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Income Inequality Has Reached Its Highest Level Since 1928

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As the threat of automation looms large over the economy, the middle class continues to shrink, and U.S. poverty persists, concerns over income inequality remain strong. (Image credit: Reagan Library/Public Domain)

Rising income inequality in the United States continues to be a topic of public interest, though opinions differ as to how concerned Americans should be. According to research by Emmanuel Saez, an economics professor at UC-Berkeley, the escalation has been steady from the 1970s onward, and he points to the "working rich" as at least a partial explanation for this trend.

A century ago, Saez notes that the highest earners derived much of their income from earnings on the accumulated wealth of past generations. By contrast, “[t]he evidence suggests that top incomes earners today are…“working rich,” highly paid employees or new entrepreneurs who have not yet accumulated fortunes comparable to those accumulated during the Gilded Age.”

In the few decades following the Great Depression, and particularly World War II, Americans saw a significant shift in income distribution.

In 1928, the top 1% of families received 23.9% of all pretax income, while the bottom 90% received 50.7%. But the Depression and World War II dramatically reshaped the nation’s income distribution: By 1944 the top 1%’s share was down to 11.3%, while the bottom 90% were receiving 67.5%, levels that would remain more or less constant for the next three decades.

This trend changed in the 1970s, kicking off an as-yet-unchanged upward climb in income inequality.

[S]tarting in the mid- to late 1970s, the uppermost tier’s income share began rising dramatically, while that of the bottom 90% started to fall. The top 1% took heavy hits from the dot-com crash and the Great Recession but recovered fairly quickly: Saez’s preliminary estimates for 2012 (which will be updated next month) have that group receiving nearly 22.5% of all pretax income, while the bottom 90%’s share is below 50% for the first time ever (49.6%, to be precise).

As the threat of automation looms large over the economy, the middle class continues to shrink, and U.S. poverty persists, concerns over income inequality remain strong.

The share of the U.S. poor population in severe poverty – defined by the Census Bureau as those with family or individual incomes below half of their poverty threshold – reached its highest point in at least 20 years. The hollowing of the American middle class has proceeded steadily for more than four decades. Since 1971, each decade has ended with a smaller share of adults living in middle-income households than at the beginning of the decade, and no single decade stands out as having triggered or hastened the decline in the middle.

Pew Research documented Americans' opinions on income inequality in 2013 and found unsurprising results:

  • More than half (61%) of Americans said the U.S. economic system favors the wealthy, while just 35% said it’s fair to most people
  • While 54% of low-income people and 49% of middle-income people called the rich-poor gap a “very big” problem, only 36% of high-income people did so.
  • A third of the high-income group said the rich-poor gap was either a small problem (19%) or not a problem at all (14%).

Opinions also differed across party lines:

  • More than half (55%) of Republicans said the economic system is fair to most people, but majorities of Democrats (75%) and independents (63%) said it favors the wealthy.
  • 61% of Democrats and 50% of independents said the gap was a very big problem, versus only 28% of Republicans.
  • Four-in-ten Republicans termed the gap either a small problem (22%) or not a problem at all (18%).

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