Jul 13, 2015
FIVE FACTS ABOUT INCOME INEQUALITY
Of any developed nation in the world, the United States has the second highest level of income inequality. Here is your quick fix to get you prepped for this week’s explainer on income inequality.
1. Income Inequality in the U.S. is the Highest It’s Been in 90 Years.
If you look at the total annual income of every American, and you look at how much of that is given to the top 1%, the 1% has the biggest share of income at any time in American history since 1928 (just before the Great Depression).
Of any developed nation in the world, the United States has the second highest level of income inequality (after accounting for taxes).
2. The Economy Has Been Growing, But Wages Haven’t
The economy has been doing a lot better since getting its ass kicked during the financial crisis in 2007–2008. Unemployment has gone down (5.5%), the economy is growing (GDP is up 11%) and more jobs are being added every month. But one things hasn’t gotten any better: wages. In fact average income for the middle class has been stagnant for the last three decades.
This graph shows that productivity and the economy has continued to grow over the last 60 years. But if you look at the 70's, wages start to plateau.
3. The Rich Are Getting Richer and the Poor Are Getting Poorer
Also during the last 30 years, the wealth gap between America’s wealthiest individuals and everyone has reached its highest level.
In 1978, the average male worker made around $48,000. In 2010, the average male worker made around $34,000.
In 1978, the average person in the 1% was making around $390,000. In 2010, the average person in the 1% was making around $1.1 million (all adjusted for inflation).
The top 400 richest people in America have more wealth than the bottom 150 million Americans put together. That means that 400 people have more wealth than half of the population of the U.S.
4. Income Inequality Matches Up With Financial Crashes
This graph charts the 1%’s share of income (the percentage of all annual income in the U.S. that the 1% owns) over the past 100 years.
You can see that 1928 and 2007 were peak years for how much of the total U.S. income the 1% owned.
What happened the year after 1928? the Great Depression. What happened the year after 2007? The Great Recession.
5. Education is Strongly Linked With Income Inequality
Education, more than anything else, is what lifts people out of poverty and into the middle class. And today, a college degree means a lot more than it used to.
In 1965, the difference in income between someone with a high school degree and a college degree was minimal, around $9,000. Today, that gap is around $17,000.
In 1979 only 7% of those without a college education were living in poverty. In 2013, 22% of individuals without a college degree were living in poverty.
In the three decades after World War II (1947–1977) the economy boomed and we had very low income inequality. During the same time, America made education a national priority, especially higher education.
We passed a law called the GI Bill which paid for college for veterans, funding for public universities was expanded increasing affordable access to college education. In 1940 only 5% of Americans had a college degree. By 1980 that number was 24%.
Let’s check out this graph again really quick:
So in the 70's wages start to flatten out. Well also starting in the 70's our college graduation rates begin to flatten out. That’s a big deal because today, an American worker with a college degree is paid 74% more than one with only a high school degree.
So…
Less education = less income
Less income = less money to spend
Less consumer spending = companies downsize
Companies downsizing = less tax revenue
Less tax revenue = government spending cuts
Government spending cuts = less money for public education
and the vicious cycle starts all over again.
