%, executives, managers, supervisors, and financial professionals account for 60 percent. More than half of them work in closely held businesses.[77]

Causes

Inequality in general

Expertise, productiveness and work experience, inheritance, gender, and race have had a strong influence on distribution of personal income[78][79] in the United States as in other countries.

Race and gender disparities

Further information: Male-female income disparity in the United States

Income levels vary by gender and race with median income levels considerably below the national median for females compared to men with certain racial demographics.[80]

Median personal income by gender and race in 2005.

Asian Americans are far more likely to be in the highest earning 5% than the rest of Americans.[81] When it comes to couples, Asian husband, Asian wife, and Asian couple are the highest earning combinations in the United States.[82] Despite considerable progress in pursuing gender and racial equality, some social scientists attribute these discrepancies in income to continued discrimination.[83] Others argue that the majority of the wage gap is due to women's choices and preferences. Women are more likely to consider factors other than salary when looking for employment. On average, women are less willing to travel or relocate, take more hours off and work fewer hours, and choose college majors that lead to lower paying jobs. Women are also more likely to work for governments or non-profits, that pay less than the private sector.[84][85] According to this perspective certain ethnic minorities and women receive fewer promotions and opportunities for occupation and economic advancement than others. In the case of women this concept is referred to as the glass ceiling keeping women from climbing the occupational ladder. In terms of race, studies have shown that African Americans are less likely to be hired than European-Americans with the same qualifications.[86] The continued prevalence of traditional gender roles and ethnic stereotypes may partially account for current levels of discrimination.[83] In 2005, median income levels were highest among Asian and White males and lowest among females of all races, especially those identifying as African American or Hispanic. Despite closing gender and racial gaps, considerable discrepancies remain among racial and gender demographics, even at the same level of educational attainment.[87] The success of Asian Americans may come from how parents and children spend much longer hours on education than their peers. Asian American have significantly higher college graduation rates than their peers, are much more likely to enter high status occupations, and succeed at it even with significantly lower IQ.[88][89]

Since 1953 the income gap between male and female workers has decreased considerably but remains relatively large.[90] Women currently earn significantly more Associate's, Bachelor's, and Master's degrees than men and almost as many Doctorates.[91] Women are projected to have passed men in Doctorates earned in 2006–2007, and to earn nearly two thirds of Associate's, Bachelor's, and Master's degrees by 2016.[92] Despite this, some still argue that male workers still hold higher educational attainment, as the success of women in academia is a relatively new phenomenon.[78] Though it is important to note that income inequality between sexes remained stark at all levels of educational attainment.[80] Between 1953 and 2005 median earnings as well as educational attainment increased, at a far greater pace for women than for men. Median income for female earners male earners increased 157.2% versus 36.2% for men, over four times as fast. Today the median male worker earns roughly 68.36% more than their female counterparts, compared to 176.25% in 1953. The median income of men in 2005 was 2% higher than in 1973 compared to a 74.6% increase for female earners.[90] Racial differences remained stark as well, with the highest earning sex-gender demographic of workers aged 25 or older, Asian males (who were roughly tied with white males) earning slightly more than twice as much as the lowest-earning demographic, Hispanic females.[93][94] As mentioned above, inequality between races and gender persisted at similar education levels.[94][95] Racial differences were overall more pronounced among male than among female income earners.

During the early 1920s, median earnings decreased for both sexes, not increasing substantially until the late 1990s. Since 1974 the median income for workers of both sexes increased by 31.7% from $18,474 to $24,325, reaching its high-point in 2000.[96]

Demographic Median personal income
Overall Median High school graduate Some college Bachelor's degree or higher Bachelor's degree Masters degree Doctorate degree
White Male[97] $40,432 $33,805 $40,427 $61,175 $55,129 $67,903 $77,818
Female[98] $26,636 $21,306 $25,190 $40,161 $36,076 $45,555 $56,759
Both sexes[99] $32,919 $27,291 $31,510 $49,879 $43,841 $52,244 $71,184
Black Male[100] $30,549 $25,747 $32,758 $46,474 $41,889 $52,488 N/A
Female[100] $25,435 $20,366 $25,574 $42,461 $41,263 $45,830 N/A
Both sexes[101] $27,110 $22,328 $27,589 $44,460 $41,565 $47,407 $61,993
Asian Male[95] $42,217 $28,486 $34,548 $61,165 $51,448 $70,979 $81,676
Female[102] $30,332 $21,057 23,523 $41,442 $37,057 $48,177 $53,659
Both sexes[103] $36,152 $25,285 $29,982 $51,481 $42,466 $61,452 $69,653
Hispanic Male[104] $26,162 $26,579 $33,617 $48,282 $43,791 $60,194 N/A
Female[105] $20,133 $18,886 $25,088 $37,405 $34,302 $47,052 N/A
Both sexes[106] $23,613 $22,941 $28,698 $41,596 $37,819 $50,901 $67,274
All racial/ethnic demographics Male[107] $39,403 $32,085 $39,150 $60,493 $52,265 $67,123 $78,324
Female[108] $26,507 $21,117 $25,185 $40,483 $36,532 $45,730 $54,666
Both sexes[109] $32,140 $26,505 $31,054 $49,303 $43,143 $52,390 $70,853
NOTE: The highest median for each level of educational attainment is highlighted in green, the lowest in orange.

SOURCE: US Bureau of Census, 2006

Household and personal income

Household income levels and gains for different percentiles in 2003 dollars.[110] Main article: Household income in the United States

Conservatives commonly focused on the flaws of household income as a measure for standard of living in order to refute claims that income inequality is growing, becoming excessive or posing a problem for society.[111] According to sociologist Dennis Gilbert, growing inequality can be explained in part by growing participation of women in the workforce. High earning households are more likely to be dual earner households,[9] Thus gross annual household income does not always accurately reflect standard of living as it does not consider household size.[112]

Inequality can also be explained by failure to adjust for size of household. A 2004 analysis of income quintile data by the Heritage Foundation stated that the aggregate share of income held by the upper quintile (the top earning 20%) decreases by 20.3% when figures are adjusted to reflect household size.[113]

However, the 2011 CBO study "Trends in the Distribution of Household Income" mentioned in this article adjusts for household size so that its quintiles contain an equal number of people, not an equal number of households.[114]

Main article: Personal Income in the United States

Personal income represents the earnings of individuals and, therefore, directly reflects occupational status, achievement and educational attainment. Trends in personal income are more indicative of the job market and the economy than household income. . While many income earners, though not the majority, reside in households with more than one income earner,

Changes in income calculation

One observer who denies that household income has become more unequal is Alan Reynolds, senior fellow with the Cato Institute. Reyonlds has declared that income inequality is a statistical illusion brought about by technical changes in the tax law that alter what income gets reported to the Internal Revenue Service and what income does not.[115][111] This claim has been criticized as "a mountain of hard-to-follow, often irrelevant, and sometimes entirely erroneous statistical quibbles" or [116] "intellectual three-card monte."[117]

Education and technology

Median personal and household income according to different education levels.[109][118] Main article: Educational attainment in the United States

Income differences between the varying levels of educational attainment (usually measured by the highest degree of education an individual has completed) have increased. Expertise and skill certified through an academic degree translates into increased scarcity of an individual's occupational qualification which in turn leads to greater economic rewards.[119] As the United States has developed into a post-industrial society more and more employers require expertise that they did not a generation ago, while the manufacturing sector which employed many of those lacking a post-secondary education is decreasing in size.[120]

In the resulting economic job market the income discrepancy between the working class and the professional with the higher academic degrees,[78] who possess scarce amounts of certified expertise, may be growing.

