Exploring Income Inequality, Part 1: Overview

November 28, 2011 at 5:00 pm

To provide some historical context to the current public discussion of income inequality, we’re releasing a series of posts this week that examine trends in income inequality in recent decades and outline different data sources to examine the issue.

The broad facts of income inequality over the past six decades are easy to summarize:

  • The years from the end of World War II into the 1970s saw substantial economic growth and broadly shared prosperity.
    • Incomes grew rapidly and at roughly the same rate up and down the income ladder, roughly doubling in inflation-adjusted terms between the late 1940s and early 1970s.
    • The income gap between those high up the income ladder and those on the middle and lower rungs — while substantial — did not change much during this period.
  • Beginning in the 1970s, economic growth slowed and the income gap widened.
    • Income growth for households in the middle and lower rungs of the ladder slowed sharply, while incomes at the top continued togrow strongly.
    • The concentration of income at the very top rose to levels last seen more than 80 years ago, during the “Roaring Twenties.”
  • Wealth is much more highly concentrated than income, although the wealth data do not show a dramatic increase in concentration at the very top the way the income data do.

This broad overview reflects data from a variety of sources.  Different data sources tell different parts of the story; no single source is best for all purposes.  CBPP issued a guide today that discusses the strengths and limitations of various data sources in understanding trends in income and inequality.  It also highlights the trends that those key data sources reveal and gives additional information on poverty measurement and the distribution of wealth.

Stay tuned.  The next post in this series will look at income growth in the post-World War II decades and the widening of income disparities starting in the 1970s.

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More About Chad Stone

Chad Stone

Chad Stone is Chief Economist at the Center on Budget and Policy Priorities, where he specializes in the economic analysis of budget and policy issues. You can follow him on Twitter @ChadCBPP.

Full bio | Blog Archive | Research archive at CBPP.org

2 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. 1

    In their paper, “Treating our Ills and Killing our Prospects,” Sylvester Schieber and Steven Nyce document that what most of what the outside world perceives as wage inequality is really the result of rising health premiums. (See: http://www.cahc.net.) Cash wages are only part of the compensation package. When premiums go up, the increase is deducted from annual wage hikes. Since health costs are flat across the income spectrum, rising premiums disproportionately affect the low skilled. For example, Schieber and Nyce note that during 2000-2009, just the employer-funded portion of health premiums grew by 6.9 percent as a share of full time wages for workers in the third earnings decile versus 3.3 percent for workers in the eighth decile. In this way, health costs contribute to a growing wage gap within the middle classes. PPACA may help to address this problem, but only temporarily. The root cause of rising premiums is the fact that productivity in the health sector has fallen by .6 percent per year since 1990 — a problem that PPACA did little to solve. The real fairness issue is the vast income transfers that are taking place between middle class households and excessively compensated, unproductive health sector workers. Daniel Patrick Moynihan once accused a debating partner of using facts like a drunk uses a lamp post: for support rather than illumination. At the very least, CBPP’s appeals to class warfare should focus more carefully on proximate cause and effect.

  2. Kuhio Kane #
    2

    The heart of the matter is, indeed, inequality. Inequality of income, personal wealth, opportunity, education, health care, you name it. The clarity of a vision, mission, toward implementation of policy is the start of a movement to remove the odious and systematic “dependence corruption” (See: Lessig, “Republic Lost”)that blankets all politics, federal, state, and local. Washington doesn’t have absolute power, Wall Street does, and that’s who, in the end, corrupts absolutely.



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