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Income inequality in the United States is the extent to which income is distributed in differing amounts among the American population. It has fluctuated considerably since measurements began around 1915, moving in an arc between peaks in the 1920s and 2000s, with a 30-year period of relatively lower inequality between 1950 and 1980. The U.S. has the highest level of income inequality among its (post-)industrialized peers.United Press International (UPI), June 22, 2018
"U.N. Report: With 40M in Poverty, U.S. Most Unequal Developed Nation"
/ref> When measured for all households, U.S. income inequality is comparable to other developed countries before taxes and transfers, but is among the highest after taxes and transfers, meaning the U.S. shifts relatively less income from higher income households to lower income households. In 2016, average market income was $15,600 for the lowest quintile and $280,300 for the highest quintile. The degree of inequality accelerated within the top quintile, with the top 1% at $1.8 million, approximately 30 times the $59,300 income of the middle quintile. The economic and political impacts of inequality may include slower GDP growth, reduced income mobility, higher poverty rates, greater usage of
household debt Household debt is the combined debt of all people in a household, including consumer debt and mortgage loans. A significant rise in the level of this debt coincides historically with many severe economic crises and was a cause of the U.S. and s ...
leading to increased risk of financial crises, and
political polarization Political polarization (spelled ''polarisation'' in British English) is the divergence of political attitudes away from the center, towards ideological extremes. Most discussions of polarization in political science consider polarization in the c ...
. Causes of inequality may include
executive compensation Executive compensation is composed of both the financial compensation (executive pay) and other non-financial benefits received by an executive from their employing firm in return for their service. It is typically a mixture of fixed salary, variab ...
increasing relative to the average worker,
financialization Financialization (or financialisation in British English) is a term sometimes used to describe the development of financial capitalism during the period from 1980 to present, in which debt-to-equity ratios increased and financial services acco ...
, greater
industry concentration In economics, market concentration is a function of the number of firms and their respective shares of the total production (alternatively, total capacity or total reserves) in a market. In any industry, a handful of firms that hold a significa ...
, lower unionization rates, lower effective tax rates on higher incomes, and technology changes that reward higher educational attainment. Measurement is debated, as inequality measures vary significantly, for example, across datasets or whether the measurement is taken based on cash compensation (market income) or after taxes and
transfer payment In macroeconomics and finance, a transfer payment (also called a government transfer or simply transfer) is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return. T ...
s. The Gini coefficient is a widely accepted statistic that applies comparisons across jurisdictions, with a zero indicating perfect equality and 1 indicating maximum inequality. Further, various public and private data sets measure those incomes, e.g., from the Congressional Budget Office (CBO), the Internal Revenue Service, and Census. According to the Census Bureau, income inequality reached record levels in 2018, with a Gini of .49. US tax and transfer policies are
progressive Progressive may refer to: Politics * Progressivism, a political philosophy in support of social reform ** Progressivism in the United States, the political philosophy in the American context * Progressive realism, an American foreign policy pa ...
and therefore reduce effective income inequality. The 2016 US Gini coefficient was .59 based on market income, but was reduced to .42 after taxes and transfers, according to Congressional Budget Office (CBO) figures. The top 1% share of market income rose from 9.6% in 1979 to a peak of 20.7% in 2007, before falling to 17.5% by 2016. After taxes and transfers, these figures were 7.4%, 16.6%, and 12.5%, respectively.


Definitions

Income distribution can be assessed using a variety of income definitions. Adjustments are applied for various reasons, particularly to better reflect the actual economic resources available to a given individual/household. * Market income—Labor income; business income; capital income (including capital gains); income received in retirement for past services; and other non-governmental sources of income * Income before taxes and transfers (IBTT)—market income plus
social insurance Social insurance is a form of social welfare that provides insurance against economic risks. The insurance may be provided publicly or through the subsidizing of private insurance. In contrast to other forms of social assistance, individuals' ...
benefits (including benefits from
Social Security Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
, Medicare,
unemployment insurance Unemployment benefits, also called unemployment insurance, unemployment payment, unemployment compensation, or simply unemployment, are payments made by authorized bodies to unemployed people. In the United States, benefits are funded by a compu ...
, and
workers’ compensation Workers' compensation or workers' comp is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue his or her emp ...
) * Adjusted compensation or income after taxes and transfers—IBTT plus
employee benefits Employee benefits and (especially in British English) benefits in kind (also called fringe benefits, perquisites, or perks) include various types of non-wage compensation provided to employees in addition to their normal wages or salaries. Insta ...
and transfers such as housing subsidies, minus taxes * Gini coefficient—Summarizes income distribution. It uses a scale from 0 to 1. Zero represents perfect equality (everyone having the same income), while 1 represents perfect inequality (one person receiving all the income). (Index scores are commonly multiplied by 100.) The CBO explains the Gini as "A standard composite measure of income inequality is the Gini coefficient, which summarizes an entire distribution in a single number that ranges from zero to one. A value of zero indicates complete equality (for example, if each household received the same amount of income), and a value of one indicates complete inequality (for example, if a single household received all the income). Thus, a Gini coefficient that increases over time indicates rising income inequality." "The Gini coefficient can also be interpreted as a measure of one-half of the average difference in income between every pair of households in the population, divided by the average income of the total population. For example, the Gini coefficient of 0.513 for 2016 indicates that the average difference in income between pairs of households in that year was equal to 102.6 percent (twice 0.513) of average household income in 2016, or about $70,700 (adjusted to account for differences in household size). Similarly, the Gini coefficient of 0.521 projected for 2021 indicates that the average difference in income between pairs of households would equal 104.2 percent (twice 0.521) of average household income in 2021, or about $77,800 (in 2016 dollars)."


History

Income inequality has fluctuated considerably since measurements began around 1915, declining between peaks in the 1920s and 2007 (CBO data) or 2012 ( Piketty, Saez, Zucman data). Inequality steadily increased from around 1979 to 2007, with a small reduction through 2016, followed by an increase from 2016 to 2018.


1913–1941

An early governmental measure that slightly reduced inequality was the enactment of the first
income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
in 1913. The 1918 household Gini coefficient (excluding capital gains) was 40.8. A brief but sharp depression in 1920-1921 reduced incomes. Income inequality rose from 1913 to peaks in 1926 (1928 Gini 48.9, 1936 Gini 45.5) and 1941 (Gini 43.1), after which war-time measures of the Roosevelt administration began to equalize the
income distribution In economics, income distribution covers how a country's total GDP is distributed amongst its population. Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes ec ...
.
Social Security Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
was enacted in 1935. At several points in this pre- World War II era, in which the
Rockefellers The Rockefeller family () is an American industrial, political, and banking family that owns one of the world's largest fortunes. The fortune was made in the American petroleum industry during the late 19th and early 20th centuries by brot ...
and Carnegies dominated American industry, the richest 1% of Americans earned over 20% of the income share.


The Great Compression, 1937–1967

From about 1937 to 1947, a period dubbed as the " Great Compression", income inequality fell dramatically. The GINI fell into the high 30s.
Progressive Progressive may refer to: Politics * Progressivism, a political philosophy in support of social reform ** Progressivism in the United States, the political philosophy in the American context * Progressive realism, an American foreign policy pa ...
New Deal The New Deal was a series of programs, public work projects, financial reforms, and regulations enacted by President Franklin D. Roosevelt in the United States between 1933 and 1939. Major federal programs agencies included the Civilian Cons ...
taxation, stronger unions, strong post-war economic growth and regulation by the National War Labor Board broadly raised market incomes and lowered the after-tax incomes of top earners. In the 1950s, marginal tax rates reached 91%, although the top 1% paid only about 16% in income taxes.
Tax cuts A tax cut represents a decrease in the amount of money taken from taxpayers to go towards government revenue. Tax cuts decrease the revenue of the government and increase the disposable income of taxpayers. Tax cuts usually refer to reductions in ...
in 1964 lowered marginal rates and closed loopholes. Medicare and Medicaid were enacted in 1965. The
Earned Income Tax Credit The United States federal earned income tax credit or earned income credit (EITC or EIC) is a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. The amount of EITC benefit depends ...
was enacted in 1975. The income change was the product of relatively high wages for
trade union A trade union (labor union in American English), often simply referred to as a union, is an organization of workers intent on "maintaining or improving the conditions of their employment", ch. I such as attaining better wages and benefits (s ...
workers, lack of foreign manufacturing competition and political support for redistributive government policies. By 1947 more than a third of non-farm workers were union members. Unions both raised average wages for their membership, and indirectly, and to a lesser extent, raised wages for non-union workers in similar occupations. Economist
Paul Krugman Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...
claimed that political support for equalizing government policies was provided by high voter turnout from union voting drives, Southern support for the New Deal, and prestige that the massive mobilization and victory of World War II had given the government. A 2022 study in the ''Economic Journal'' challenged that World War II was a great leveler in income inequality. The study points instead to a gradual decline in income inequality during the Great Depression which extended into the war years.


1979–2007 increase

The return to high inequality began in the 1980s. The Gini first rose above 40 in 1983. Inequality rose almost continuously, with inconsequential dips during the economic recessions in 1990–91 (Gini 42.0), 2001 (Gini 44.6) and
2007 File:2007 Events Collage.png, From top left, clockwise: Steve Jobs unveils Apple's first iPhone; TAM Airlines Flight 3054 overruns a runway and crashes into a gas station, killing almost 200 people; Former Pakistani Prime Minister Benazir Bhutto ...
. The lowest top 1% pre-tax income share measured between 1913 and 2016 was 10.9%, achieved in 1975, 1976 and 1980. By 1989, this figure was 14.4%, by 1999 it was 17.5% and by 2007 it was 19.6%. Major economic events that affected incomes included the return to lower inflation and higher growth, tax cuts and increases in the early 1980s, cuts following the 1986 tax reforms, tax increases in
1990 File:1990 Events Collage.png, From left, clockwise: The 1990 FIFA World Cup is played in Italy; The Human Genome Project is launched; Voyager I takes the famous Pale Blue Dot image- speaking on the fragility of humanity on Earth, astrophysicist ...
and
1993 File:1993 Events Collage.png, From left, clockwise: The Oslo I Accord is signed in an attempt to resolve the Israeli–Palestinian conflict; The Russian White House is shelled during the 1993 Russian constitutional crisis; Czechoslovakia is peace ...
, expansion of the
Children's Health Insurance Program The Children's Health Insurance Program (CHIP) – formerly known as the State Children's Health Insurance Program (SCHIP) – is a program administered by the United States Department of Health and Human Services that provides matching funds to ...
in 1997, welfare reform, a 2000 recession, followed by tax cuts in 2001 and 2003 and increases in 2010. CBO reported that for the 1979–2007 period, after-tax income (adjusted for inflation) of households in the top 1 percent of earners grew by 275%, compared to 65% for the next 19%, just under 40% for the next 60% and 18% for the bottom fifth.The share of after-tax income received by the top 1% more than doubled from about 8% in 1979 to over 17% in 2007. The share received by the other 19 percent of households in the highest quintile edged up from 35% to 36%. The major cause was an increase in investment income. Capital gains accounted for 80% of the increase in market income for the households in the top 20% (2000–2007). Over the 1991–2000 period capital gains accounted for 45% of market income for the top 20%. CBO reported that less progressive tax and transfer policies contributed to an increase in after tax/transfer inequality between 1979 and 2007. Higher incomes due to a college education were a key reason middle income households gained income share relative to those in the lower part of the distribution between 1973 and 2005. This was due in part to technology changes. However, education had less impact thereafter. Further, education did not explain why the top 1% gained disproportionately starting around 1980. Causes included executive pay trends and the
financialization Financialization (or financialisation in British English) is a term sometimes used to describe the development of financial capitalism during the period from 1980 to present, in which debt-to-equity ratios increased and financial services acco ...
of the economy. For example, CEO pay expanded from around 30 times the typical worker pay in 1980 to nearly 350 times by 2007. From 1978 to 2018, CEO compensation grew 940% adjusted for inflation, versus 12% for the typical worker. A 2012 study reported that the main occupational shift for the top 1% was towards finance, while in 2009 "the richest 25 hedge-fund investors earned more than $25 billion, roughly six times as much as all the chief executives of companies in the S&P 500 stock index combined." The share of income held by the top 1 percent was as large in 2005 as in 1928. That year household Gini reached 45.