Average earnings in 2002 for the population 18 years and over were higher at each progressively higher level of education... This relationship holds true not only for the entire population but also across most subgroups. Within each specific educational level, earnings differed by sex and race. This variation may result from a variety of factors, such as occupation, working full- or part-time, age, or labor force experience. – [78][121]
Demographic High school graduate Some college Bachelor's degree or higher Bachelor's degree Master's degree First professional degree Doctorate degree
Median % +/- national median Median % +/- national median Median % +/- national median Median % +/- national median Median % +/- national median Median % +/- national median Median % +/- national median
Persons, age 25+ w/ earnings (2005) Both sexes $26,505 −17.5% $31,054 −3.5% $49,303 +53.4% $43,143 +34.2% $52,390 +63.0% $82,473 +156.6% $70,853 +120.4%
Males $32,085 −18.6% $39,150 −0.6% $60,493 +53.5% $52,265 +32.6% $67,123 +70.3% $100,000 +153.8% $78,324 +98.8%
Females $21,117 −20.3% $25,185 −5.0% $40,483 +52.7% $36,532 +37.82% $45,730 +72.5% $66,055 +149.2% $54,666 +106.2%
Both sexes employed full-time $31,539 −19.8% $37,135 −5.6% $56,078 +42.5% $50,944 +29.5% $61,273 +55.8% $100,000 +154.2% $79,401 +101.8%
Households (2003) $36,835 −20.5% $45,854 −0.8% $73,446 +58.8% $68,728 +48.6 $78,541 +69.9% $100,000 +116.2% $96,830 +109.4%
SOURCE: US Census Bureau, 2004/06[109][118]

According to software developer Martin Ford, the replacement by automation not only of routine, lower-skill employment but jobs at high skill levels should have an effect on income inequality of shifting it not to more educated workers but to owners of capital.[122][123]

For example, the introduction of electronic discovery software has largely automated the legal discovery process, eliminating many highly-paid positions for lawyers and paralegals.[124] When advanced technologies eliminate well-paying jobs (or de-skill the jobs so that the work can be performed by lower-wage labor), the benefits flow to top corporate executives and shareholders. According to Timothy Noah, as of 2010, computer technology has hurt "moderately skilled middle-class" occupations but not those with high skill levels.[63]

Incentives

Percent of households with 2+ income earners, and full-time workers by income.[125]

In the context of concern over income inequality a number of economists, such as Federal Reserve chairman Ben Bernake, have talked about the importance of incentives: "... without the possibility of unequal outcomes tied to differences in effort and skill, the economic incentive for productive behavior would be eliminated, and our market-based economy ... would function far less effectively."[119][126] Yale economist Arthur Okun argues there is a trade-off between economic growth and economic redistribution.[127][128]

Since abundant supply decreases market value, the possession of scarce skills considerably increases income.[78] Among the American lower class, the most common source of income was not occupation, but government welfare.[129]

As expected, households in the upper quintiles are generally home to more, better educated and employed working income earners, than those in lower quintiles.[113] Among those in the upper quintile, 62% of householders were college graduates, 80% worked full-time and 76% of households had two or more income earners, compared to the national percentages of 27%, 58% and 42%, respectively.[78][79][125] Upper-most sphere US Census Bureau data indicated that occupational achievement and the possession of scarce skills correlates with higher income.[125]

Taxation

Main article: Tax policy and economic inequality in the United States

Another factor in income inequality/equality is the effective rate at which income is taxed coupled with the progressivity of the tax system. A progressive tax is a tax by which the tax rate increases as the taxable base amount increases.[130][131][132][133][134] The more progressive the tax system the more lower income household/persons will benefit compared to the higher income. Overall income tax rates in the United States are below the OECD average.[135]

Post-1980 rise in inequality

Most current discussion of income inequality in America centers on its rise since the mid to late 1970s, the so-called "Great Divergence".

Broad breakdown

Breaking down how much of the increase in income inequality between 1979 and 2007 came from distribution of pre-tax income and how much from taxes and "government transfers", the CBO data shows that the 33% increase in inequality[136] came from a

Of the 23% increase in inequality from changes in pre-tax "market" income, most of that (79%) came from a shift to top earners in different types of income across the board. A smaller amount of inequality increase (21%) came from a shift to more concentrated income sources. (i.e. a shift toward interest, dividends, business income and especially capital gains, which are more concentrated toward top earners than income from salaries/wages).[139]

Explanations

According to the CBO and others, "the precise reasons for the [recent] rapid growth in income at the top are not well understood",[37][63] but "in all likelihood," an "interaction of multiple factors" was involved.[140] "Researchers have offered several potential rationales."[37][48] Some of these rationales conflict, some overlap.[141] They include:

Analyzing the top three hypotheses, economist Paul Krugman found them to be "increasingly inadequate" as more evidence accumulated.

Globalization can explain part of the relative decline in blue-collar wages, but it can't explain the 2,500 percent rise in C.E.O. incomes. Technology may explain why the salary premium associated with a college education has risen, but it's hard to match up with the huge increase in inequality among the college-educated, with little progress for many but gigantic gains at the top. The superstar theory works for Jay Leno, but not for the thousands of people who have become awesomely rich without going on TV.[142]

Immigration was also found wanting as an explanation.[145]

Other scholars [146] questioning the explanation of educational attainment and workplace skills point out that other countries with similar education levels and economies have not gone the way of the US, and that concentration of income in the US hasn't followed a pattern of "the 29% of Americans with college degrees pulling away" from those who have less education.[49][147][148][149][150][11]

Skill-biased technological change

As of the mid- to late- decade of the 2000s, the most common explanation for income inequality in America was "skill-biased technological change"[151] — "a shift in the production technology that favors skilled over unskilled labor by increasing its relative productivity and, therefore, its relative demand".[152] For example, one scholarly colloquium on the subject that included many prominent labor economists estimated that technological change was responsible for over 40% of the increase in inequality. Other factors like international trade, decline in real minimum wage, decline in unionization and rising immigration, were each responsible for 10-15% of the increase.[153][154]

