Posted by I was talking to a friend the other day and I realized I didn’t understand what has been driving the increase in income inequality in the United States, so I thought it might be of interest (at least to me) to review what is known and what is known. This post will deal with the data. Future posts will try to review what we know about the causes.
The first problem is finding a data set that is widely perceived as valid. The data are the easy part. Most folks use either a data set produced by the Congressional Budget Office (CBO) or the Current Population Survey (CPS) of the Census Bureau and the Bureau of Labor. However, finding good data is the easy part. Interpreting the data involves resolving a number of issues such as defining income (for example, what do we do about government programs such as food stamps?), choosing a price deflator, and adjusting for household size. These complexities are summarized by Stephen Rose of the Urban Institute. The following conclusions are derived from a variety of sources, but, in particular. from the progressive think tank, The Center on Budget and Policy Priorities. There is general agreement among experts to the following conclusions:
- Income distribution in the United States is more unequal than that of other advanced countries. For example the chart below presents Gini coefficients for selected advanced countries (the higher the Gini, the more unequal the income distribution). The U.S. (in red) has the highest inequality of all of the countries here.
- Median household income in the United States has grown much more slowly since 1979; recently there have been periods of growth and periods of stagnation (see chart below). From 1984-1999 median household income grew at over 1% per year; from 1999 to 2007, it declined a smidge; then dropped by 1.7% per year during the first years of the Great Recession; and for the last five years of the Obama Administration it grew at 2.4% per year. The early Trump years probably saw equal growth. By 2017 median income reached $61,372, the highest it’s ever been; however income growth since 1984 has been very slow –0.6% per year.
- Since 1979 the income gains for the top 1% are much greater than those of other income groups (see chart below). The top 1% saw their incomes increase by 2.26% per year, while the next 19% saw their incomes grow by 1% a year, the middle 60% saw their incomes increase by 0.5% per year and the bottom 20% saw their income grow by 1% per year. It is of interest that the bottom 20% and the top 2-20% saw equal income growth.
- Income inequality is increasing because those at the bottom 80% are only seeing their incomes increase very slowly, while the income of the top 1% is growing at more than twice that of the other groups. Over 37 years, this makes a big difference.
- Income concentration has returned to 1920 levels (see chart below). The top 1% receive about 22% of pre-tax income, while the top half of 1% receive about 17%.
The tax and transfer system is somewhat progressive. Increasing the share of income of the bottom 20% from 4% to 8% while decreasing the share of income of the top 1% from 16% to 13%.
- Wealth is distributed much more unequally than income. While the bottom 90% of the population receives 50% of the income, it only possesses 23% of the wealth. The top 1% of the income distribution owns 39% of the wealth (see chart below).
- Finally, despite all this increase in inequality, poverty rates have been declining in the United States. In 1967 the poverty rate was 25%; by 2017 it had fallen to 14%. This is largely due to government anti-poverty programs which by themselves cut the poverty rate from 25% to 14%.
It is clear that income has become more unequal in the United States since 1970. Why this has been happening will be the subject of a future post.