2007–2016 reduction


CBO

The household income Gini index for the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territo ...
was 45.6 in 2009, and 45.4 in 2015, indicating a reduction in inequality during that time. CBO reported that the share of after-tax income received by the top 1% peaked in 2007 at 16.6%. It fell to 11.3% in 2009 due in part to the impact on investment income from the
Great Recession The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At t ...
, then increased thereafter, to 14.9% by 2012 as the economy recovered. It then fell somewhat, reaching 12.5% by 2016, reflecting Obama policies including the expiration of the Bush tax cuts for top incomes, and both tax increases on top incomes and redistribution to lower income groups under the
Affordable Care Act The Affordable Care Act (ACA), formally known as the Patient Protection and Affordable Care Act and colloquially known as Obamacare, is a landmark U.S. federal statute enacted by the 111th United States Congress and signed into law by Presid ...
. CBO reported that for the 1979-2016 period, after-tax income (adjusted for inflation) of households in the top 1 percent of earners grew by 226%, compared to 65% for the 81st to 90th percentile, 47% for the 20th to 80th percentile, and 85% for the bottom fifth. The income growth for the top 1% was less than the 1979-2007 increase, while the bottom fifth was much higher, indicating a reduction in inequality from 2007 to 2016. The bottom quintile benefited from Medicaid expansion and refundable tax credits.


Saez, et al.

The top 1% earned 12% of market income in 1979, 20% in 2007 and 19% in 2016. For the bottom 50%, these figures were 20%, 14% and 13%, respectively. For the middle 40% group, a proxy for the middle class, these figures were 45%, 41% and 41%, respectively. Measured by the share captured by the top 1%, by 2012, post-
Great Recession The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At t ...
market income inequality was as high as it was during the
Roaring Twenties The Roaring Twenties, sometimes stylized as Roaring '20s, refers to the 1920s decade in music and fashion, as it happened in Western society and Western culture. It was a period of economic prosperity with a distinctive cultural edge in the U ...
, at just over 20%. The
Great Recession The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At t ...
took place from December 2007 to June 2009. From 2007 to 2010 total income going to the bottom 99 percent of Americans declined by 11.6%, while the top 1% fell by 36.3%. In 2014 Saez and
Gabriel Zucman Gabriel Zucman (born 30 October 1986) is a French economist who is currently an associate professor of public policy and economics at the University of California, Berkeley‘s Goldman School of Public Policy. The author of '' The Hidden Wealth o ...
reported that more than half of those in the top 1 percent had not experienced relative gains in wealth between 1960 and 2012. In fact, those between the top 1% and top .5% had lost relative wealth. Only those in the top .1% and above had made relative wealth gains during that time. Saez reported in 2013 that, from 2009 to 2012, the incomes of the top 1% grew by 31.4%, while the incomes of the bottom 99% grew by 0.4%. In May 2017, they reported that income shares for those in the bottom half stagnated and declined from 1980 to 2014. Their share declined from 20% in 1980 to 12% in 2014, while the top 1% share grew from 12% in 1980 to 20%. The top 1% then made on average 81 times more than the bottom 50%, while in 1981 they made 27 times more. They attributed Inequality growth during the 1970s to the 1990s to wage growth among top earners, and that the widening gap had been due to investment income.


Events

The
Great Recession The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At t ...
lasted from 2008 to 2009, multiplying unemployment and crashing the stock market. Obama administration policies addressed inequality in three main ways, contributing to a reduction in the share of income going to the top 1% measured between 2007 and 2016, both pre-tax and after-tax: * Tax increases on top incomes. The Bush tax cuts were extended only for the bottom 98-99% incomes in 2013. CBO reported that the average federal tax rate on the top 1% increased from 28.6% in 2012 to 33.6% in 2013–2014, and remained at 33.3% in 2015–2016. * The
Affordable Care Act The Affordable Care Act (ACA), formally known as the Patient Protection and Affordable Care Act and colloquially known as Obamacare, is a landmark U.S. federal statute enacted by the 111th United States Congress and signed into law by Presid ...
. CBO estimated the ACA shifted approximately $21,000 in after-tax income from the average top 1% household via the investment income tax and the Medicare tax, to provide $600 in health insurance subsidies to the average bottom 40% household via insurance subsidies and expanded Medicaid. The Medicaid and CHIPs expansions amounted to 80% of the increase in means-tested transfers between 1979 and 2016. * Anti-poverty programs. The
Supplemental Nutrition Assistance Program In the United States, the Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program, is a federal program that provides food-purchasing assistance for low- and no-income people. It is a federal aid program, ad ...
(food stamps) and unemployment insurance were expanded.


Post-2016 increase

In 2017, the
Tax Cuts and Jobs Act of 2017 The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, , is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs A ...
reduced personal and corporate income tax rates, which critics said would increase income inequality. Also in 2017, ''
Forbes ''Forbes'' () is an American business magazine owned by Integrated Whale Media Investments and the Forbes family. Published eight times a year, it features articles on finance, industry, investing, and marketing topics. ''Forbes'' also rep ...
'' found that just three individuals (
Jeff Bezos Jeffrey Preston Bezos ( ;; and Robinson (2010), p. 7. ''né'' Jorgensen; born January 12, 1964) is an American entrepreneur, media proprietor, investor, and commercial astronaut. He is the founder, executive chairman, and former preside ...
,
Warren Buffett Warren Edward Buffett ( ; born August 30, 1930) is an American business magnate, investor, and philanthropist. He is currently the chairman and CEO of Berkshire Hathaway. He is one of the most successful investors in the world and has a net ...
and
Bill Gates William Henry Gates III (born October 28, 1955) is an American business magnate and philanthropist. He is a co-founder of Microsoft, along with his late childhood friend Paul Allen. During his career at Microsoft, Gates held the positions ...
) held more wealth than the bottom half of the population. In 2018, and for the first time in U.S. history, U.S. billionaires paid a lower effective tax rate than the working class. A study found that the average effective tax rate paid by the richest 400 families in the country was 23 percent, a full percentage point lower than the 24.2 percent rate paid by the bottom half of American households. In September 2019, the Census Bureau reported that income inequality in the United States had reached its highest level in 50 years, with the GINI index increasing from 48.2 in 2017 to 48.5 in 2018. In December 2019, CBO forecast that inequality would increase between 2016 and 2021. Their report had several conclusions: (Adjusted for inflation) *Before taxes and transfers, all income groups will see income growth, with the largest increases being for the highest and lowest quintiles. After taxes and transfers, that income growth is more skewed toward the higher income households. *The ratio of means tested transfers (aid for the poor) to income (BTT) will decrease, mainly because of income growth at the bottom of the distribution, which makes those households ineligible for transfers. *Lower federal taxes for all income groups, with the greatest decrease for the highest income households, predominately because of the Trump tax cuts. *Income inequality is projected to increase, both before taxes and transfers, and after taxes and transfers, from Ginis of .513 to .521 and .423 to .437, respectively. According to a December 2020 analysis of W-2 earnings data from the
Economic Policy Institute The Economic Policy Institute (EPI) is a 501(c)(3) non-profit American, left-leaning think tank based in Washington, D.C., that carries out economic research and analyzes the economic impact of policies and proposals. Affiliated with the labor m ...
U.S. income inequality is worsening, as the earnings of the top 1% nearly doubled from 7.3% in 1979 to 13.2% in 2019 while over the same time period the average annual wages for the bottom 90% have stayed within the $30,000 range, increasing from $30,880 to $38,923, representing 69.8% of total earnings in 1979 and 60.9% in 2019 respectively. The earnings of the top 0.1% surged from $648,725 in 1979 to nearly $2.9 million in 2019, an increase of 345%.