Numbers show the strength of education's influence on income distribution.[155] In 2005, roughly 55% of income earners with doctorate degrees — the most educated 1.4% — were among the top 15% earners. Among those with Masters degrees — the most educated 10% — roughly half had incomes among the top 20% of earners.[109] Only among households in the top quintile were householders with college degrees in the majority.[79]

But while the higher education commonly translates into higher income,[155] and the highly educated are disproportionately represented in upper quintile households, differences in educational attainment fail to explain income discrepancies between the top 1% and the rest of the population. Large percentages of individuals lacking a college degree are present in all income demographics, including 33% of those with heading households with six figure incomes.[79] From 2000 to 2010, the 1.5% of Americans with an M.D., J.D., or M.B.A. and the 1.5% with a PhD saw median income gains of approximately 5%. Among those with a college or master’s degree (about 25% of the American workforce) average wages dropped by about 7 percent, (though this was less than the decline in wages for those who had not completed college).[156]

Approaching the issue from occupations that have been replaced or downgraded since the late 1970s, one scholar found that jobs that "require some thinking but not a lot" — or moderately skilled middle-class occupations such as cashiers, typists, welders, farmers, appliance repairmen — declined the furthest in wage rates and/or numbers. Employment requiring either more skill or less has been less affected.[157] However the timing of the great technological change of the era -- internet use by business starting in the late 1990s -- does not match that of the growth of income inequality (starting in the late 1970s but slackening somewhat in the 1990s). Nor does the introduction of technologies that increase the demand for more skilled workers seem to be generally associated with a divergence in household income among the population. Inventions of the 20th century such as AC electric power, the automobile, airplane, radio, television, the washing machine, Xerox machine, each had an economic impact the equal of computers/microprocessors/internet but did not coincide with greater inequality.[157]

Education

Another explanation is that the combination of the introduction of technologies that increase the demand for skilled workers, and the failure of the American education system to provide a sufficient increase in those skilled workers has bid up those workers' salaries. An example of the slowdown in education growth in America (that began about the same time as the Great Divergence began) is the fact that the average person born in 1945 received two more years of schooling than his parents, while the average person born in 1975 received only half a year more of schooling.[158] Author Timothy Noah's "back-of-the-envelope" estimation based on "composite of my discussions with and reading of the various economists and political scientists" is that the "various failures" in America's education system are "responsible for 30%" of the post-1978 increase in inequality.[158]

Globalization

The idea that the growing amount of imports from low-wage countries has hurt incomes of skilled American workers is intuitive. China is the world's biggest exporter and maker of manufactured products but had a per capita income in 2007 one-seventh that of the United States. But while economists who have studied globalization agree imports have had an effect, here again the timing of import growth does not match that of inequality growth. By 1995 imports of manufactured goods from low-wage countries totaled less than 3% of US gross domestic product.[159] It wasn't until 2006 that the US imported more manufactured goods from low-wage (developing) countries than from high-wage (advanced) economies.[160] And inequality increased during the 2000-2010 decade not because of stagnating wages for less-skilled workers, but because of accelerating incomes of the top 0.1%.[159] Author Timothy Noah estimates that "trade", increases in imports are responsible for just 10% of the "Great Divergence" in income distribution.[158]

Immigration

The Immigration and Nationality Act of 1965 increased immigration to America, especially of non-Europeans. [63] From 1970 to 2007, the foreign-born proportion of America's population grew from 5% to 11%, most of whom had lower education levels and incomes than native-born Americans. But the contribution of this increase in supply of low-skill labor seem to have been relatively modest. One estimate stated that immigration reduced the average annual income of native-born "high-school dropouts" ("who roughly correspond to the poorest tenth of the workforce") by 7.4% from 1980 to 2000. The decline in income of better educated workers was much less.[63] Author Timothy Noah estimates that "immigration" is responsible for just 5% of the "Great Divergence" in income distribution.[158]

Political, normative, institutional

Critics of technological change as an explanation for the "Great Divergence" of income levels in America[21] point to public policy and party politics, or "stuff the government did, or didn't do"[161]. They argue these have led to a trend of declining labor union membership rates and resulting diminishing political clout, decreased expenditure on social services, and less government redistribution.

Political parties and presidents

Political scientist Larry Bartels has found a strong correlation between the party of the president and income inequality in America since 1948. (see below)[149][162]

Examining average annual pre-tax income growth from 1948 to 2005,[163] Bartel shows that under Democratic presidents (from Harry Truman forward), the greatest income gains have been at the bottom of the income scale and tapered off as income rose. Under Republican presidents, in contrast, gains were much less but what growth there was concentrated towards the top, tapering off as you went down the income scale.[138][164]

Summarizing Bartels's findings, journalist Timothy Noah referred to the administrations of Democratic presidents as "Democrat-world", and GOP administrations as "Republican-world":

In Democrat-world, pre-tax income increased 2.64% annually for the poor and lower-middle-class and 2.12% annually for the upper-middle-class and rich. There was no Great Divergence. Instead, the Great Compression—the egalitarian income trend that prevailed through the 1940s, 1950s, and 1960s—continued to the present, albeit with incomes converging less rapidly than before. In Republican-world, meanwhile, pre-tax income increased 0.43 percent annually for the poor and lower-middle-class and 1.90 percent for the upper-middle-class and rich. Not only did the Great Divergence occur; it was more greatly divergent. Also of note: In Democrat-world pre-tax income increased faster than in the real world not just for the 20th percentile but also for the 40th, 60th, and 80th. We were all richer and more equal! But in Republican-world, pre-tax income increased slower than in the real world not just for the 20th percentile but also for the 40th, 60th, and 80th. We were all poorer and less equal! Democrats also produced marginally faster income growth than Republicans at the 95th percentile, but the difference wasn't statistically significant.[161]

The pattern of distribution of growth appears to be the result of a whole host of policies,

including not only the distribution of taxes and benefits but also the government's stance toward unions, whether the minimum wage rises, the extent to which the government frets about inflation versus too-high interest rates, etc., etc.[138]

Noah admits the evidence of this correlation is "circumstantial rather than direct", but so is "the evidence that smoking is a leading cause of lung cancer."[161]

Non-party political action

According to political scientists Jacob Hacker and Paul Pierson writing in the book Winner-Take-All Politics, the important policy shifts were brought on not by the Republican Party but by the development of a modern, efficient political system, especially lobbying, by top earners — and particularly corporate executives and the financial services industry.[165] the end of the 1970s saw a transformation of American politics away from a focus on the middle class, with new, much more effective, aggressive and well-financed lobbyists and pressure groups acting on behalf of upper income groups. Executives successfully eliminated any countervailing power or oversight of corporate managers (from private litigation, boards of directors and shareholders, the Securities and Exchange Commission or labor unions).[166] The financial industry's success came from successfully pushing for deregulation of financial markets, allowing much more lucrative but much more risky investments from which it privatized the gains while socializing the losses with government bailouts.[167] (the two groups formed about 60% of the top 0.1% of earners.) All top earners were helped by deep cuts in estate and capital gains taxes, and tax rates on high levels of income.

