22.1 Income inequality and wealth distribution

Income inequality in America has widened dramatically since the 1980s. The top 1% now owns 40% of wealth, while the bottom 50% owns less than 1%. This gap rivals the Gilded Age of the late 1800s.

Factors driving this trend include skill-biased tech progress, automation, offshoring, and declining union membership. The consequences include reduced social mobility, slower economic growth, and eroded social cohesion.

Income Inequality and Wealth Distribution Trends

Trends in income inequality

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Top images from around the web for Trends in income inequality

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  Incomes across the Distribution - Our World in Data View original

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  Gini coefficient - Wikipedia View original

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  Income inequality in the United States - Wikipedia View original

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  Gini coefficient - Wikipedia View original

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• Income inequality widened Gini coefficient rose from 0.4 to 0.5 since 1980s (measure of income distribution)
• Top 1% income share grew from 10% to over 20% of total income since 1980 (CEO pay skyrocketed)
• Middle-class incomes stagnated median household income barely changed adjusted for inflation (1970s-2010s)
• Wealth concentrated at top 1% owns 40% of wealth up from 25% in 1980s (stock market gains)
• Bottom 50% wealth share declined from 5% to less than 1% since 1980s (housing crisis impact)
• Current inequality levels rival Gilded Age late 1800s era of robber barons (Rockefeller, Carnegie)
• Urban-rural divide grew urban incomes 33% higher than rural on average (job opportunities)
• Coastal vs. inland states gap widened CA, NY vs. Midwest (tech hubs, finance centers)

Factors behind wealth gaps

• Skill-biased tech progress favored high-skilled workers (computer programmers)
• Automation displaced routine tasks reduced middle-skill jobs (assembly line workers)
• Offshoring manufacturing jobs moved to lower-wage countries (textiles to Bangladesh)
• International trade impacted some domestic industries (steel imports)
• Higher education returns increased college wage premium grew (STEM degrees)
• Educational access disparities perpetuated inequality (underfunded schools)
• Union membership declined from 20% to 10% of workers since 1980s (right-to-work laws)
• Economy shifted from manufacturing to service sector (factory closures)
• Top marginal tax rates reduced from 70% to 37% since 1980 (Reagan tax cuts)
• Capital gains taxed at lower rates than labor income (15-20% vs. up to 37%)
• Financial sector grew from 3% to 8% of GDP since 1950 (Wall Street expansion)
• Executive compensation practices changed stock options, performance bonuses (CEO pay ratios)

Consequences of economic disparity

• Reduced aggregate demand as middle class spending power weakened (retail closures)
• Slower economic growth due to decreased consumer spending (GDP impacts)
• Decreased social mobility "American Dream" harder to achieve (intergenerational poverty)
• Social cohesion eroded trust in institutions declined (political polarization)
• Health disparities widened life expectancy gap grew between rich and poor (access to care)
• Inequality perpetuated across generations wealth transfers (inheritance, education)
• Unequal access to opportunities job networks, internships (social capital)
• Luxury goods market expanded high-end retail grew (luxury car sales)
• Debt-driven consumption increased among lower income groups (credit card debt)
• Venture capital concentrated in few hands (Silicon Valley)
• Barriers to entry rose for new businesses (market dominance of large firms)

Policies for wealth redistribution

• Progressive income tax structures higher rates on top earners (Eisenhower-era 90% top rate)
• Wealth taxes on net worth above certain threshold (Warren proposal)
• Estate tax adjustments close loopholes, lower exemption (dynasty trusts)
• Universal pre-K programs expand early childhood education (Head Start)
• Student debt relief forgiveness programs, income-based repayment (Public Service Loan Forgiveness)
• Vocational training initiatives apprenticeships, community college partnerships (Germany's dual education system)
• Minimum wage increases federal increase to $15/hour (Fight for$15 movement)
• Strengthen collective bargaining rights easier union formation (card check)
• Portable benefits for gig economy workers health insurance, retirement savings (freelancers)
• Universal basic income proposals regular cash payments to all citizens (Alaska Permanent Fund)
• Expanded healthcare access Medicare for All, public option (Affordable Care Act)
• Affordable housing initiatives inclusionary zoning, rent control (Singapore public housing)
• CEO-to-worker pay ratio disclosures public reporting requirements (Dodd-Frank Act)
• Employee ownership programs profit-sharing, stock options (Publix Supermarkets)
• Break up monopolies antitrust enforcement (AT&T breakup)
• Promote market competition prevent mergers, support startups (EU tech regulations)
• Limit speculative trading Volcker Rule, financial transaction tax (Tobin tax)
• Consumer financial protection strengthen regulations (CFPB creation)