Income inequality in the United States

Some reasons for this include the ease that the average American had in buying frontier land, which was abundant at the time, and an overall scarcity of labor in non-slaveholding areas, which forced landowners to pay higher wages.

The income change was the product of relatively high wages for trade union workers, lack of foreign manufacturing competition and political support for redistributive government policies.

[33] 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.

[48][49] 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.

What we've achieved is a state too constrained to provide the public goods – investments in infrastructure, technology, and education – that would make for a vibrant economy and too weak to engage in the redistribution that is needed to create a fair society.

If Main Street is unemployed and undercompensated, capital can only travel so far down Prosperity Road.... Investors/policymakers of the world wake up – you're killing the proletariat goose that lays your golden eggs.

[110][failed verification][111] 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.

[115] In response to the Occupy movement, 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."

The report concludes that the American economy's radical inequality is hindering economic growth, as the benefits are mainly enjoyed by those at the top, while the majority, responsible for the bulk of consumer spending which constitutes 67% of GDP, are left behind.

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.

[102][123] Income inequality is claimed to lower aggregate demand, leading to large segments of formerly middle class consumers unable to afford as many goods and services.

[3][124] Noah summarized this as "you can't really experience ever-growing income inequality without experiencing a decline in Horatio Alger-style upward mobility because (to use a frequently-employed metaphor) it's harder to climb a ladder when the rungs are farther apart.

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.

Political scientists Jacob S. Hacker and Paul Pierson quoted a warning by Greek-Roman historian Plutarch: "An imbalance between rich and poor is the oldest and most fatal ailment of all republics.

[4][150] 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.

[167] Stiglitz later argued that inequality may explain political questions – such as why America's infrastructure (and other public investments) are deteriorating,[60]: 92  or the country's recent relative lack of reluctance to engage in military conflicts such as the 2003 Iraq war.

[169] Piketty attributed the victory of Donald Trump 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.

Using statistics from 23 developed countries and the 50 states of the US, British researchers Richard G. Wilkinson and Kate Pickett found a correlation that remains after accounting for ethnicity,[172] national culture[173] and occupational classes or education levels.

[178] A 2015 study by Angus Deaton and Anne Case 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.

Some researchers assert that income inequality, a shrinking middle class, the weakening labor union influence and stagnant wages have been significant factors in this development.

As such, other rich countries, while facing their own challenges associated with globalization and technological change, did not experience a "long-term stagnation of wages, nor an epidemic of deaths of despair.

[184] Krugman argues that the long-term funding problems of Social Security and Medicare can be blamed in part on the growth in inequality as well as changes such as longer life expectancy.

[186] Classical liberal economists such as Friedrich Hayek 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".

[189] 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".

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.

[222] Lane Kenworthy advocates incremental reforms in the direction of the Nordic social democratic model, claiming that this would increase economic security and opportunity.

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.

Research from the American Academy of Arts and Sciences highlights how communities with greater cross-class interaction tend to exhibit higher levels of upward mobility, as these social connections provide access to job opportunities, educational resources, and economic knowledge.

This research suggests that, beyond traditional measures such as income distribution and wealth concentration, disparities in social capital contribute to broader patterns of inequality in the United States.

"[303] Angus Deaton asserts that the prevailing orthodoxy which promotes the idea of unfettered free markets and limited government intervention helped to establish a predatory capitalist system in the US that enriches corporations and the wealthy at the expense of the working class.

Income before (green) and after (pink) taxes and transfer payments for different income groups starting with the lowest quintile
It's not just the top 1% that have disproportionate gains. Ratio for Each Income Percentile to Median Income In the U.S. Since 1970. The plot shows the increase in the relative gains of those above the median versus those below the median with the largest gains for those in the highest percentile.