Arguing against the proposition that the explosion in pay for corporate executives — which grew from 35X average worker pay in 1978 to over 250X average pay before the 2007 recession[168] — is driven by an increased demand for scarce talent and set according to performance, Krugman points out that multiple factors outside of executives' control govern corporate profitability, particularly in short term when the head of a company like Enron may look like a great success. Further, corporate boards follow other companies in setting pay even if the directors themselves disagree with lavish pay "partly to attract executives whom they consider adequate, partly because the financial market will be suspicious of a company whose CEO isn't lavishly paid." Finally "corporate boards, largely selected by the CEO, hire compensation experts, almost always chosen by the CEO" who naturally want to please their employers.[169] Lucian Arye Bebchuk, Jesse M. Fried, the authors of Pay Without Performance, critique of executive pay, argue that executive capture of corporate governance is so complete that only public relations, i.e. public `outrage`, constrains their pay.[170] This in turn has been reduced as traditional critics of excessive pay—such as politicians (where need for campaign contributions from the richest outweighs populist indignation), media (lauding business genius), unions (crushed) -- are now silent.[171]

In addition to politics, Krugman postulated change in norms of corporate culture have played a factor. In the 1950s and 60s, corporate executives had (or could develop) the ability to pay themselves very high compensation through control of corporate boards of directors, they restrained themselves. But by the end of the 1990s, the average real annual compensation of the top 100 C.E.O.'s skyrocketed from $1.3 million—39 times the pay of an average worker—to $37.5 million, more than 1,000 times the pay of ordinary workers from 1982 to 2002.[142] Journalist George Packer also sees the dramatic increase in inequality in America as a product of the change in attitude of the American elite, which (in his view) has been transitioning itself from pillars of society to a special interest group.[172] Author Timothy Noah estimates that what he calls "Wall Street and corporate boards' pampering" of the highest earning 0.1% is "responsible for 30%" of the post-1978 increase in inequality.[158]

Decline of unions
Union membership in the United States from the Great Depression to current day.

The era of inequality growth has coincided with a dramatic decline in labor union membership from 20% of the labor force in 1983 to about 12% in 2007.[173] Economists have traditionally thought that since the chief purpose of a union is to maximize the income of its members, a strong but not all-encompassing union movement led to increased income inequality because union members in higher-paying occupations (such as skilled trades like plumbing and carpentry) tend to have stronger unions and more influence than members in lower-paying ones (such as workers in small businesses), who in turn typically earn more than nonunion blue collar workers[174][175]. However more recently research has shown that unions ability to reduce income disparities among members outweighed other factors and its net effect has been to reduce national income inequality.[175][176] The decline of unions has hurt this leveling effect among men, and one economist (Berkeley economist David Card) estimating about 15-20% of the "Great Divergence" among that gender is the result of declining unionization.[175][177]

Still other researchers think it is the labor movement's loss of national political power to promote equalizing "government intervention and changes in private sector behavior" has had the greatest impact on inequality in the US.[178][175] Timothy Noah estimates the "decline" of labor union power "responsible for 20%" of the Great Divergence.[158]

Taxation

How much tax policy change over the last thirty years has contributed to income inequality is disputed. In their comprehensive 2011 study of income inequality (Trends in the Distribution of Household Income Between 1979 and 2007), the CBO estimated that only 12% of the increase in inequality in the US during that time came from tax policy changes.[137][179] According to journalist Timothy Noah

you can't really demonstrate that U.S. tax policy had a large impact on the three-decade income inequality trend one way or the other. The inequality trend for pre-tax income during this period was much more dramatic.[161]

Noah estimates tax changes account for 5% of the Great Divergence.[158]

But many — such as economist Paul Krugman — emphasize the effect of changes in taxation — such as the 2001 and 2003 Bush administration tax cuts which cut taxes far more for high-income households than those below — on increased income inequality.[180]

Part of the growth of income inequality under Republican administrations (described by Larry Bartels) has been attributed to tax policy. A study by Thomas Piketty and Emmanuel Saez found that

Large reductions in tax progressivity since the 1960s took place primarily during two periods: the Reagan presidency in the 1980s and the Bush administration in the early 2000s.[181]

During Republican President Ronald Reagan's tenure in office the top marginal income tax rate was reduced from over 70 to 28 percent, high top marginal rates like 70% being the sort in place during much of the period of great income equality following the “Great Compression”.[161][182][183] President Ronald Reagan's 1981 cut in the top regular tax rate on unearned income reduced the maximum capital gains rate to only 20% — its lowest level since the Hoover administration.[184]

During the Republican George W. Bush administration, the tax rate on capital gains and qualifying dividends — a disproportionate source of income for top earners — fell to 15% — less than half the 35% top rate on ordinary income.[185] President Bush's veto of tax harmonization has also been attributed to rising inequality, as this would have shut down offshore tax havens.[186]

One study found reductions of total effective tax rates were most significant for individuals with highest incomes. For those with incomes in the top 0.01 percent to 0.1 percent, overall rates of Federal tax were 55.3 percent in 1960, 59.1 percent in 1970, 51.0 percent in 1980, 34.3 percent in 1990, 40.2 percent in 2000 and 34.1 percent in 2004. For those with income in the top 0.01 percent of the income distribution, the effective tax rate was 71.4 percent in 1960, 74.6 percent in 1970, 59.3 percent in 1980, 35.4 percent in 1990, 40.8 percent in 2000 and 34.7 percent in 2004. The study found the decline in progressivity since 1960 was due to the shift from allocation of corporate income taxes among labor and capital to the effects of the individual income tax. However the study also noted that in 1960 the top tax rate reached only 31 percent for those at the very top.[187][188]Paul Krugman also supports this claim saying, "The overall tax rate on these high income families fell from 36.5 percent in 1980 to 26.7 percent in 1989."[189]

From the White House's own analysis, the tax burden for those making greater than $250,000 fell considerably during the late 1980s, 1990s and 2000s, from an effective tax of 35 percent in 1980, down to under 30% from the late 1980s to present.[190]

Many studies argue that tax changes of S-type Corporations confound the statistics prior to 1990. However, even after these changes inflation-adjusted average after-tax income grew by 25% between 1996 and 2006 (the last year for which individual income tax data is publicly available). This average increase, however, obscures a great deal of variation. The poorest 20% of tax filers experienced a 6% reduction in income while the top 0.1% of tax filers saw their income almost double. Tax filers in the middle of the income distribution experienced about a 10% increase in income. Also during this period, the proportion of income from capital increased for the top 0.1% from 64% to 70%.[191]

Effects of race and gender

The black/white gap in median family income is about 3% smaller today than it was in 1979, a lack of progress that may be dismaying but excludes the disparity from explaining any part of the 30-year growth of inequality.[24]