Causes

According to CBO (and others), the precise reasons for the ecentrapid growth in income at the top are not well understood", but involved multiple, possibly conflicting, factors. Causes include: * ''decline of labor unions'' – Unions weakened in part due to globalization and automation may account for one-third to more than one-half of the rise of inequality among men. Pressure on employers to increase wages and on lawmakers to enact worker-friendly measures declined. Rewards from productivity gains went to executives, investors and creditors. A study by Kristal and Cohen reported that rising wage inequality was driven more by declining unions and the fall in the real value of the minimum wage, with twice as much impact as technology. An alternative theory states that passthrough income's contribution is incorrectly attributed to capital rather than labor. * ''globalization'' – Low skilled American workers lost ground in the face of competition from low-wage workers in Asia and other "emerging" economies. * ''skill-biased technological change'' – Rapid progress in information technology increased the demand for skilled and educated workers. * ''superstars'' – Modern communication technologies often turn competition into a "winner take most"
tournament A tournament is a competition involving at least three competitors, all participating in a sport or game. More specifically, the term may be used in either of two overlapping senses: # One or more competitions held at a single venue and concentr ...
in which the winner is richly rewarded, while the runners-up get far less. * ''financialization'' – In the 1990s stock market capitalization rose from 55% to 155% of Gross Domestic Product (GDP). Corporations began to shift executive compensation toward
stock options In finance, an option is a contract which conveys to its owner, the ''holder'', the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified dat ...
, increasing incentives for managers to make decisions to increase share prices. Average annual CEO options increased from $500,000 to over $3 million. Stock comprised almost 50% of CEO compensation. Managers were incentivized to increase shareholder wealth rather than to improve long-term contracts with workers; between 2000 and 2007, nearly 75% of increased stock growth came at the cost of labor wages and salaries. * ''immigration of less-educated workers'' – Relatively high levels of immigration of low skilled workers since 1965 may have reduced wages for American-born high school dropouts; * ''college premium'' - Workers with college degrees traditionally earned more and faced a lower unemployment rate than others. Wealthy families are also more likely to send their children to schools which have large endowments, resulting in more grants and lower student debt. The cycle is completed when wealthier alums donate more and disproportionately increase the size of elite endowments. Elite colleges also have better access to financial expertise. * ''automation'' - The
Bureau of Labor Statistics The Bureau of Labor Statistics (BLS) is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics and serves as a principal agency of th ...
(BLS) found that increased automation had led to "an overall drop in the need for labor input. This would cause capital share to increase, relative to labor share, as machines replace some workers." * ''policy'' – Krugman asserted that movement conservatives increased their influence over the Republican Party beginning in the 1970s. In the same era, it increased its political power. The result was less progressive
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
laws, anti-labor policies, and slower expansion of the welfare state relative to other developed nations (e.g., the unique absence of universal healthcare). Further, variation in income inequality across developed countries indicate that policy has a significant influence on inequality;
Japan Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the north ...
,
Sweden Sweden, formally the Kingdom of Sweden,The United Nations Group of Experts on Geographical Names states that the country's formal name is the Kingdom of SwedenUNGEGN World Geographical Names, Sweden./ref> is a Nordic country located on ...
and France have income inequality around 1960 levels. The US was an early adopter of
neoliberalism Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
, whose focus on growth over equality spread to other countries over time. * ''
corporatism Corporatism is a collectivist political ideology which advocates the organization of society by corporate groups, such as agricultural, labour, military, business, scientific, or guild associations, on the basis of their common interests. The ...
and corpocracy'' ''–'' Excessive attention to the interests of corporations reduced scrutiny over compensation shifts. * ''female labor force participation –'' High earning households are more likely to be dual earner households. * stock ownership is tilted towards households at higher income and education levels, resulting in disparate investment income. Higher income households are disproportionately likely to prosper when economic times are good, and to suffer losses during downturns. More of their income comes from relatively volatile capital income. For example, in 2011 the top 1% of income earners derived 37% of their income from labor, versus 62% for the middle quintile. The top 1% derived 58% of their income from capital as opposed to 4% for the middle quintile. Government transfers represented only 1% of the income of the top 1% but 25% for the middle quintile; the dollar amounts of these transfers tend to rise in recessions. According to a 2018 report by the
Organization of Economic Cooperation and Development The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organization, intergovernmental organisation with 38 member countries ...
(OECD), the US has higher income inequality and a larger percentage of low income workers than almost any other advanced nation because unemployed and at-risk workers get less support from the government and a weak
collective bargaining Collective bargaining is a process of negotiation between employers and a group of employees aimed at agreements to regulate working salaries, working conditions, benefits, and other aspects of workers' compensation and rights for workers. The i ...
system.


Effects


Economic

Income inequality may contribute to slower economic growth, reduced income mobility, higher levels of
household debt Household debt is the combined debt of all people in a household, including consumer debt and mortgage loans. A significant rise in the level of this debt coincides historically with many severe economic crises and was a cause of the U.S. and s ...
, and greater risk of financial crises and deflation.


Economic growth

Krueger wrote in 2012: "The rise in inequality in the United States over the last three decades has reached the point that inequality in incomes is causing an unhealthy division in opportunities, and is a threat to our economic growth. Restoring a greater degree of fairness to the U.S. job market would be good for businesses, good for the economy, and good for the country." Since the wealthy tend to save nearly 50% of their marginal income while the remainder of the population saves roughly 10%, other things equal this would reduce annual consumption (the largest component of GDP) by as much as 5%, but would increase investment, at least some of which would likely take place in the US. Krueger wrote that borrowing likely helped many households make up for this shift. Inequality in land and income ownership is negatively correlated with subsequent economic growth. Increasing inequality harms growth in countries with high levels of urbanization. High unemployment rates have a significant negative effect when interacting with increases in inequality. High unemployment also has a negative effect on long-run economic growth. Unemployment may seriously harm growth because resources sit idle, because it generates redistributive pressures and distortions, because it idles human capital and deters its accumulation, because it drives people to poverty, because it results in liquidity constraints that limit labor mobility, and because it erodes individual self-esteem and promotes social dislocation, unrest and conflict. Policies to control unemployment and reduce its inequality-associated effects can strengthen long-run growth. Economists such as David Moss, Krugman and
Raghuram Rajan Raghuram Govind Rajan (born 3 February 1963) is an Indian economist and the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business. Quote: "I am an Indian citizen. I have always b ...
believe the "Great Divergence" may be connected to the 2008 financial crisis. A December 2013 '' Associated Press'' survey of three dozen economists', a 2014 report by
Standard and Poor's S&P Global Ratings (previously Standard & Poor's and informally known as S&P) is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is consi ...
and economists
Gar Alperovitz Gar Alperovitz (born May 5, 1936) is an American historian and political economist. Alperovitz served as a fellow of King's College, Cambridge; a founding fellow of the Harvard Institute of Politics; a founding Fellow at the Institute for Policy ...
,
Robert Reich Robert Bernard Reich (; born June 24, 1946) is an American professor, author, lawyer, and political commentator. He worked in the administrations of Presidents Gerald Ford and Jimmy Carter, and served as Secretary of Labor from 1993 to 1997 in ...
,
Joseph Stiglitz Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the Joh ...
,
Branko Milanovic Branko (Cyrillic script: Бранко; ) is a South Slavic male given name found in all of the former Yugoslavia. It is related to the names Branimir and Branislav, and the female equivalent is Branka. People named Branko include: * Branko Babi ...
and Robert Gordon agree about the harms of inequality. The majority of the '' Associated Press'' survey respondents agreed that widening income disparity was harming the US economy. They argue that wealthy Americans are receiving higher pay, but they spend less per dollar earned than middle class consumers, whose incomes have largely stagnated. The S&P report concluded that diverging income inequality had slowed the recovery and could contribute to future boom-and-bust cycles given increasing personal debt levels. Higher levels of income inequality increase political pressures, discouraging trade, investment, hiring, and social mobility. Alperovitz and Reich argued that concentration of wealth does not leave sufficient purchasing power for the economy to function effectively. Stiglitz argued that wealth and income concentration leads the economic elite to protect themselves from redistributive policies by weakening the state, which lessens public investments – roads, technology, education, etc. – that are essential for economic growth. Milanovic stated that while traditionally economists thought inequality was good for growth, "When physical capital mattered most, savings and investments were key. Then it was important to have a large contingent of rich people who could save a greater proportion of their income than the poor and invest it in physical capital. But now that human capital is scarcer than machines, widespread education has become the secret to growth" and that while "broadly accessible education" is difficult to achieve under inequality, education tends to reduce income gaps. Gordon wrote that such issues as 'rising inequality; factor price equalization stemming from the interplay between globalization and the Internet; the twin educational problems of cost inflation in higher education and poor secondary student performance; the consequences of environmental regulations and taxes ..." make economic growth harder to achieve. In response to the
Occupy movement The Occupy movement was an international populist Social movement, socio-political movement that expressed opposition to Social equality, social and economic inequality and to the perceived lack of "real democracy" around the world. It aimed prim ...
, legal scholar Richard Epstein defended inequality in a free market society, maintaining that "taxing the top one percent even more means less wealth and fewer jobs for the rest of us." According to Epstein, "the inequalities in wealth ... pay for themselves by the vast increases in wealth", while "forced transfers of wealth through taxation ... will destroy the pools of wealth that are needed to generate new ventures". According to a 2020 study by the
RAND Corporation The RAND Corporation (from the phrase "research and development") is an American nonprofit global policy think tank created in 1948 by Douglas Aircraft Company to offer research and analysis to the United States Armed Forces. It is financed ...
, the typical worker (defined in the study as a "Full-Year, Full-Time, Prime-Aged Worker") makes $42,000 less than he/she would have if income inequality had not increased over the last four decades. The study also shows that white working class males and rural workers who work full time have been the hardest hit, while the higher income earners captured the vast majority of economic growth over the same time period.


Financial crises

Income inequality was cited as one of the causes of the
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagion ...
by Supreme Court Justice
Louis D. Brandeis Louis may refer to: * Louis (coin) * Louis (given name), origin and several individuals with this name * Louis (surname) * Louis (singer), Serbian singer * HMS ''Louis'', two ships of the Royal Navy See also Derived or associated terms * Lewis ...
in 1933. In his dissent in the '' Louis K. Liggett Co. v. Lee'' (288 U.S. 517) case, he wrote: "Other writers have shown that, coincident with the growth of these giant corporations, there has occurred a marked concentration of individual wealth; and that the resulting disparity in incomes is a major cause of the existing depression." Rajan argued that "systematic economic inequalities, within the United States and around the world, have created deep financial 'fault lines' that have made inancialcrises more likely to happen than in the past".


Monopoly, labor, consolidation, and competition

Greater income inequality can lead to monopolization, resulting in fewer employers requiring fewer workers. Remaining employers can consolidate and take advantage of the relative lack of competition.


Aggregate demand

Income inequality is claimed to lower
aggregate demand In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is ...
, leading to large segments of formerly middle class consumers unable to afford as many goods and services. This pushes production and overall employment down.


Income mobility

The ability to move from one income group into another ( income mobility) is a measure of economic opportunity. A higher probability of upward income mobility theoretically would help mitigate higher income inequality, as each generation has a better chance of achieving higher income. Several studies indicated that higher income inequality is associated with lower income mobility. In other words, income brackets tend to be increasingly "sticky" as income inequality increases. This is described by the Great Gatsby curve. Noah summarized this as "you can't really experience ever-growing income inequality without experiencing a decline in
Horatio Alger Horatio Alger Jr. (; January 13, 1832 – July 18, 1899) was an American author who wrote young adult novels about impoverished boys and their rise from humble backgrounds to lives of middle-class security and comfort through good works. His wr ...
-style upward mobility because (to use a frequently-employed metaphor) it's harder to climb a ladder when the rungs are farther apart."


Over lifetimes

A 2013
Brookings Institution The Brookings Institution, often stylized as simply Brookings, is an American research group founded in 1916. Located on Think Tank Row in Washington, D.C., the organization conducts research and education in the social sciences, primarily in ...
study claimed that income inequality was increasing and becoming permanent, sharply reducing
social mobility Social mobility is the movement of individuals, families, households or other categories of people within or between social strata in a society. It is a change in social status relative to one's current social location within a given societ ...
. A 2007 study found the top population in the United States "very stable" and that income mobility had not "mitigated the dramatic increase in annual earnings concentration since the 1970s." Krugman argued that while in any given year, some 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 high income. 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 The Urban Institute is a Washington, D.C.–based think tank that carries out economic and social policy research to "open minds, shape decisions, and offer solutions". The institute receives funding from government contracts, foundations and pr ...
and the
US Treasury The Department of the Treasury (USDT) is the national treasury and finance department of the federal government of the United States, where it serves as an executive department. The department oversees the Bureau of Engraving and Printing and ...
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% rise from bottom to top or fall from top to bottom.
On the issue of whether most Americans stay in the same income bracket over time, the 2011 CBO distribution of income study reported:
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.
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 .95 million, not because they went back to being middle class.
Disagreements about the correct procedure for measuring income inequality continues to be a topic of debate among economists, including a panel discussion at the 2019 American Economic Association annual meeting.


