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. Income 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.
Income disparities have become so pronounced that America’s top 10 percent now average more than nine times as much income as the bottom 90 percent. Americans in the top 1 percent tower stunningly higher. They average over 40 times more income than the bottom 90 percent. But that gap pales in comparison to the divide between the nation’s top 0.1 percent and everyone else. Americans at this lofty level are taking in over 198 times the income of the bottom 90 percent.
The top 1 percent of America’s income earners have more than doubled their share of the nation’s income since the middle of the 20th century. American top 1 percent incomes peaked in the late 1920s, right before the onset of the Great Depression.
Inequality in America is growing, even at the top. The nation’s highest 0.01 percent of income-earners have, over recent decades, seen their incomes rise much faster than the rest of the top 1 percent. Incomes in this top 0.01 percent increased 7.5 times between 1973 and 2007, from 0.8 percent to an all-time high of 6 percent. The Great Recession in 2008 did dampen this top 0.01 percent share, but only momentarily. The upward surge of the top 0.01 percent has resumed.
The 1990s saw the annual incomes of the ultra rich explode in size. Between 1992 and 2002, the 400 highest incomes reported to the Internal Revenue Service more than doubled, even after the collapse of the dot.com bubble in 2000. In the early 21st century, the economic boom driven by the real estate bubble would more than triple top 400 average incomes before the 2008 economic collapse.
The Congressional Budget Office defines before-tax income as “market income plus government transfers,” or, quite simply, how much income a person makes counting government social assistance. Analysts have a number of ways to define income. But they all tell the same story: The top 1 percent of U.S. earners take home a disproportionate amount of income compared to even the nation’s highest fifth of earners.
Since 1979, the before-tax incomes of the top 1 percent of America’s households have increased more than four times faster than bottom 20 percent incomes.
The Congressional Budget Office defines after-tax income as “before-tax income minus federal taxes.” After taxes, top 1 percent incomes are increasing even faster than before taxes. Before-tax income growth for the top 1 percent has averaged 186.8 percent since 1979. The after-tax increase: 192.2 percent. A progressive tax system should function to narrow income gaps between the affluent and everyone else. Over recent decades, America’s tax system has done no narrowing.
CEO Pay and Benefits
In the United States today, unions have a much smaller economic presence than they did decades ago. With unions playing a smaller economic role, the gap between worker and CEO pay was eight times larger in 2016 than in 1980.
The CEO-worker retirement benefit gap is even larger than the wage gap. As of the end of 2015, just 100 CEOs had company retirement funds worth $4.7 billion — a sum equal to the entire retirement savings of the 41 percent of U.S. families with the smallest nest eggs. Workers lucky enough to have a 401(k) plan through their employer had a median balance of just $18,433.
Wages in the United States, after taking inflation into account, have been stagnating for more than three decades. Typical American workers and the nation’s lowest-wage workers have seen little or no growth in their real weekly wages.
Between 1979 and 2007, paycheck income of the top 1 percent of U.S. earners exploded by over 256 percent. Meanwhile, the bottom 90 percent of earners have seen little change in their average income, with just a 21 percent increase from 1979 to 2015.
Productivity has increased at a relatively consistent rate since 1948. But the wages of American workers have not, since the 1970s, kept up with this rising productivity. Worker hourly compensation has flat-lined since the mid-1970s, increasing just 19.1 percent from 1979 to 2013, while worker productivity has increased 132.9 percent over the same time period.
One factor in the widening income divide is the decline of U.S. labor unions. As the share of the workforce represented by a union has declined to just 11 percent since their peak in the 1940s and 1950s, those at the top of the income scale have increased their power to rig economic rules in their favor, further increasing income inequality.
American women are now almost as likely to work outside the home as men, but the glass ceiling is far from being shattered. Women still make up only 27 percent of the top 10 percent of labor income earners, and their share of higher income groups is even smaller. Among the top 1 percent, women make up slightly less than 17 percent of workers, while at the top 0.1 percent level, they make up only 11 percent.
Wall Street banks doled out $24 billion in bonuses to their 177,000 New York-based employees in 2016, which amounts to 1.6 times the combined earnings of all 1,075,000 Americans who work full-time at the current federal minimum wage of $7.25 per hour.
The 2016 Wall Street bonus pool was large enough to have lifted all 3.2 million U.S. fast food workers, or all home care aides, or all restaurant servers and bartenders up to $15 per hour. Increasing the incomes of low-wage workers produces stronger beneficial economic ripple effects than boosting bonuses for the rich, since the poor tend to have to spend nearly every dollar they make while the wealthy can afford to squirrel away more of their earnings.