Gender disparity in income has also improved in during the last three decades. The gap in the median annual income between men and women working full-time has declined from 40% to 23%.[24]

Median income for male and female workers from 1953 to 2005 in constant dollars.[90]
Year or change Gini index, Persons, age 25+, employed full-time[51] Gini index, Households[50]
Men Women Both sexes
1967 31.4 29.8 34.0 39.7
2005 42.4 35.7 40.9 46.9
Increase 35.0% 19.8% 20.3% 18.1%
SOURCE: U.S. Census Bureau, 2006[192]

Since 1967 inequality has risen for households and for full-time workers of both sexes, but especially for male workers. (see table above) Personal income has risen considerably for female workers since 1953, less so for male workers, whose income stagnated during the 1970s 1980s, and 1990s.[90]

It is unclear whether the dramatic increase of women in the workforce and women's income has led to greater inequality (e.g. dual earner families causing greater inequality). According to the Census Bureau, as of 2005, 42% of all U.S. households and 76% of those in the top quintile had two or more income earners.[110][125] But looking at empirical studies, the CBO study "Trends in the Distribution of Household Income", found "mixed results" of the effect of dual earner families "with estimates depending on the period studied and the methodology use." The study also found that the level of inequality for household with children and (nonelderly) households without children was "virtually identical".[193] The growth of single parent households may have led to lower incomes but most of it occurred before 1980 and in recent years the percentage of women who are actually working who are single parents has increased.[63]

Significance of inequality

Commentators, economists, politicians do not agree on the issue of increase in inequality in America or its importance. Among economists and other experts most agree that America's growing income inequality is "deeply worrying",[24] unjust,[142] a danger to democracy/social stability,[194][195][196] and/or even a sign of national decline.[172] Concern extends even to such supporters (or former supporters) of laissez-faire economics as the former Federal Reserve Board chairman Alan Greenspan, who has stated reference to growing inequality: "This is not the type of thing which a democratic society — a capitalist democratic society — can really accept without addressing."[24] Some economists (David Moss, Paul Krugman) believe the Great Divergence may be connected to the financial crisis of 2008.[57][197]

On the other side of the issue are those who have claimed that the increase is not significant[198], that it doesn't matter[196] because America's economic growth and/or equality of opportunity are what's important[20], that it is a global phenomenon which would be foolish to try to change through US domestic policy[199], that it "has many economic benefits and is the result of ... a well-functioning economy"[200][57], and has or may become an excuse for "class-warfare rhetoric"[198], and may lead to policies that "reduce the well-being of wealthier individuals"[46] [57].

Public attitudes

The growth of inequality has provoked a political protest movement—the Occupy movement -- starting in Wall Street and spreading to 600 communities across the United States in 2011. Its main political slogan — "We are the 99%" — references its dissatisfaction with the concentration of income in the top 1%.

Opinion surveys of what respondents thought was the right level of inequality was have found Americans no more accepting of income inequality than other nationalities, but more accepting of what they thought the level of inequality was less was in their country, being under the impression that there was less inequality than there was.[201] Dan Ariely and Michael Norton show in a study (2011) that US citizens across the political spectrum significantly underestimate the current US wealth inequality and would prefer a more egalitarian distribution of wealth.[202] A 16 December 2011 Gallup poll found a decline in the number of Americans who felt reducing the gap in income and wealth between the rich and the poor was extremely or very important.[203]

However, in 1998 a Gallup poll found 52 percent of Americans agreeing that the gap between rich and the poor was a problem that needed to be fixed, while 45 percent regarded it as "an acceptable part of the economic system". In 2011, those numbers are reversed: Only 45 percent see the gap as in need of fixing, while 52 percent do not. However, there was a large difference between Democrats and Republicans, with 71% of Democrats calling for a fix.[203] In contrast, a national survey by the Pew Research Center for the People & the Press,[204] found that respondents' sense of unfairness about taxes centered on the perception that wealthy Americans were not paying their fair share of taxes; 57% say this is what bothers them most about the tax system, an increase of 6% over a poll taken in March 2003.[205] A more recent poll found about two-thirds of Americans now believe there are “strong conflicts” between rich and poor in the United States.[206][207]

Impact on democracy and society

Economists Jared Bernstein and Paul Krugman have attacked the concentration of income as variously "unsustainable"[195] and "incompatible"[196] with real democracy. Political Scientist Jacob S. Hacker and Paul Pierson quote a warning by Greek/Roman historian Plutarch: `An imbalance between rich and poor is the oldest and most fatal ailment of all republics.`[194]

Two journalists concerned about social separation are Robert Frank who notes that:

Today's rich had formed their own virtual country .. [T]hey had built a self-contained world unto themselves, complete with their own health-care system (concierge doctors), travel network (Net jets, destination clubs), separate economy. .... The rich weren't just getting richer; they were becoming financial foreigners, creating their own country within a country, their own society within a society, and their economy within an economy. [208]

and George Packer,

Inequality hardens society into a class system ... Inequality divides us from one another in schools, in neighborhoods, at work, on airplanes, in hospitals, in what we eat, in the condition of our bodies, in what we think, in our children's futures, in how we die. Inequality makes it harder to imagine the lives of others.[172]

One possible specific tangible harm to non-elites from inequality may be higher rates of bankruptcy as people go deeper into debt trying to maintain what once was a middle class lifestyle. Researchers Elizabeth Warren and Amelia Warren Tyagi found a fivefold increase in the number of families filing for bankruptcy between 1980 and 2005.[209] The bankruptcies came not from increased spending "on luxuries", but from an "increased spending on housing, largely driven by competition to get into good school districts." Intensifying inequality may mean a dwindling number of ever more expensive school districts that compel middle class, (or would-be middle class) to "buy houses they can't really afford, taking on more mortgage debt than they can safely handle".[210]

Disagreeing with this focus on the top earning 1% and urging attention to the economic and social pathologies of lower income/lower education Americans, is conservative journalist David Brooks. Whereas in the 1970s, high school and college graduates had "very similar family structures", today, high school grads are much less likely to get married and be active in their communities, and much more likely to smoke, be obese, get divorced, or have "a child out of wedlock."[211]

The zooming wealth of the top one percent is a problem, but it’s not nearly as big a problem as the tens of millions of Americans who have dropped out of high school or college. It’s not nearly as big a problem as the 40 percent of children who are born out of wedlock. It’s not nearly as big a problem as the nation’s stagnant human capital, its stagnant social mobility and the disorganized social fabric for the bottom 50 percent.[211]

[212]

Opportunity and equality

Conservatives and libertarians such as economist Thomas Sowell, and Congressman Paul Ryan (R., Wisc.)[213] argue that more important than the level of equality of results is America's equality of opportunity, especially relative to other developed countries such as western Europe.