Finally, in 2023 the steepness of the curve decreased (red line)
US federal minimum wage if it had kept pace with productivity. Also, the real minimum wage.
Top 1% share of US income pre-tax (blue and orange) and after-tax (green) [ 15 ] [ 2 ]
Four charts that describe trends in income inequality in the United States. Top left: the share of pre-tax income earned by the top 1% (orange) versus the bottom 50% (blue). Top right: the share of after-tax income earned by the top 1% (orange) versus the bottom 50% (blue). Bottom left: the share of income earned by the top 5% (green), next 45% (blue), and the bottom 50% (yellow). Bottom right: the mean income of the top 5% (green), next 45% (blue), and bottom 50% (yellow) income groups.
Share of U.S. pre-tax income earned by the top 1% (blue) and top 0.1% (red) of households 1913–2016 [ 8 ]
This CBO chart shows the cumulative increase in real household income by income quintile from 1979 to 2016, for income before taxes & transfers and after-tax income. It shows that even lower income quintiles still had sizable gains in income, although not as great as the top quintile. [ 2 ]
CBO data indicates that real (inflation-adjusted) household income increased significantly after-taxes and transfers from 1979 to 2016 across all income quintiles. However, the top 1% income fell from 2007 to 2016, due to both the Great Recession and tax hikes on upper incomes during the Obama Administration. [ 2 ] [ 36 ]
Share of U.S. income earned by top 1% households in 1979 (blue), 2007 (orange), and 2016 (green) (CBO data). The first date 1979 reflects the more egalitarian pre-1980 period, 2007 was the peak inequality of the post-1980 period, and the 2016 number reflects the Obama tax increases on the top 1% along with residual effects of the Great Recession. [ 2 ]
Average income—which heavily weights extremely high-income families—substantially exceeds median income (families in the fiftieth percentile). [ 45 ] Further, average income outgrew median income from 2019 through 2022. [ 45 ]
Income inequality and union participation have had a distinctly inverse relationship, with the disparity increasing since the 1980s. [ 54 ]
Illustrates the productivity gap (i.e., the annual growth rate in productivity minus annual growth rate in compensation) by industry from 1985 to 2015. Each dot is an industry; dots above the line have a productivity gap (i.e., productivity growth has exceeded compensation growth), those below the line do not.
Social connectedness to people of higher income levels is a strong predictor of upward income mobility. [ 55 ] However, data shows substantial social segregation correlating with economic income groups. [ 55 ]
Real GDP per household has typically increased since the year 2000, while real median income per household was below 1999 levels until 2016, indicating a trend of greater income inequality (i.e., the average is more influenced by high income outliers than the median). The income considered in the two lines is different as well; the GDP figure includes all income (derived from labor and capital) while the median income figure includes only a subset of income (wages/salaries but not benefits). [ 97 ]
Labor's share of GDP declined by 4.5 percentage points from 1970 to 2016, measured based on total compensation. The decline measured for wages and salaries was 7.9 points. These trends imply income due to capital (i.e., asset ownership, such as rent, dividends, and business profits) is increasing as a % of GDP. [ 98 ]
While middle-class family incomes have stagnated as income shifts to the top, the costs of important goods and services continue rising, resulting in a " Middle class squeeze ." [ 99 ]
A 2011 study by Ostry and Berg [ 107 ] of the factors affecting the duration of economic growth in developed and developing countries found that income equality has a more beneficial impact on steady growth than trade openness, sound political institutions, or foreign investment.
The Great Gatsby curve showing intergenerational economic immobility on vertical axis and increasing inequality on the horizontal axis for a number of different countries
Political cartoon from the Progressive Era , when wealth concentration was similar to that of the present, shows how the concentration of wealth in a few hands leads to the extinguishing of individualism , initiative, ambition, untainted success , and independence .
Bartels studied the voting patterns of the US Senate and correlated it with the responsiveness to the opinions of different amounts of Income in the United States . [ 157 ]
This Gini Index map shows regional and county level variation in pre-tax income inequality Gini index. The 2010 Gini index value range from 20.7 for Loving County ( Texas ) to 64.5 to East Carroll Parish ( Louisiana ). [ 196 ]
Income gini coefficient map according to the World Bank (2018). [ 200 ] Higher Income Gini Index for a nation in this map implies more income inequality among its people.
Share of income of the top 1% for selected developed countries, 1975 to 2015
The distributional impact of the Affordable Care Act (ACA or Obamacare) during 2014. The ACA raised taxes mainly on the top 1% to fund approximately $600 in benefits on average for the bottom 40% of families.
Total effective tax rates (includes all taxes: federal+state income tax, sales tax, property tax, etc) for the richest Americans declined by 2018 to a level beneath that of the bottom 50% of earners, [ 226 ] contributing to net income inequality. Analysis by economists Emmanuel Saez and Gabriel Zucman.
Based on CBO Estimates, [ 227 ] under 2013 tax law the top 1% will be paying a higher effective tax rate, while other income groups will remain essentially unchanged. [ 228 ]
CBO chart illustrating the percent reduction in income inequality due to Federal taxes and income transfers from 1979 to 2011 [ 16 ]
Proposed tax plan payment rates by income group as a percentage of income, including mandatory health insurance, of four 2020 United States presidential election candidates
CBO charts describing amount and distribution of top 10 tax expenditures (i.e., exemptions, deductions, and preferential rates)
U.S. family pre-tax income and net worth distribution for 2013 and 2016, from the Federal Reserve Survey of Consumer Finances [ 242 ]
U.S. median family income from 2001 to 2016 (real, measured in 2016 dollars), with comparative statistics, from the Fed Survey of Consumer Finances. The top decile and bottom quintile had real increases in income comparing 2001 and 2016, while the 20th to 80th percentiles has decreases. For all families, the median was $54,100 in 2001 and $52,700 in 2016, a slight decline. Note this differs from real median household income, which hit a record level in 2016. [ 249 ]
Private sector workers earnings compared to GDP
Private sector workers made ~$2 trillion or about 29.6% of all money earned in Q3 2023 (before taxes)
Quarterly GDP not Annualized
Private Sector Workers Total Earnings