Between generations

Several studies 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. Krueger and Corak found lower mobility to be linked to income inequality. In their Great Gatsby curve, Labor economist Miles Corak found a negative correlation between inequality and social mobility. The curve plotted intergenerational income mobility, the likelihood that someone will match their parents' relative income level – and inequality for various countries. The connection between income inequality and low mobility can be explained by the lack of access and preparation for schools that is crucial to high-paying jobs; lack of health care may lead to obesity and diabetes and limit education and employment. Krueger estimated 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."


Poverty

Greater income inequality can increase the market income poverty rate, as income shifts from lower income brackets to upper brackets. Jared Bernstein wrote, "If less of the economy's market-generated growth – i.e., before taxes and transfers kick in – ends up in the lower reaches of the income scale, either there will be more poverty for any given level of GDP growth, or there will have to be a lot more transfers to offset inequality's poverty-inducing impact." The
Economic Policy Institute The Economic Policy Institute (EPI) is a 501(c)(3) non-profit American, left-leaning think tank based in Washington, D.C., that carries out economic research and analyzes the economic impact of policies and proposals. Affiliated with the labor m ...
(EPI) estimated that greater income inequality added 5.5% to the poverty rate between 1979 and 2007, other factors equal. Income inequality was the largest driver of the change in the poverty rate, with economic growth, family structure, education and race other important factors. An estimated 11.8% of Americans lived in poverty in 2018, versus 16% in 2012 and 26% in 1967. A rise in income disparities weakens skills development among people with a poor educational background in terms of the quantity and quality of education attained.


Debt

Income inequality may be the driving factor in growing household debt, as high earners bid up the price of real estate and middle income earners go deeper into debt trying to maintain a middle class lifestyle. Between 1983 and 2007, the top 5 percent saw their debt fall from 80 cents for every dollar of income to 65 cents, while the bottom 95 percent saw their debt rise from 60 cents for every dollar of income to $1.40. Krugman found a strong correlation between inequality and household debt during the twentieth and early twenty-first centuries. Twenty-first century college costs have risen much faster than income, resulting in an increase in
student loan debt Student debt is a form of debt that is owed by an attending, formerly withdrawn, or graduated student to a lending institution, or to a financial institution. The amount that is loaned, often referred to as a '' student loan'' or the debts may be ...
from $260 billion in 2004 to $1.6 trillion in 2019Q2. From 1995 to 2013, outstanding education debt grew from 26% of average yearly income to 58%, for households with net worth below the 50th percentile.


Democracy and society

Bernstein and Krugman assessed the concentration of income as variously "unsustainable" and "incompatible" with democracy. Political scientists Jacob S. Hacker and
Paul Pierson Paul Pierson (born 1959) is an American professor of political science specializing in comparative politics and holder of the John Gross Endowed Chair of Political Science at the University of California, Berkeley. From 2007-2010 he served at UC ...
quoted a warning by Greek-Roman historian
Plutarch Plutarch (; grc-gre, Πλούταρχος, ''Ploútarchos''; ; – after AD 119) was a Greek Middle Platonist philosopher, historian, biographer, essayist, and priest at the Temple of Apollo in Delphi. He is known primarily for his ' ...
: "An imbalance between rich and poor is the oldest and most fatal ailment of all republics." Some academic researchers alleged that the US political system risks drifting towards
oligarchy Oligarchy (; ) is a conceptual form of power structure in which power rests with a small number of people. These people may or may not be distinguished by one or several characteristics, such as nobility, fame, wealth, education, or corporate, r ...
, through the influence of corporations, the wealthy and other special interest groups.


Political polarization

Rising income inequality has been linked to
political polarization Political polarization (spelled ''polarisation'' in British English) is the divergence of political attitudes away from the center, towards ideological extremes. Most discussions of polarization in political science consider polarization in the c ...
. Krugman wrote in 2014, "The basic story of political polarization over the past few decades is that, as a wealthy minority has pulled away economically from the rest of the country, it has pulled one major party along with it ... Any policy that benefits lower- and middle-income Americans at the expense of the elite – like health reform, which guarantees insurance to all and pays for that guarantee in part with taxes on higher incomes – will face bitter Republican opposition." He used environmental protection as another example, which became a partisan issue only after the 1990s. Evidence suggests the impact of national income inequality on regional economic divergence as one potential reason for the link between inequality and political polarization. As income inequality increased, the degree of
House of Representatives House of Representatives is the name of legislative bodies in many countries and sub-national entitles. In many countries, the House of Representatives is the lower house of a bicameral legislature, with the corresponding upper house often ca ...
polarization measured by voting record followed. Inequality increased influence by the rich on the regulatory, legislative and electoral processes. McCarty, Pool and Rosenthal wrote in 2007 that Republicans had then moved away from redistributive policies that would reduce income inequality, whereas earlier, they had supported redistributive policies such as the EITC. Polarization thus completed a feedback loop, increasing inequality. The IMF warned in 2017 that rising income inequality within Western nations, in particular the United States, could result in further political polarization.


Political inequality

Several economists and political scientists argued that income inequality translates into political inequality, as when politicians have financial incentives to accommodate special interest groups. Researchers such as
Larry Bartels Larry Martin Bartels (born May 16, 1956) is an American political scientist and the Co-Director of the Center for the Study of Democratic Institutions and Shayne Chair in Public Policy and Social Science at Vanderbilt University. Prior to his appo ...
found that politicians are significantly more responsive to the political opinions of the wealthy, even when controlling for a range of variables including educational attainment and political knowledge.


Class system

A ''class system'' is a society organized around the division of the population into groups having a permanent status that determines their relation to other groups. Such groups may be defined by income, religion and/or other characteristics. Class warfare is thus conflict between/among such classes. Investor
Warren Buffett Warren Edward Buffett ( ; born August 30, 1930) is an American business magnate, investor, and philanthropist. He is currently the chairman and CEO of Berkshire Hathaway. He is one of the most successful investors in the world and has a net ...
said in 2006, "There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning." He advocated much higher taxes on the wealthiest Americans.
George Packer George Packer (born August 13, 1960) is a US journalist, novelist, and playwright. He is best known for his writings for ''The New Yorker'' and ''The Atlantic'' about U.S. foreign policy and for his book '' The Assassins' Gate: America in Iraq''. ...
wrote, "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." In recent US history, the class conflict has taken the form of the "1% versus the 99%" issue, particularly as reflected in the Occupy movement and struggles over tax policy and redistribution. The movement spread to 600 communities in 2011. Its main political slogan – "
We are the 99% We are the 99% is a political slogan widely used and coined during the 2011 Occupy movement. The phrase directly refers to the income and wealth inequality in the United States, with a concentration of wealth among the top-earning 1%. It ref ...
" – referenced its dissatisfaction with the era's income inequality.


Political change

Increasing inequality is both a cause and effect of
political change Social change is the alteration of the social order of a society which may include changes in social institutions, social behaviours or social relations. Definition Social change may not refer to the notion of social progress or sociocult ...
, according to journalist
Hedrick Smith Hedrick Smith is a Pulitzer Prize-winning former ''New York Times'' reporter and Emmy award-winning producer and correspondent. After serving 26 years with ''The New York Times'' from 1962-88 as correspondent, editor and bureau chief in both Moscow ...
. The result was a political landscape dominated in the 1990s and 2000s by business groups, specifically "political insiders" – former members of Congress and government officials with an inside track – working for "Wall Street banks, the oil, defense, and pharmaceutical industries; and business trade associations." In the decade or so prior to the Great Divergence, middle-class-dominated reformist grassroots efforts – such as the
civil rights movement The civil rights movement was a nonviolent social and political movement and campaign from 1954 to 1968 in the United States to abolish legalized institutional racial segregation, discrimination, and disenfranchisement throughout the United ...
,
environmental movement The environmental movement (sometimes referred to as the ecology movement), also including conservation and green politics, is a diverse philosophical, social, and political movement for addressing environmental issues. Environmentalists advoc ...
,
consumer movement The consumer movement is an effort to promote consumer protection through an organized social movement, which is in many places led by consumer organizations. It advocates for the rights of consumers, especially when those rights are actively bre ...
, labor movement – had considerable political impact. World trade significantly expanded in the 1990s and thereafter, with the creation of the
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and e ...
and the negotiation of the
North American Free Trade Agreement The North American Free Trade Agreement (NAFTA ; es, Tratado de Libre Comercio de América del Norte, TLCAN; french: Accord de libre-échange nord-américain, ALÉNA) was an agreement signed by Canada, Mexico, and the United States that crea ...
. These agreements and related policies were widely supported by business groups and economists such as Krugman. and Stiglitz One outcome was greatly expanded foreign outsourcing, which has been argued to have hollowed out the middle class. Stiglitz later argued that inequality may explain political questions – such as why America's infrastructure (and other public investments) are deteriorating, or the country's recent relative lack of reluctance to engage in military conflicts such as the 2003 Iraq war. Top-earning families have the money to buy their own education, medical care, personal security, and parks. They showed little interest in helping pay for such things for the rest of society, and have the political influence to make sure they don't have to. The relatively few children of the wealthy who joined the military may have reduced their concern about going to war. Milanovic argued that globalization and immigration caused US middle-class wages to stagnate, fueling the rise of
populist Populism refers to a range of political stances that emphasize the idea of "the people" and often juxtapose this group against " the elite". It is frequently associated with anti-establishment and anti-political sentiment. The term develope ...
political candidates. Piketty attributed the victory of
Donald Trump Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who served as the 45th president of the United States from 2017 to 2021. Trump graduated from the Wharton School of the University of P ...
in the 2016 presidential election, to "the explosion in economic and geographic inequality in the United States over several decades and the inability of successive governments to deal with this."