Mobility during a lifetime

Strong "intra-generational" or individual economic mobility between the strata of rich, middle class and poor means both that (1) a high level of inequality of annual income is made irrelevant by a more even distribution of lifetime income, and (2) however extreme the earnings at the top, they are not out of reach for the poor (or middle income) but ambitious.[19]

Sowell claims mobility is robust.

An absolute majority of the people who were in the bottom 20 percent [of income] in 1975 have also been in the top 20 percent at some time since then. Most Americans don't stay put in any income bracket. At different times, they are both "rich" and "poor" -- as these terms are recklessly thrown around in the media. [...] There are of course some people who remain permanently in the bottom 20 percent. But such people constitute less than one percent of the American population, according to data published by the Federal Reserve Bank of Dallas in its 1995 annual report. Perhaps the intelligentsia and the politicians have been too busy waxing indignant to be bothered by anything so mundane as facts.[20]

According to Thomas A. Garrett, studies examining quintiles of wealth levels may provide a misleading picture. [46] For example, a U.S. Treasury study of the period from 1996 to 2005 found that "[l]ess than half (40 percent or 43 percent depending on the measure) of those in the top 1 percent in 1996 were still in the top 1 percent in 2005. Only about 25 percent of the individuals in the top 1/100th percent in 1996 remained in the top 1/100th percent in 2005."[214]

Other have not found individual mobility so fluid. A 2007 study (by Kopczuk, Saez and Song in 2007) found the top population in America "very stable" and "not mitigated the dramatic increase in annual earnings concentration since the 1970s."[215]

Economist Paul Krugman, attacks conservatives for resorting to "extraordinary series of attempts at statistical distortion". He argues that while in any given year, some of the people with low incomes will be "workers on temporary layoff, small businessmen taking writeoffs, farmers hit by bad weather" -- the rise in their income in succeeding years is not the same 'mobility' as poor people rising to middle class or middle income rising to wealth. It's the mobility of "the guy who works in the college bookstore and has a real job by his early thirties."

Studies by the Urban Institute and the US Treasury have both found that about half of the families who start in either the top or the bottom quintile of the income distribution are still there after a decade, and that only 3 to 6 percent rise from bottom to top or fall from top to bottom.[19]

On the issue of whether most Americans do not stay put in any one income bracket, Krugman quotes from 2011 CBO distribution of income study

Household income measured over a multi-year period is more equally distributed than income measured over one year, although only modestly so. Given the fairly substantial movement of households across income groups over time, it might seem that income measured over a number of years should be significantly more equally distributed than income measured over one year. However, much of the movement of households involves changes in income that are large enough to push households into different income groups but not large enough to greatly affect the overall distribution of income. Multi-year income measures also show the same pattern of increasing inequality over time as is observed in annual measures.[22]

In other words, "many people who have incomes greater than $1 million one year fall out of the category the next year — but that’s typically because their income fell from, say, 1.05 million to 0.95 million, not because they went back to being middle class."[22][216]

Mobility between generations

Several studies have found the ability of children from poor or middle class families to rise to upper income — known as "upward relative intergenerational mobility" — is lower in the US than in other developed countries[217] — and at least two economist have found this development linked to income inequality.[23][24]

In their "Great Gatsby" curve,[23] White House Council of Economic Advisers Chairman Alan B. Krueger and labor economist Miles Corak show a correlation in a number of countries between inequality and "intergenerational income elasticity", i.e. the likelihood that someone will inherit their parents' relative position of income level, i.e. low socio-economic mobility[24][218].

In the words of journalist Timothy Noah

you can't really experience ever-growing income inequality without experiencing a decline in Horatio Alger-style upward mobility because (to use a frequently-employed metaphor) it's harder to climb a ladder when the rungs are farther apart.[24]

Aside from the proverbial distant rungs, the connection between income inequality and low mobility can be explained by the lack of access for un-affluent children to better (more expensive) schools and preparation for schools crucial to finding high-paying jobs; the lack of health care that may lead to obesity and diabetes and limit education and employment.[217]

Krueger estimates that "the persistence in the advantages and disadvantages of income passed from parents to the children" will "rise by about a quarter for the next generation as a result of the rise in inequality that the U.S. has seen in the last 25 years."[24]

Income at a glance

Median income levels
Households Persons, age 25 or older with earnings Household income by race
All households Dual earner households Per household member Males Females Both sexes Asian White, non-hispanic Hispanic Black
$46,326 $67,348 $23,535 $39,403 $26,507 $32,140 $57,518 $48,977 $34,241 $30,134
Median personal income by educational attainment
Measure Some High School High school graduate Some college Associate's degree Bachelor's degree or higher Bachelor's degree Master's degree Professional degree Doctorate degree
Persons, age 25+ w/ earnings $20,321 $26,505 $31,054 $35,009 $49,303 $43,143 $52,390 $82,473 $70,853
Male, age 25+ w/ earnings $24,192 $32,085 $39,150 $42,382 $60,493 $52,265 $67,123 $100,000 $78,324
Female, age 25+ w/ earnings $15,073 $21,117 $25,185 $29,510 $40,483 $36,532 $45,730 $66,055 $54,666
Persons, age 25+, employed full-time $25,039 $31,539 $37,135 $40,588 $56,078 $50,944 $61,273 $100,000 $79,401
Household $22,718 $36,835 $45,854 $51,970 $73,446 $68,728 $78,541 $100,000 $96,830
Household income distribution
Bottom 10% Bottom 20% Bottom 25% Middle 33% Middle 20% Top 25% Top 20% Top 5% Top 1.5% Top 1%
$0 to $10,500 $0 to $18,500 $0 to $22,500 $30,000 to $62,500 $35,000 to $55,000 $77,500 and up $92,000 and up $167,000 and up $250,000 and up $350,000 and up
Source: US Census Bureau, 2006; income statistics for the year 2005

See also

General:

