The State of Inequality

The facts regarding the increasingly unequal distribution of income have been widely publicized, but they have not lost their ability to shock. Or to bring out deniers. Fortunately, the bipartisan Congressional Budget Office (CBO), has issued a major study, “Trends in the Distribution of Household Income Between 1979 and 2007,” October 2011, which makes the raw data indisputable.

The data compiled by the Congressional Budget Office are striking. Between 1979 and 2007, the incomes of the top 1 percent increased by 275 percent, for the rest of the top 20 percent they increased by 65 percent, for the middle 60 percent the increase was 40 percent and for the bottom 20 percent only 18 percent. The result of these three “rich get (much) richer” decades is that the share of income received by the top 1 percent of the population more than doubled from 8 percent to 17 percent, while the share of income received by the bottom 20 percent actually declined from 7 to 5 percent. The incomes received by the top 1 percent in 2007 were more than three times the total incomes of the bottom fifth of the population. And the income of the top 20 percent exceeded that of the remaining 80 percent of the population.

The data can be presented in various ways. In Chart one, average household income is shown for the top 1 percent of the U.S. population, and for each fifth ranked from the highest income to the lowest, for the period 1979-2007. 

Chart 1.

 

(click on chart for larger version)

What is striking is that the lion’s share of the increases in income has been garnered by the top 1 percent. Taking the top 20 percent as a whole, the chart shows significant gains, but for the remaining 80 percent of the population the gains have been very small.

Chart Two shows how this growth of incomes at the top of the income distribution has changed the shares of each group in the total. The top 1 percent have dramatically increased their share of total income, and the top 20 percent as a whole have also succeeded in achieving a modest increase, but all the remaining fifths, constituting 80 percent of the population, have suffered diminishing shares.

 Chart 2.

 

(click on chart for larger version)

 

Judging by all the talk of hardship and the need to tighten belts, you would think that the cause of this decline in income shares of the vast majority of Americans must be related to the impoverishment of the country as a whole, but this is not the case. Chart Three shows that the value added per worker has continued to rise steadily in each decade, especially since 1980. What has lagged is not productivity but pay. Workers are producing more but not earning more. Since the mid-1970s, average pay per worker has basically gone nowhere, i.e., it has kept up with inflation but no more than that.

Chart 3.

(click on chart for larger version)

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