Health

Using statistics from 23 developed countries and the 50 states of the US, British researchers
Richard G. Wilkinson Richard Gerald Wilkinson (born 1943) is a British social epidemiologist, author, advocate, and left-wing political activist. He is Professor Emeritus of social epidemiology at the University of Nottingham, having retired in 2008. He is also Hon ...
and
Kate Pickett Kate Elizabeth Pickett (born 1965) is a British epidemiologist and political activist who is Professor of Epidemiology in the Department of Health Sciences at the University of York, and was a National Institute for Health and Care Research Car ...
found a correlation that remains after accounting for ethnicity, national culture and occupational classes or education levels. Their findings place the United States as the most unequal and ranks poorly on social and health problems among developed countries. The authors argue inequality creates psychosocial stress and
status Status (Latin plural: ''statūs''), is a state, condition, or situation, and may refer to: * Status (law) ** City status ** Legal status, in law ** Political status, in international law ** Small entity status, in patent law ** Status confere ...
anxiety that lead to social ills. A 2009 study attributed one in three deaths in the United States to high levels of inequality. According to
The Earth Institute {{Infobox organization , name = The Earth Institute , image = Ei blue1.gif , map_size = , map_alt = , map_caption = , map2 = , type = , tax_id ...
,
life satisfaction Life satisfaction is a measure of a person's well-being, assessed in terms of mood, relationship satisfaction, achieved goals, self-concepts, and self-perceived ability to cope with life. Life satisfaction involves a favorable attitude towards on ...
in the US has been declining over several decades, which they attributed to increasing inequality, lack of social trust and loss of faith in government. A 2015 study by
Angus Deaton Sir Angus Stewart Deaton (born 19 October 1945) is a British economist and academic. Deaton is currently a Senior Scholar and the Dwight D. Eisenhower Professor of Economics and International Affairs Emeritus at the Princeton School of Public ...
and
Anne Case Anne Catherine Case, Lady Deaton, (born July 27, 1958) is an American economist who is currently the Alexander Stewart 1886 Professor of Economics and Public Affairs, Emeritus, at Princeton University. Early life and career She graduated from ...
found that income inequality could be a driving factor in a marked increase in deaths among white males between the ages of 45 to 54 in the period 1999 to 2013. So-called " deaths of despair", including
suicide Suicide is the act of intentionally causing one's own death. Mental disorders (including depression, bipolar disorder, schizophrenia, personality disorders, anxiety disorders), physical disorders (such as chronic fatigue syndrome), and sub ...
and drug/alcohol related deaths, which have been pushing down life expectancy since 2014, reached record levels in 2017. Some researchers assert that income inequality, a shrinking middle class and stagnant wages have been significant factors in this development. According to the Health Inequality Project, the wealthiest American men live 15 years longer than the poorest. For American women the life expectancy gap is 10 years.


Financing of social programs

Krugman argues that the long-term funding problems of
Social Security Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
and Medicare can be blamed in part on the growth in inequality as well as changes such as longer life expectancy. The source of funding for these programs is payroll taxes, which are traditionally levied as a percent of salary up to a cap. Payroll taxes do not capture income from capital or income above the cap. Higher inequality thereby reduces the taxable pool. Had inequality remained stable, increased payments would have covered about 43% of the projected
Social Security Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
shortfall over the next 75 years.


Justice

Classical liberal economists such as
Friedrich Hayek Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...
maintained that because individuals are diverse and different, state intervention to redistribute income is inevitably arbitrary and incompatible with the rule of law, and that "what is called 'social' or distributive' justice is indeed meaningless within a spontaneous order". Those who would use the state to redistribute, "take freedom for granted and ignore the preconditions necessary for its survival".


Public attitudes

Americans are not generally aware of the extent of inequality or recent trends. In 1998 a Gallup poll found 52% of Americans agreeing that the gap between rich and the poor was a problem that needed to be fixed, while 45% regarded it as "an acceptable part of the economic system". A December 2011 Gallup poll found a decline in the number of Americans who rated reducing the gap in income and wealth between the rich and the poor as extremely or very important (21 percent of Republicans, 43 percent of independents, and 72 percent of Democrats). Only 45% see the gap as in need of fixing, while 52% do not. However, there was a large difference between Democrats and Republicans, with 71% of Democrats calling for a fix. In 2012, surveys found the issue ranked below issues such as growth and equality of opportunity, and ranked relatively low in affecting voters "personally". A January 2014 poll found 61% of Republicans, 68% of Democrats and 67% of independents accept that income inequality in the US had grown over the last decade. The poll indicated that 69% of Americans supported the government doing "a lot" or "some" to address income inequality and that 73% of Americans supported raising the minimum wage from $7.25 to $10.10 per hour. Surveys found that Americans matched citizens of other nations about what equality was acceptable, but more accepting of what they thought the level was.
Dan Ariely Dan Ariely ( he, דן אריאלי; born April 29, 1967) is an Israeli-American professor and author. He serves as a James B. Duke Professor of psychology and behavioral economics at Duke University. Ariely is the founder of the research insti ...
and Michael Norton found in a 2011 study that US citizens significantly underestimated wealth inequality.


States and cities

The US household income Gini of 46.8 in 2009 varied significantly between states: after-tax income inequality in 2009 was greatest in
Texas Texas (, ; Spanish: ''Texas'', ''Tejas'') is a state in the South Central region of the United States. At 268,596 square miles (695,662 km2), and with more than 29.1 million residents in 2020, it is the second-largest U.S. state by b ...
and lowest in
Maine Maine () is a state in the New England and Northeastern regions of the United States. It borders New Hampshire to the west, the Gulf of Maine to the southeast, and the Canadian provinces of New Brunswick and Quebec to the northeast and ...
. Income inequality grew from 2005 to 2012 in more than 2 out of 3 metropolitan areas. The states of
Utah Utah ( , ) is a state in the Mountain West subregion of the Western United States. Utah is a landlocked U.S. state bordered to its east by Colorado, to its northeast by Wyoming, to its north by Idaho, to its south by Arizona, and to it ...
,
Alaska Alaska ( ; russian: Аляска, Alyaska; ale, Alax̂sxax̂; ; ems, Alas'kaaq; Yup'ik: ''Alaskaq''; tli, Anáaski) is a state located in the Western United States on the northwest extremity of North America. A semi-exclave of the U.S., ...
and Wyoming have a market income Gini coefficient that is 10% lower than the average, while
Washington D.C. ) , image_skyline = , image_caption = Clockwise from top left: the Washington Monument and Lincoln Memorial on the National Mall, United States Capitol, Logan Circle, Jefferson Memorial, White House, Adams Morgan, N ...
and
Puerto Rico Puerto Rico (; abbreviated PR; tnq, Boriken, ''Borinquen''), officially the Commonwealth of Puerto Rico ( es, link=yes, Estado Libre Asociado de Puerto Rico, lit=Free Associated State of Puerto Rico), is a Caribbean island and unincorporated ...
are 10% higher. After-tax, the Federal Reserve estimated that 34 states in the USA have a Gini index between 30 and 35, with Maine the lowest. At the county and municipality levels, the 2010 market income Gini index ranged from 21 to 65, according to Census Bureau estimates.


International comparisons

The United States has the highest level of income inequality in the
Western world The Western world, also known as the West, primarily refers to the various nations and states in the regions of Europe, North America, and Oceania.
, according to a 2018 study by the United Nations Special Rapporteur on extreme poverty and human rights. The United States has forty million people living in poverty, and more than half of these people live in "extreme" or "absolute" poverty. Income inequality has increased in recent decades, and large tax cuts that disproportionately favor the very wealthy are predicted to further increase U.S. income inequality. Actual income inequality and public views about the need to address the issue are directly related in most developed countries, but not in the US, where income inequality is larger but the concern is lower. Excluding retirees, US market income inequality is comparatively high (rather than moderate) and the level of redistribution is moderate (not low). These comparisons indicate Americans shift from reliance on market income to reliance on income transfers later in life, although less fully than in other developed countries. International comparisons vary. In 2019 the CIA ranked the US 39th-worst among 157 countries measured by Gini. While inequality increased after 1981 in two-thirds of OECD countries, most are in the more equal end of the spectrum. The European Union measured 30.8. The US Gini rating (after taxes and transfers) puts it among those of less developed countries. The US is more unequal or on par with countries such as Mozambique, Peru, Cameroon, Guyana and Thailand. Across Europe the ratio of post-tax income of the top 10% to that of the bottom 50% changed only slightly between the mid-1990s and 2019. Developing country comparative data is available from databases such as the
Luxembourg Income Study LIS Cross-National Data Center, formerly known as the Luxembourg Income Study (LIS), is a non-profit organization registered in Luxembourg which produces a cross-national database of micro-economic income data for social science research. The proje ...
(LIS) or the OECD Income Distribution database (OECD IDD), or, when including developing countries, from the World Bank's Povcalnet database, UN-WIDER's World Income Inequality Database, or the Standardized World Income Inequality Database.


Reasons for relative performance

One 2013 study indicated that US market income inequality was comparable to other developed countries, but was the highest among 22 developed countries after taxes and transfers. This implies that public policy choices, rather than market factors, drive U.S. income inequality disparities relative to other developed nations. Inequality may be higher than official statistics indicate in some countries because of unreported income. Europeans hold higher amounts of wealth offshore than Americans. Leonhardt and Quealy in 2014 described three key reasons for other industrialized countries improving real median income relative to the US over the 2000-2010 period. In the US: * educational attainment has risen more slowly; * companies pay relatively lower wages to the middle class and poor, with top executives making relatively more; * government redistributes less from rich to poor. As of 2012 the U.S. had the weakest
social safety net The social safety net (SSN) consists of non-contributory assistance existing to improve lives of vulnerable families and individuals experiencing poverty and destitution. Examples of SSNs are previously-contributory social pensions, in-kind and fo ...
among developed nations.


2014

In 2014 Canadian middle class incomes moved higher than those in the US and in some European nations citizens received higher raises than their American counterparts. As of that year only the wealthy had seen pay increases since the Great Recession, while average American workers had not.


Policy responses

Debate continues over whether a public policy response is appropriate to income inequality. For example, Federal Reserve Economist Thomas Garrett wrote in 2010: "It is important to understand that income inequality is a byproduct of a well-functioning capitalist economy. Individuals' earnings are directly related to their productivity ... A wary eye should be cast on policies that aim to shrink the income distribution by redistributing income from the more productive to the less productive simply for the sake of 'fairness.'" Alternatively, bipartisan political majorities have supported redistributive policies such as the EITC. Economists have proposed various approaches to reducing income inequality. For example, then Federal Reserve Chair
Janet Yellen Janet Louise Yellen (born August 13, 1946) is an American economist serving as the 78th United States secretary of the treasury since January 26, 2021. She previously served as the 15th chair of the Federal Reserve from 2014 to 2018. Yellen is t ...
described four "building blocks" in a 2014 speech. These included expanding resources available to children, affordable higher education, business ownership and inheritance. That year, the
Center for American Progress The Center for American Progress (CAP) is a public policy research and advocacy organization which presents a liberal viewpoint on economic and social issues. It has its headquarters in Washington, D.C. The president and chief executive officer ...
recommended tax reform, further subsidizing healthcare and higher education and strengthening unions as appropriate responses. Improved
infrastructure Infrastructure is the set of facilities and systems that serve a country, city, or other area, and encompasses the services and facilities necessary for its economy, households and firms to function. Infrastructure is composed of public and priv ...
could address both the causes and the effects of inequality. E.g., workers with limited mobility could use improved mass transit to reach higher-paying jobs further from home and to access beneficial services at lower cost. Public policy responses addressing effects of income inequality include:
tax incidence In economics, tax incidence or tax burden is the effect of a particular tax on the distribution of economic welfare. Economists distinguish between the entities who ultimately bear the tax burden and those on whom tax is initially imposed. The t ...
adjustments and strengthening
social safety net The social safety net (SSN) consists of non-contributory assistance existing to improve lives of vulnerable families and individuals experiencing poverty and destitution. Examples of SSNs are previously-contributory social pensions, in-kind and fo ...
provisions such as
welfare Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
, food stamps,
Social Security Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
, Medicare and
Medicaid Medicaid in the United States is a federal and state program that helps with healthcare costs for some people with limited income and resources. Medicaid also offers benefits not normally covered by Medicare, including nursing home care and pers ...
. Proposals that address the causes of inequality include education reform and limiting/taxing
rent-seeking Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment. Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effic ...
. Other reforms include raising the minimum wage, tax reform, and increased stock ownership at lower income levels via a deferred investment program.


