Inequality.org

connecting the dots on a growing divide

Income Inequality

Download Chart PackIncome inequality refers to the extent to which income is distributed in an uneven manner among a population. In the United States, income inequality, or the gap between the rich and everyone else, has been growing markedly, by every major statistical measure, for some 30 years.

Household and Family Income

Income includes the revenue streams from wages, salaries, interest on a savings account, dividends from shares of stock, rent, and profits from selling something for more than you paid for it.

The median U.S. household income in 2009 totaled $49,777, according to Census data. Half of American households had income greater than this figure, half less. The current recession has hit incomes hard across the board. Median household income declined 4.2 percent between 2007 and 2009. Adjusting for inflation, incomes are at their lowest point since 1997.

Real Median Household Income 1967-2009

Source: U.S. Census Bureau, Current Population Survey, Historical Income Tables, Table H-5.

 

Between the end of World War II and the late 1970s, incomes in the United States were becoming more equal. In other words, incomes at the bottom were rising faster than those at the top. Since the late 1970s, this trend has reversed.

Data from tax returns show that the top 1 percent of households received 8.9 percent of all pre-tax income in 1976. In 2008, the top 1 percent share had more than doubled to 21.0 percent.

Top Percent Share Of Total Pre-tax Income 1913-2008

Source: Thomas Piketty and Emmanuel Saez, "Income Inequality in the United States, 1913-1998," Quarterly Journal of Economics, 118(1), 2003. Updated to 2008 at http://emlab.berkeley.edu/users/saez.

 

This level of income inequality, research shows, endangers our society, on a variety of fronts.

In 2007, the top 1 percent share of national income peaked at 23.5 percent. The only other year since 1913 that the wealthy had claimed such a large share of national income: 1928, when the top 1 percent share was 23.9 percent. The following year, the stock market crashed, and the Great Depression began. After peaking again in 2007, the U.S. stock market crashed in 2008, leading to what some are now calling the “Great Recession.”

 

Average After Tax Income by Income Group 1979-2007

Source: Congressional Budget Office, Average Federal Taxes by Income Group, “Average After-Tax Household Income,” June, 2010.

 

Increase in After-Tax Income by Income Group 1979-2007

Source: Congressional Budget Office, Average Federal Taxes by Income Group, “Average After-Tax Household Income,” June, 2010.

 

Between 1979 and 2009, the top 5 percent of American families saw their real incomes increase 72.7 percent, according to Census data. Over the same period, the lowest-income fifth saw a decrease in real income of 7.4 percent. This contrasts sharply with the 1947-79 period, when all income groups saw similar income gains, with the lowest income group actually seeing the largest gains:

 

Change in Real Family Income by Quintile and Top 5% 1979-2009

Source: U.S. Census Bureau, Historical Income Tables: Families, Table F-3 (for income changes) and Table F-1 (for income ranges in 2009 dollars).

 

Change in Real Family Income by Quintile and Top 5% 1947-1979

Source: Analysis of U.S. Census Bureau data in Economic Policy Institute, The State of Working America 1994-95 (M.E. Sharpe: 1994) p. 37.

 

CEO Pay

After adjusting for inflation, CEO pay in 2009 more than doubled the CEO pay average for the decade of the 1990s, more than quadrupled the CEO pay average for the 1980s, and ran approximately eight times the CEO average for all the decades of the mid-20th century. (Institute for Policy Studies, Executive Excess 2010)

In 2009, CEOs of major U.S. corporations averaged 263 times the average compensation of American workers. (Institute for Policy Studies, Executive Excess 2010)

CEOs who cut jobs the most cashed in the greatest. In 2009, the CEOs who slashed their payrolls the deepest took home 42 percent more compensation than the year’s chief executive pay average for S&P 500 companies. (Institute for Policy Studies, Executive Excess 2010)

Average CEO Pay 2009

Source: Institute for Policy Studies, Executive Excess 2010, p. 5.

 

Wages

After rising steadily during the three decades following World War II, wages have stagnated since the early 1970s. Between 1947 and 1972, the average hourly wage, adjusted for inflation, rose 76 percent. Since 1972, by contrast, the average hourly wage has risen only 4 percent.

 

Average Hourly Wages 1947-2009

Source: Economic Policy Institute, “Wages and Compensation Stagnating,” 2011, based on Bureau of Labor Statistics data. Figures are for production and non-supervisory workers.