Notes

  1. ^ a b c d Growing Unequal? Income distribution and poverty in OECD countries (summary) OECD (2008)
  2. ^ The United States of Inequality, Entry 2: The Usual Suspects Are Innocent By Timothy Noah| slate.com| 6 September 2010
  3. ^ the US Department of Commerce, Congressional Budget Office (CBO), and Internal Revenue Service
  4. ^ "US Census Bureau. (2001). Historical Income Tables – Income Equality.". Archived from the original on 2007-02-08. http://web.archive.org/web/20070208142023/http://www.census.gov/hhes/www/income/histinc/ie6.html. Retrieved 2007-06-20.
  5. ^ "Weinberg, D. H. (June 1996). A Brief Look At Postwar U.S. Income Inequality. US Census Bureau." (PDF). http://www.census.gov/prod/1/pop/p60-191.pdf. Retrieved 2007-06-20.
  6. ^ "Burtless, G. (January 11, 200). Has U.S. Income Inequality Really Increased?. The Brookings Institute.". http://www.brookings.edu/views/papers/burtless/20070111.htm. Retrieved 2007-06-20.
  7. ^ a b "Johnston, D. (March 29, 2007). Income Gap Is Widening, Data Shows. The New York Times". 2007-03-29. http://www.nytimes.com/2007/03/29/business/29tax.html?ex=1332820800&en=fb472e72466c34c8&ei=5088&partner=rssnyt&emc=rss. Retrieved 2007-06-20.
  8. ^ "Shaprio, E. (October 17, 2005). New IRS Data Show Income Inequality Is Again of The Rise. Center on Budget and Policy Priorities". http://www.cbpp.org/10-17-05inc.htm. Retrieved 2007-06-20.
  9. ^ a b c Gilbert, Dennis (2002). American Class Structure in an Age of Growing Inequality. Wadsworth.
  10. ^ Beeghley, Leonard (2004). The Structure of Social Stratification in the United States. Boston, MD: Pearson, Allyn & Bacpn.
  11. ^ a b c Weeks, J. (2007). Inequality Trends in Some Developed OECD countries. In J. K. S. & J. Baudot (Ed.), Flat World, Big Gaps (159–174). New York: ZED Books (published in association with the United Nations).
  12. ^ a b c Income distribution - Inequality — OECD Stats
  13. ^ Can Domestic Policy Affect Income Distribution? Timothy Noah| tnr.com| 13 March 2012]
    • "Among the industrial democracies where income inequality is increasing, it's much worse in the United States than it is almost anywhere else. Among 34 nations recently surveyed by the OECD, the United States got beat only by Turkey, Mexico, and Chile. That's as measured by the Gini coefficient, and including taxes and government transfer payments."
    • note: inequality is higher in less economically developed countries such as Turkey, Mexico, Chile, which are also members of the OECD
  14. ^ What's So Bad About Inequality? Timothy Noah| tnr.com| January 30, 2012
  15. ^ a b The United States of Inequality Entry 8: The Stinking Rich and the Great Divergence| By: Timothy Noah] Slate.com | 14 September 2010
  16. ^ Surveying the Aftermath of the Storm: Changes in Family Finances from 2007 to 2009. Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs. Federal Reserve Board, Washington, D.C. p. 16 http://www.federalreserve.gov/pubs/feds/2011/201117/201117pap.pdf
  17. ^ It's the Inequality, Stupid By Dave Gilson and Carolyn Perot in Mother Jones, March/April 2011 Issue
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  23. ^ a b c Here is the source for the “Great Gatsby Curve” in the Alan Krueger speech at the Center for American Progress on January 12
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  32. ^ immigration restrictions of the Immigration Act of 1924
  33. ^ Paul Krugman, The Conscience of a Liberal, p.49
  34. ^ "According to a wide range of scholarly research, unions have two main effects relevant to the Great Compression." Paul Krugman, The Conscience of a Liberal, p.51
  35. ^ Paul Krugman, The Conscience of a Liberal, p.52, 64, 66
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  41. ^ The differences between the Census and Internal Revenue Service Data can be seen most easily in the 95th percentile, present in both data sets. For more details see the Summary associated with {http://commons.wikimedia.org/wiki/File:IncomeInequality7.svg Wikimedia Commons File:IncomeInequality7.svg}.
  42. ^ Congressional Budget Office: Trends in the Distribution of Household Income Between 1979 and 2007. October 2011. p.ix
  43. ^ (payments from Social Security, unemployment insurance, SSI (Supplemental Security Income), AFDC, veterans benefits, etc., and in-kind benefits such as food stamps and housing assistance
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  53. ^ a gini index increase of 15% as opposed to CBO's increase in gini index of 33% (cbo "Trends in Distribution" study p.7)
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  56. ^ "Thinking Clearly About Economic Inequality", Will Wilkinson, Cato Institute 2009
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  58. ^ Congressional Budget Office: Trends in the Distribution of Household Income Between 1979 and 2007. October 2011. p.5
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  67. ^ Based on Income distribution - Inequality — OECD Stats, Chile (.526) Germany (.504) Israel (.498) Italy (.534) Mexico (.494) Portugal (.521) Turkey (.409), have higher gini index than the US (.486) for the "late 2000s" before taxes and transfers.
  68. ^ Based on Income distribution - Inequality — OECD Stats, only Chile (.494) Mexico (.476) and Turkey (.409) have higher gini index than the US (.378) after taxes and transfers for the "late 2000s".
  69. ^ Inequality and taxes: Equality doesn't always mean redistribution | The Economist
  70. ^ For example, Ingvar Kamprad's family is one of the richest in the world (by some accounts with wealth between 50 and 90 billion U.S. dollars. but because of offshore arrangements the family's wealth and income never shows up in Swedish statistics. (see: "Who's really the world's richest?" CNNMoney.com, April 6, 2004)
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  77. ^ Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data. Jon Bakija, Adam Cole, Bradley T. Heim. November, 2010
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  115. ^ Tax Rates, Inequality and the 1% By ALAN REYNOLDS 6 December 2011
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  117. ^ Intellectual Garbage Collection: The Unreliability of Alan Reynolds
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  131. ^ American Heritage (6). Increasing in rate as the taxable amount increases.
  132. ^ Britannica Concise Encyclopedia: Tax levied at a rate that increases as the quantity subject to taxation increases.
  133. ^ Princeton University WordNet: (n) progressive tax (any tax in which the rate increases as the amount subject to taxation increases)
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  137. ^ a b Congressional Budget Office: Trends in the Distribution of Household Income Between 1979 and 2007. October 2011. p.20 and figure 12. "Between 1979 and 2007, the Gini index for market income increased by 23 percent, the index for market income after transfers increased by 29 percent, and the index for income measured after transfers and federal taxes increased by 33 percent."
  138. ^ a b c Paul Ryan: Inequality, Take Two| Timothy Noah |tnr.com| November 18, 2011
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  140. ^ Congressional Budget Office: Trends in the Distribution of Household Income Between 1979 and 2007. October 2011. p.13