Education

Children from higher-income families often attend higher-quality
private school Private or privates may refer to: Music * "In Private", by Dusty Springfield from the 1990 album ''Reputation'' * Private (band), a Denmark-based band * "Private" (Ryōko Hirosue song), from the 1999 album ''Private'', written and also recorded ...
s or are
home-schooled Homeschooling or home schooling, also known as home education or elective home education (EHE), is the education of school-aged children at home or a variety of places other than a school. Usually conducted by a parent, tutor, or an onlin ...
. Better teachers raise the educational attainment and future earnings of students, but they tend to prefer school districts that educate higher income children.


Parenting assistance

Economist Richard V. Reeves and other researchers point out the " parenting gap" between high-income and low-income families. High-income families tend to have resources to pay for assistance like child care and tutors, and having had economically successful ancestors have culturally inherited the skills needed to raise economically successful children. Based on studies of economic outcomes, Reeves recommends, and many governments fund, home visiting programs which assist parents in raising healthy children who succeed in school and are later able to obtain better-paying jobs.


Healthcare

Increasing public funding for services such as healthcare can reduce after-tax inequality. The
Affordable Care Act The Affordable Care Act (ACA), formally known as the Patient Protection and Affordable Care Act and colloquially known as Obamacare, is a landmark U.S. federal statute enacted by the 111th United States Congress and signed into law by Presid ...
reduced income inequality for calendar year 2014: * "households in the lowest and second quintiles he bottom 40%received an average of an additional $690 and $560 respectively, because of the ACA ..." * "Most of the burden of the ACA fell on households in the top 1% of the income distribution, and relatively little fell on the remainder of households in that quintile. Households in the top 1% paid an additional $21,000, primarily because of the net investment income tax and the additional Medicare tax."


Public welfare and infrastructure spending

OECD asserted that public spending is vital in reducing the wealth gap. Lane Kenworthy advocates incremental reforms in the direction of the Nordic social democratic model, claiming that this would increase economic security and opportunity. Eliminating social safety nets can discourage
entrepreneurs Entrepreneurship is the creation or extraction of economic value. With this definition, entrepreneurship is viewed as change, generally entailing risk beyond what is normally encountered in starting a business, which may include other values th ...
by exacerbating the consequences of business failure from a temporary setback to financial ruin.


Taxes

Income taxes provide one mechanism for addressing after-tax inequality. Increasing the effective progressivity of income taxes reduces the gap between higher and lower incomes. However, taxes paid may not reflect statutory rates because (legal) tax avoidance strategies can offset higher rates. PIketty called for a 90% wealth tax to address the situation.


Tax expenditures

Tax expenditures (i.e., exclusions, deductions, preferential tax rates, and tax credits) affect the after-tax income distribution. The benefits from tax expenditures, such as income exclusions for employer-based healthcare insurance premiums and deductions for mortgage interest, are distributed unevenly across the income spectrum. As of 2019, the US Treasury listed 165 federal income tax expenditures. The largest as employer health insurance deductions, followed by net imputed rental income, capital gains (except agriculture, timber, iron ore, and coal) and defined contribution employer pension plans. Understanding how each tax expenditure is distributed across the income spectrum can inform policy choices. A 2019 study by the economists Saez and Zucman found the effective total tax rate (including state and local taxes, and government fees) for the bottom 50% of U.S. households was 24.2% in 2018, whereas for the wealthiest 400 households it was 23%.


Corporate taxes

Economist
Dean Baker Dean Baker (born July 13, 1958) is an American macroeconomist who co-founded the Center for Economic and Policy Research (CEPR) with Mark Weisbrot. Baker has been credited as one of the first economists to have identified the 2007–08 United St ...
argued that corporate income tax policies have multiple effects. Increased corporate profits increase inequality by distributing dividends (mostly to higher income people). Taxing profits reduces this effect, but it also may reduce investment reducing employment. It also encourages payers to (often successfully) lobby for increased tax expenditures, which offsets the inequality reduction and also pushes corporations to adjust their behavior to exploit them. Professional lobbying and accounting firms that generally pay well get more business, at the expense of other workers.


Minimum wages

''The Economist'' states that as inequality rises, political will to help low-paid workers increases, and minimum wages may not be as bad as some believe. In a blog post on the
Economic Policy Institute The Economic Policy Institute (EPI) is a 501(c)(3) non-profit American, left-leaning think tank based in Washington, D.C., that carries out economic research and analyzes the economic impact of policies and proposals. Affiliated with the labor m ...
's site, they say that raising the federal minimum wage to $15 an hour would decrease income inequality.


Basic income

A public
basic income Universal basic income (UBI) is a social welfare proposal in which all citizens of a given population regularly receive an unconditional transfer payment, that is, without a means test or need to work. It would be received independently of an ...
provides each individual with a fixed sum from the government, without consideration of factors such as age, employment, wealth, education, etc. People who support basic income as a way to reduce income inequality include the
Green Party A green party is a formally organized political party based on the principles of green politics, such as social justice, environmentalism and nonviolence. Greens believe that these issues are inherently related to one another as a foundation f ...
.


Economic democracy

Economic democracy is a
socioeconomic Socioeconomics (also known as social economics) is the social science that studies how economic activity affects and is shaped by social processes. In general it analyzes how modern societies progress, stagnate, or regress because of their loca ...
philosophy that proposes to shift decision-making power from corporations to a larger group of public stakeholders that includes workers, customers, suppliers, neighbours and the broader public. Economists
Richard D. Wolff Richard David Wolff (born April 1, 1942) is an American Marxian economist known for his work on economic methodology and class analysis. He is professor emeritus of economics at the University of Massachusetts Amherst and a visiting professo ...
and Gar Alperovitz claim that such policies would improve equality.


Monetary policy

Monetary policy is responsible for balancing
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reducti ...
and
unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is people above a specified age (usually 15) not being in paid employment or self-employment but currently available for Work (human activity), w ...
. It can be used to stimulate the economy (e.g., by lowering interest rates, which encourages borrowing and spending, additional job creation, and inflationary pressure); or tighten it, with the opposite effects. Former Fed Chair
Ben Bernanke Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist who served as the 14th chairman of the Federal Reserve from 2006 to 2014. After leaving the Fed, he was appointed a distinguished fellow at the Brookings Institution. Duri ...
wrote in 2015 that monetary policy affects income and wealth inequality in multiple ways, but that responsibility lies primarily in other areas: * Stimulus reduces inequality by creating or preserving jobs, which mainly helps the middle and lower classes who derive more of their income from labor than the wealthy. * Stimulus inflates the prices of financial assets (owned mainly by the wealthy), but also employment, housing and the value of small businesses (owned more widely). * Stimulus increases inflation and/or lowers interest rates, which helps debtors (mainly the middle and lower classes) while hurting creditors (mainly the wealthy), because they are paid back with cheaper dollars or reduced interest.


Measurement

Various methods measure income inequality. Different sources prefer Gini coefficients or ratio of percentiles, etc.
Census Bureau The United States Census Bureau (USCB), officially the Bureau of the Census, is a principal agency of the U.S. Federal Statistical System, responsible for producing data about the American people and economy. The Census Bureau is part of the ...
studies on household and individual income show lower levels than some other sources, but do not break out the highest-income households (99%+) where most change has occurred. One review describes six possible techniques for estimating American real median income growth. Estimates for the 1979-2014 period ranged from a decline of 8% (Piketty and Saez 2003) to an increase of 51% (CBO). Two commonly cited estimates are the CBO and
Emmanuel Saez Emmanuel Saez (born November 26, 1972) is a French, naturalized American economist who is Professor of Economics at the University of California, Berkeley. His work, done with Thomas Piketty and Gabriel Zucman, includes tracking the incomes of th ...
. These differ in their sources and methods. Using IRS data for 2011 Saez claimed that the share of "market income less transfers" received by the top 1% was about 19.5%. The CBO uses both IRS data and Census data in its computations and reported a lower "pre-tax" figure for the top 1% of 14.6%.


Census Bureau data

The Census Bureau ranks all households by household income based on its surveys and then divides them into quintiles. The highest-ranked household in each quintile provides the upper income limit for that quintile. Census data reflects market income without adjustments, and is not amenable to adjustment for taxes and transfers. Because census data does not measure changes in individual households, it is not suitable for studying income mobility. Gary Burtless noted that for this reason census data overstated the income losses that middle-income families suffered in the Great Recession.


Internal Revenue Service data

Saez and Piketty pioneered the use of IRS data for the analysis of income distribution in 1998.


GDP distribution

Another approach attempts to allocate GDP to individuals, to compensate for the 40% of GDP that does not appear on tax returns. One source of the disagreement is the growth of tax-free retirement accounts, such as
pension funds A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed and priva ...
,
IRAs The Infrared Astronomical Satellite (Dutch: ''Infrarood Astronomische Satelliet'') (IRAS) was the first space telescope to perform a survey of the entire night sky at infrared wavelengths. Launched on 25 January 1983, its mission lasted ten mon ...
and
401K In the United States, a 401(k) plan is an employer-sponsored, defined-contribution, personal pension (savings) account, as defined in subsection 401(k) of the U.S. Internal Revenue Code. Periodical employee contributions come directly out of their ...
s. Another source is tax evasion, whose distribution is also disputed.


Income measures: pre-and post-tax

Inequality can be measured before and after the effects of taxes and transfer payments such as social security and unemployment insurance. Measuring inequality after accounting for taxes and transfers reduces observed inequality, because both the income tax system and transfer systems are designed to do so. The impacts of those polieices varies as the policy regime changes. CBO reported in 2011 that: "The equalizing effect of transfers declined over the 1979–2007 period primarily because the distribution of transfers became less progressive. The equalizing effect of federal taxes also declined over the period, in part because the amount of federal taxes shrank as a share of market income and in part because of changes in the progressivity of the federal tax system." CBO income statistics show the growing importance of these items. In 1980, in-kind benefits and employer and government spending on health insurance accounted for just 6% of the after-tax incomes of households in the middle one-fifth of the distribution. By 2010 these in-kind income sources represented 17% of middle class households' after-tax income. Post-tax income items are increasing faster than pre-tax items. As a result of these programs, the spendable incomes of poor and middle-class families have been better insulated against recession-driven losses than the incomes of Americans in the top 1%. Incomes in the middle and at the bottom of the distribution have fared better since 2000 than incomes at the very top. Continuing increases in transfers, e.g., resulting from the Affordable Care Act, reduced inequality, while tax changes in the
Tax Cuts and Jobs Act of 2017 The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, , is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs A ...
had the opposite effect. CBO, incorporates capital gains.


Demographic issues

Comparisons of household income over time should control for changes in average age, family size, number of breadwinners, and other characteristics. Measuring
personal income In economics, personal income refers to an individual's total earnings from wages, investment enterprises, and other ventures. It is the sum of all the incomes received by all the individuals or household during a given period. Personal income i ...
ignores dependent children, but household income also has problems – a household of ten has a lower
standard of living Standard of living is the level of income, comforts and services available, generally applied to a society or location, rather than to an individual. Standard of living is relevant because it is considered to contribute to an individual's quality ...
than one of two people, though their incomes may be the same. People's earnings tend to rise over their working lifetimes, so point-in-time estimates can be misleading. (A world in which each person received a lifetime of income on their 21st birthday and no income thereafter would have an extremely high Gini, even if everyone received the exact same amount. Real-world incomes also tend to be spiky, although not to that extreme.) Some 11% of households eventually appear in the 1% at some point. The inequality of a recent college graduate and a 55-year-old at the peak of his/her career is not an issue if the graduate has the same career path. Conservative researchers and organizations have focused on the flaws of household income as a measure for standard of living in order to refute claims that income inequality is growing, is excessive or poses a problem. According to a 2004 analysis of income quintile data by the
Heritage Foundation The Heritage Foundation (abbreviated to Heritage) is an American Conservatism in the United States, conservative think tank based in Washington, D.C. that is primarily geared toward public policy. The foundation took a leading role in the Conser ...
, inequality is less after adjusting for household size. Aggregate share of income held by the upper quintile (the top earning 20 percent) decreases by 20.3% when figures are adjusted to reflect household size. However the Pew Research Center found household income declined less than individual income in the twenty-first century, because those no longer able to afford separate housing moved in with relatives, creating larger households with more earners. A 2011 CBO study adjusted for household size so that its quintiles contain an equal number of people, not an equal number of households. CBO found income distribution over a multi-year period "modestly" more equal than annual income, confirming earlier studies. According to Noah, adjusting for demographic factors such as increasing age and smaller households, indicates that income inequality is less extreme but growing faster than without the adjustment.


Gini index

The Gini coefficient was developed by Italian
statistician A statistician is a person who works with theoretical or applied statistics. The profession exists in both the private and public sectors. It is common to combine statistical knowledge with expertise in other subjects, and statisticians may wor ...
and sociologist Corrado Gini and published in his 1912 paper ''Variability and Mutability'' ( it, Variabilità e mutabilità). Gini ratings can be used to compare inequality (by race, gender, employment) within and between jurisdictions, using a variety of income measures and data sources, with differing results. For example, the Census Bureau's official market Gini for the US was 47.6 in 2013, up from 45.4 in 1993. By contrast, OECD's US adjusted compensation Gini was 37 in 2012.


Other indicators of inequality

Income, however measured, is only one indicator of equality. Others include equality of opportunity, consumption and wealth.


Opportunity

Economist
Thomas Sowell Thomas Sowell (; born June 30, 1930) is an American author, economist, political commentator and academic who is a senior fellow at the Hoover Institution. With widely published commentary and books—and as a guest on TV and radio—he beca ...
, and former Congressman and Speaker of the House
Paul Ryan Paul Davis Ryan (born January 29, 1970) is an American former politician who served as the 54th speaker of the United States House of Representatives from 2015 to 2019. A member of the Republican Party, he was the vice presidential nominee ...
argued that more important than equality of results is
equality of opportunity Equal opportunity is a state of fairness in which individuals are treated similarly, unhampered by artificial barriers, prejudices, or preferences, except when particular distinctions can be explicitly justified. The intent is that the important ...
. This measures the degree to which individuals have the chance to succeed, despite their original circumstances.


Consumption

Other researchers argued that income is less important than consumption. Two individuals (or other units) who consume the same amount have similar outcomes despite differences in their incomes. Consumption inequality is also less extreme. Will Wilkinson wrote, "the run-up in consumption inequality has been considerably less dramatic than the rise in income inequality". According to Johnson, Smeeding and Tory, consumption inequality was lower in 2001 than in 1986. Other studies have not found consumption inequality less dramatic than household income inequality. A CBO study found consumption data not capturing consumption by high-income households as well as it does their incomes, though it found that household consumption numbers are less unequal than household income. Others dispute the importance of consumption, pointing out that if middle and lower incomes are consuming more than they earn, it is because they are saving less or going deeper into debt. Alternatively, higher income persons may be consuming less than their income, saving/investing the balance.


Wealth

Wealth inequality The distribution of wealth is a comparison of the wealth of various members or groups in a society. It shows one aspect of economic inequality or heterogeneity in economics, economic heterogeneity. The distribution of wealth differs from the i ...
refers to the distribution of net worth (i.e., what is owned minus what is owed) as opposed to annual income. Wealth is affected by movements in the prices of assets, such as stocks, bonds and real estate, which fluctuate over the short-term. Income inequality has significant effects over long-term shifts in wealth inequality. Wealth inequality is increasing: * The top .1% owned approximately 22% of the wealth in 2012, versus 7% in 1978. The top 1% share of wealth was at or below 10% from 1950 to 1987. A conflicting estimate found that they held some 15%. * The top 400 Americans had net worth of $2 trillion in 2013, more than the bottom 50%. Their average net worth was $5 billion. * The lower 50% of households held 3% of the wealth in 1989 and 1% in 2013. Their average net worth in 2013 was approximately $11,000. * The threshold for the wealthiest 1% was approximately $8.4 million measured for the 2008–2010 period. Nearly half the top 1% by income were also in the top 1% by wealth. In 2010, the wealthiest 5% of households owned approximately 72% of financial wealth, while the bottom 80% of households had 5%. *The top 1% controlled 38.6% of the country's wealth in 2016. Much of the wealth gain came to those in the top 1%. Those between the top 1 percent and top 5 percent controlled a smaller percent of wealth than before.


Education and family structure

Another form of inequality is the different level and quality of education available to students. School quality and educational results vary dramatically, depending on whether a student has access to a
private Private or privates may refer to: Music * "In Private", by Dusty Springfield from the 1990 album ''Reputation'' * Private (band), a Denmark-based band * "Private" (Ryōko Hirosue song), from the 1999 album ''Private'', written and also recorded ...
or
charter school A charter school is a school that receives government funding but operates independently of the established state school system in which it is located. It is independent in the sense that it operates according to the basic principle of autono ...
or an effective public school. Many students have no choice but to attend dysfunctional public schools, where fewer achieve grade level performance. Pundit David Brooks argued that in the 1970s, high school and college graduates had "very similar family structures", while later high school grads were much less likely to get married, and much more likely to smoke, be obese, get divorced, and/or become a
single parent A single parent is a person who has a child or children but does not have a spouse or live-in partner to assist in the upbringing or support of the child. Reasons for becoming a single parent include divorce, break-up, abandonment, becoming wi ...
.
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.


Hollowing out of the Middle Class

Hollowing out of the middle class refers to its loss in income share beginning with
Reaganomics Reaganomics (; a portmanteau of ''Reagan'' and ''economics'' attributed to Paul Harvey), or Reaganism, refers to the neoliberal economic policies promoted by U.S. President Ronald Reagan during the 1980s. These policies are commonly associa ...
. The middle class is defined as the middle 20% of the income distribution, i.e. those between the 40th and 60th percentile. In 1980 the middle class earned 17% of total income in the United States. However, by 2019 its share decreased to 14%, a drop of 3%. Another way to see this is that in 1980 the share of the middle class was the same as that of the top 5% but by 2019 the top 5% was 9 percentage points ahead of the middle class.


Opinions of notable individuals

Although some spoke out in favor of moderate inequality as a form of
incentive In general, incentives are anything that persuade a person to alter their behaviour. It is emphasised that incentives matter by the basic law of economists and the laws of behaviour, which state that higher incentives amount to greater levels of ...
, others warned against excessive levels of inequality, including
Robert J. Shiller Robert James Shiller (born March 29, 1946) is an American economist, academic, and author. As of 2019, he serves as a Sterling Professor of Economics at Yale University and is a fellow at the Yale School of Management's International Center for ...
, (who called rising economic inequality "the most important problem that we are facing now today"), former
Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after ...
Board chairman
Alan Greenspan Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. ...
, ("This is not the type of thing which a democratic society – a
capitalist Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private p ...
democratic society – can really accept without addressing"), and
President President most commonly refers to: *President (corporate title) *President (education), a leader of a college or university *President (government title) President may also refer to: Automobiles * Nissan President, a 1966–2010 Japanese ful ...
Barack Obama Barack Hussein Obama II ( ; born August 4, 1961) is an American politician who served as the 44th president of the United States from 2009 to 2017. A member of the Democratic Party, Obama was the first African-American president of the U ...
(who referred to the widening income gap as the "defining challenge of our time"). United Nations special rapporteur
Philip Alston Philip Geoffrey Alston is an Australian international law scholar and human rights practitioner. He is John Norton Pomeroy Professor of Law at NYU Law School, New York University School of Law, and co-chair of the law school's Center for Human ...
, following a fact finding mission to the United States in December 2017, said in his report that "the United States already leads the developed world in income and wealth inequality, and it is now moving full steam ahead to make itself even more unequal." Alan Krueger summarized research studies in 2012, stating that as income inequality increases: * Income shifts to the wealthy, who tend to consume less of each marginal dollar, slowing consumption and therefore economic growth; * Income mobility falls: parents' income better predicts their children's income; * Middle and lower-income families borrow more to maintain their consumption, a contributing factor to financial crises; and * The wealthy gain more political power, which results in policies that further slow economic growth. Many economists claim that America's growing income inequality is "deeply worrying", unjust, a danger to democracy/social stability, or a sign of national decline. Nobelist
Robert Shiller Robert James Shiller (born March 29, 1946) is an American economist, academic, and author. As of 2019, he serves as a Sterling Professor of Economics at Yale University and is a fellow at the Yale School of Management's International Center fo ...
after receiving the award stated, "The most important problem that we are facing now today, I think, is rising inequality in the United States and elsewhere in the world." Piketty warned, "The egalitarian pioneer ideal has faded into oblivion, and the
New World The term ''New World'' is often used to mean the majority of Earth's Western Hemisphere, specifically the Americas."America." ''The Oxford Companion to the English Language'' (). McArthur, Tom, ed., 1992. New York: Oxford University Press, p. 3 ...
may be on the verge of becoming the Old Europe of the twenty-first century's globalized economy." Others claim that the increase is not significant, that America's economic growth and/or equality of opportunity should be the primary focus, that rising inequaity is a global phenomenon that would be foolish to try to change through US domestic policy, that it "has many economic benefits and is the result of ... a well-functioning economy", and has or may become an excuse for "class-warfare rhetoric". They argue against "redistribution of wealth", instead advocating for "sound economic policy to reduce poverty
hich Ij ( fa, ايج, also Romanized as Īj; also known as Hich and Īch) is a village in Golabar Rural District, in the Central District of Ijrud County, Zanjan Province, Iran Iran, officially the Islamic Republic of Iran, and also ...
would lift people out of poverty (increase their productivity) while not reducing the well-being of wealthier individuals".