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  143. ^ the superstar hypothesis was coined by the Chicago economist Sherwin Rosen) used the example of the passing of the hundreds of comedians that made a modest living at live shows in the borscht belt and other places in bygone days that have been replaced by a handful of superstar TV comedians.
  144. ^ estimate by economist George Borjas, quoted in Conscience of a Liberal, p.34
  145. ^ The United States of Inequality. Entry 3: By Timothy Noah| 7 September 2010, Did the post-1965 immigration surge cause the Great Divergence?
  146. ^ such as political scientists Jacob S. Hacker, Paul Pierson, Larry Bartels and Nathan Kelly, and economist Timothy Smeeding
  147. ^ American politics, Democracy in America Winner-Take-All Politics. It's a pretty good book. economist.com Democracy in America. 21 September 2010]
  148. ^ Winner-Take-All Politics, p.39, Figure 3
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  152. ^ Dictionary of economics online
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  154. ^ Experts' Consensus on Earnings Inequality. Economic Report of the President 1997
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  156. ^ CNN-Travis Waldon-Only Advanced Degree Holders Saw Wage Gains in the Past Decade
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  158. ^ a b c d e f g The United States of Inequality. Entry 9: How the Decline in K-12 Education Enriches College Graduates| By: Timothy Noah Slate.com | 15 September 2010
  159. ^ a b The United States of Inequality Entry 7: Trade Didn't Create Inequality, and Then It Did| By Timothy Noah| 14 September 2010
  160. ^ TRADE AND WAGES, RECONSIDERED| Paul Krugman| February 2008]
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  163. ^ which encompassed most of the egalitarian Great Compression and the entire inegalitarian Great Divergence (up until the time he did his research) and published his findings in the book Unequal Democracy: The Political Economy of the New Gilded Age (Princeton University Press: 2008)
  164. ^ chart of Income Growth Rates 1948-2005 under Democratic presidents and under Republican presidents. Graphics by Catherine Mulbrandon
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  178. ^ Inequality and Institutions in 20th Century America Frank Levy and Peter Temin] Revised June 27, 2007
  179. ^ 4% of the 33% total increase in gini index (inequality rating) for the US.
  180. ^ New CBO Data Show Income Inequality Continues to Widen After-Tax-Income for Top 1 Percent Rose by $146,000 in 2004| By Aviva Aron-Dine and Arloc Sherman| cbpp.org| January 23, 2007
  181. ^ How Progressive is the U.S. Federal Tax System? A Historical and International Perspective Thomas Piketty and Emmanuel Saez, p.23
  182. ^ However the effective rate on top earners before Reagan's tax cut was much lower because of loopholes and charitable contributions. (See Saez & Piketty, "How Progressive is the U.S. Federal Tax System? A Historical and International Perspective"
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  188. ^ "Even after exploiting all possible deductions and credits, the typical high-income taxpayer during the Great Prosperity paid a federal tax of well over 50 percent of his earnings." Clinton Administration Secretary of labor Robert Reich In his book Aftershock: The Next Economy and America's Future
  189. ^ Krugman, Paul (1995). Peddling Prosperity: Economic Sense and Nonsense in an Age of Diminished Expectations. New York: W. W. Norton & Company. p. 155. ISBN 978-0393312928. http://books.google.com/books?id=GcmvijkDrEcC&printsec=frontcover&dq=Peddling+Prosperity:+Economic+Sense+and+Nonsense+in+an+Age+of+Diminished+Expectations&hl=en&sa=X&ei=NJIsT4WHK8-30AHxn4T-Cg&ved=0CDIQ6AEwAA#v=onepage&q=top%20marginal%20rate&f=false. Retrieved 2-03-12.
  190. ^ "FactChecking Obama’s Budget Speech". FactCheck.org. 2011-04-15. http://www.factcheck.org/2011/04/factchecking-obamas-budget-speech/. Retrieved 2011-01-04.
  191. ^ Thomas L. Hungerford "Changes in the Distribution of Income Among Tax Filers Between 1996 and 2006: The Role of Labor Income, Capital Income, and Tax Policy." Congressional Research Service, Dec. 29, 2011. http://taxprof.typepad.com/files/crs-1.pdf
  192. ^ As an alternative to the Census Bureau's estimate of the Gini index, a Gini index based on Adjusted Gross Income from IRS Tax Returns can be computed. In 1990, the IRS AGI Gini was 0.529 and increased to 0.584 by 2008.
  193. ^ Congressional Budget Office: Trends in the Distribution of Household Income Between 1979 and 2007. October 2011. p.15 and figure 8
  194. ^ a b Winner-Take-All Politics (book) by Jacob S. Hacker and Paul Pierson p.75
  195. ^ a b "CBO Report Shows Rich Got Richer, As Did Most Americans: View". businessweek.com. October 31, 2011. http://www.businessweek.com/news/2011-10-31/cbo-report-shows-rich-got-richer-as-did-most-americans-view.html.
  196. ^ a b c Oligarchy, American Style By PAUL KRUGMAN . 3 November 2011
  197. ^ Inequality and crises: coincidence or causation? Paul Krugman
  198. ^ a b Two Americas: One Rich, One Poor? Understanding Income Inequality in the United States By Rea Hederman, Jr. and Robert Rector| Heritage Foundation. August 24, 2004]
  199. ^ A Look at the Global One Percent By ALLAN H. MELTZER| wsj.com| 9 March 2012
  200. ^ U.S. Income Inequality: It’s Not So Bad By Thomas A. Garrett| Federal Reserve Bank of St. Louis| Spring 2010
  201. ^ Lars Osberg and Timothy Smeeding. "Fair Inequality? Attitudes Toward Pay Dfferentials: The United States in Comparative Perspective, " American Sociological Review, 71, 2006, pp. 450 - 473.
  202. ^ Norton, M. I., & Ariely, D., "Building a Better America – One Wealth Quintile at a Time", Perspectives on Psychological Science, January 2011 6: 9-12
  203. ^ a b Why Obama’s New Populism May Sink His Campaign William Galston | tnr.com| 17 December 2011]
  204. ^ conducted Dec. 7-11 among 1,521 adults
  205. ^ Tax System Seen as Unfair, in Need of Overhaul, Wealthy Not Paying Fair Share Top Complaint pewresearch.org 20 December 2011]
  206. ^ Survey Finds Rising Perception of Class Tension| By SABRINA TAVERNISE| 11 January 2012
  207. ^ Rising Share of Americans See Conflict Between Rich and Poor by Rich Morin| 11 January 2012
  208. ^ Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich ... By Robert Frank
  209. ^ Vanishing Trials: The Bankruptcy Experience Elizabeth Warren*
  210. ^ Krugman, Paul, The Conscience of a Liberal, W W Norton & Company, 2007, (p.246-7)
  211. ^ a b The Wrong Inequality By David Brooks| nyt.com |31 October 2011.
  212. ^ see also The White Underclass By NICHOLAS D. KRISTOF| 8 February 2012
  213. ^ Paul Ryan on Income Inequality and Upward Mobility Diane Ellis, Ed. · 28 November 2011
  214. ^ Income Mobility in the U.S. from 1996 to 2005. Report of the DEPARTMENT OF THE TREASURY. November 13, 2007. p.4. http://www.treasury.gov/resource-center/tax-policy/Documents/incomemobilitystudy03-08revise.pdf
  215. ^ Uncovering the American Dream: Inequality and Mobility in Social Security Earnings Data since 1937 Wojciech Kopczuk, Emmanuel Saez, Jae Song, September 15, 2007, Figure 4B
  216. ^ Millionaire For A Day Paul Krugman. 3 November 2011,
  217. ^ a b Harder for Americans to Rise From Lower Rungs | By JASON DePARLE | January 4, 2012 ]
  218. ^ Corak graphs 25 countries, Krueger limits his to developed countries and lists 10

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