See also

* American Dream * Criticism of credit scoring systems in the United States *
Economic inequality There are wide varieties of economic inequality, most notably income inequality measured using the distribution of income (the amount of money people are paid) and wealth inequality measured using the distribution of wealth (the amount of w ...
*
Economic mobility Economic mobility is the ability of an individual, family or some other group to improve (or lower) their economic status—usually measured in income. Economic mobility is often measured by movement between income quintiles. Economic mobility ...
*
Economy of the United States The United States is a highly developed mixed-market economy and has the world's largest nominal GDP and net wealth. It has the second-largest by purchasing power parity (PPP) behind China. It has the world's seventh-highest per capita GD ...
*
Educational attainment in the United States The educational attainment of the U.S. population refers to the highest level of education completed. The educational attainment of the U.S. population is similar to that of many other industrialized countries with the vast majority of the pop ...
*
High-net-worth individual High-net-worth individual (HNWI) is a term used by some segments of the financial services industry to designate persons whose investible wealth (assets such as stocks and bonds) exceeds a given amount. Typically, these individuals are defined ...
*
Homelessness in the United States Homelessness in the United States refers to the issue of homelessness in the United States, a condition wherein people lack a fixed, regular, and adequate residence. The number of homeless people varies from different federal government acco ...
* ''
Inequality for All ''Inequality for All'' is a 2013 documentary film directed by Jacob Kornbluth and narrated by American economist, author and professor Robert Reich. Based on Reich's 2010 book ''Aftershock: The Next Economy and America's Future'', the film exam ...
'' – 2013 documentary film presented by
Robert Reich Robert Bernard Reich (; born June 24, 1946) is an American professor, author, lawyer, and political commentator. He worked in the administrations of Presidents Gerald Ford and Jimmy Carter, and served as Secretary of Labor from 1993 to 1997 in ...
*
Income inequality metrics Income inequality metrics or income distribution metrics are used by social scientists to measure the distribution of income and economic inequality among the participants in a particular economy, such as that of a specific country or of the world ...
**
Atkinson index The Atkinson index (also known as the Atkinson measure or Atkinson inequality measure) is a measure of income inequality developed by British economist Anthony Barnes Atkinson. The measure is useful in determining which end of the distribution cont ...
** Gini coefficient **
Hoover index The Hoover index, also known as the Robin Hood index or the Schutz index, is a measure of income inequality. It is equal to the percentage of the total population's income that would have to be redistributed to make all the incomes equal. i.e. Th ...
** Pareto distribution#Occurrence and applications **
Theil index The Theil index is a statistic primarily used to measure economic inequality and other economic phenomena, though it has also been used to measure racial segregation. The Theil index ''T''T is the same as redundancy in information theory which i ...
*
Legatum Prosperity Index The Legatum Prosperity Index is an annual ranking developed by the Legatum Institute, an independent educational charity founded and part-funded by the private investment firm Legatum. The ranking is based on a variety of factors including wealth, ...
*
List of countries by income equality A ''list'' is any set of items in a row. List or lists may also refer to: People * List (surname) Organizations * List College, an undergraduate division of the Jewish Theological Seminary of America * SC Germania List, German rugby union ...
*
List of countries by inequality-adjusted HDI This is a list of countries by inequality-adjusted Human Development Index (IHDI), as published by the UNDP in its 2022 Human Development Report. According to the 2016 Report, "The IHDI can be interpreted as the level of human development when in ...
*
Median income per household member The median income per member of household is a measure used by statisticians and the US Census Bureau to determine the median income that exists in a household for each of its members. In order to obtain this number the median household income is di ...
*
Middle-class squeeze The middle-class squeeze refers to negative trends in the standard of living and other conditions of the middle class of the population. Increases in wages fail to keep up with inflation for middle-income earners, leading to a relative decline ...
*
Occupy Movement The Occupy movement was an international populist Social movement, socio-political movement that expressed opposition to Social equality, social and economic inequality and to the perceived lack of "real democracy" around the world. It aimed prim ...
*
Racial inequality in the United States Racial inequality in the United States identifies the social inequality and advantages and disparities that affect different races within the United States. These can also be seen as a result of historic oppression, inequality of inheritance, or ...
*
Racism in the United States Racism in the United States comprises negative attitudes and views on race or ethnicity which are related to each other, are held by various people and groups in the United States, and have been reflected in discriminatory laws, practices and ...
*
Second Bill of Rights The Second Bill of Rights or Bill of Economic Rights was proposed by United States President Franklin D. Roosevelt during his State of the Union Address on Tuesday, January 11, 1944. In his address, Roosevelt suggested that the nation had come ...
*
Socio-economic mobility in the United States Socioeconomics (also known as social economics) is the social science that studies how economic activity affects and is shaped by social processes. In general it analyzes how modern societies progress, stagnate, or regress because of their loca ...
* '' The Divide: American Injustice in the Age of the Wealth Gap'' – book * '' The Spirit Level: Why More Equal Societies Almost Always Do Better'' – book *
Social justice Social justice is justice in terms of the distribution of wealth, opportunities, and privileges within a society. In Western and Asian cultures, the concept of social justice has often referred to the process of ensuring that individuals fu ...
*
Tax policy and economic inequality in the United States Tax policy and economic inequality in the United States discusses how tax policy affects the distribution of income and wealth in the United States. Income inequality can be measured before- and after-tax; this article focuses on the after-tax as ...


References


Further reading

* Atkinson, Anthony B. (2015).
Inequality: What Can Be Done?
' Harvard University Press. * * Larry M. Bartels Princeton: Princeton University Press. 2008. 328 pp. * Greg J. Duncan, Richard J. Murnan
Restoring Opportunity: The Crisis of Inequality and the Challenge for American Education
Harvard Education Press, 2013 * * Galbraith, J. K., & Hale, J. (2008)
State Income Inequality and Presidential Election Turnout and Outcomes
Social Science Quarterly (Wiley-Blackwell), 89(4), 887–901. * * * Gilman, M. (2014)
A Court For the One Percent: How the Supreme Court Contributes to Economic Inequality
Utah Law Review, 2014(3), 389–463. * * Willford I. King , 1915 – at the time most comprehensive study to date * Peter H. Lindert &
Jeffrey G. Williamson Jeffrey Gale Williamson (born 1935) is the ''Laird Bell'' Professor of Economics (Emeritus), Harvard University; an Honorary Fellow in the Department of Economics at the University of Wisconsin (Madison); Research Associate at the National Bureau ...
(2016).
Unequal Gains: American Growth and Inequality since 1700
''
Princeton University Press Princeton University Press is an independent publisher with close connections to Princeton University. Its mission is to disseminate scholarship within academia and society at large. The press was founded by Whitney Darrow, with the financial su ...
. * * * * Taylor, Lance; Rezai, Armon; Kumar, Rishabh; and Barbosa, Nelson (2014)
Wage Increases, Transfers, and the Socially Determined Income Distribution in the USA
''
Institute for New Economic Thinking The Institute for New Economic Thinking (INET) is a New York City–based nonprofit think tank. It was founded in October 2009 as a result of the 2007–2012 global financial crisis, and runs a variety of affiliated programs at major universi ...
(INET), Working Group on the Political Economy of Distribution, Working Paper No. 3.''  
Summarized
in an interview with lead author Lance Taylor (February 2015). "A simulation model is used to illustrate how "reasonable" modifications to tax/transfer programs and increasing low wages cannot offset the historical redistribution toward the well-to-do." * Taylor, L., Rezai, A., Kumar, R., Barbosa, N. and Carvalho, L., 2017. Wage increases, transfers, and the socially determined income distribution in the USA. Review of Keynesian Economics, 5(2), pp. 259–275. *


External links


A Giant Statistical Round-up of the Income Inequality Crisis in 16 Charts
from ''
The Atlantic ''The Atlantic'' is an American magazine and multi-platform publisher. It features articles in the fields of politics, foreign affairs, business and the economy, culture and the arts, technology, and science. It was founded in 1857 in Boston, ...
''
Slate-Timothy Noah-The Great Divergence-Book Excerpts

Emmanuel Saez-Income and Wealth Inequality Presentation-October 2014


(What percentage of what occupations are in the top 1% income bracket) ''New York Times'' January 15, 2012

(Enter your household income and see how you rank) ''New York Times'' January 14, 2012
Islands of High Income


TED, Oct 2011.
Income Inequality in the United States: Hearing Before the Joint Economic Committee, Congress of the United States, One Hundred Thirteenth Congress, Second Session, January 16, 2014


(
AP News The Associated Press (AP) is an American non-profit news agency headquartered in New York City. Founded in 1846, it operates as a cooperative, unincorporated association. It produces news reports that are distributed to its members, U.S. newsp ...
– January 27, 2014).
U.S. Census Bureau - Income, Poverty and Health Insurance Coverage in the United States: 2013

Bloomberg-Quick Take-Income Inequality-Retrieved December 2014


'' Al Jazeera America.'' January 13, 2015 * Wolfers, Justin (March 2015)
All You Need to Know About Income Inequality, in One Comparison
''The New York Times''
Economic Inequality: It's Far Worse Than You Think. The great divide between our beliefs, our ideals, and reality
(April 2015), ''
Scientific American ''Scientific American'', informally abbreviated ''SciAm'' or sometimes ''SA'', is an American popular science magazine. Many famous scientists, including Albert Einstein and Nikola Tesla, have contributed articles to it. In print since 1845, it i ...
''
'Scandinavian Dream' is true fix for America's income inequality
Joseph Stiglitz for ''CNN Money'', June 3, 2015.
Hershey: U.S. Income Inequality Is Transforming The Chocolate Business
''Reuters'' via ''The Huffington Post'', October 28, 2015.

''Stanford News.'' February 2, 2016.
Massive new data set suggests economic inequality is about to get even worse
''The Washington Post''. January 4, 2018. * (with historical charts) {{North America in topic, Income inequality in Income in the United States
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territo ...
Economic inequality in the United States