The Growing Divide: Some Facts about Inequality in America

By

Joe Soss

American University

September, 2002

 

·         Income for most households in the U.S. has gone up over the last two decades, but the increases have not been shared equally. If we divide the U.S. population into five equal groups based on their wealth (called “quintiles”), we find that changes in income from 1977 to 1999 have brought the most benefits to the richest quintile. The income disparity has grown so much over these two decades that four out of five households now take home a slice of the economic pie that is smaller than what they took home in 1977. Consider these data from the Congressional Budget Office (Shapiro and Greenstein 1999).

 

Share of All Income:            1977                        1999                        Change

Poorest Quintile              5.7%                4.2%              ¯ 1.5

Next Poorest Quintile   11.5%                9.7%              ¯ 1.8

Middle Quintile             16.4%              14.7%              ¯ 1.7

Next Richest Quintile    22.8%              21.3%              ¯ 1.5

Richest Quintile             44.2%              50.4%              ­ 6.2

 

·         Because the U.S. tax system has moved in a regressive direction during this period, changes in after-tax income have been even more dramatic. From 1979 to 1997, the percent changes in after-tax household income for the five income quintiles were as follows (moving from the bottom to the top quintile: -1%, +6%, +10%, +21%, +53%. During this period, the percent change in after-tax household income for the top 1 percent of U.S. households was +175%.

 

·         In 1997, the top 1 percent of households owned 39.1% of the nation’s household wealth, an increase of 5.3 points since 1983 (Mishel et al. 1999). To put this in perspective, the top 1 percent of households had more wealth in 1997 than all of the households in the bottom 95 percent combined (Collins et al. 1999).

 

·         From 1983 to 1998, the stock market grew 1,336% (Collins et al. 1999).  Most of this new wealth went to families in the top quintile of the wealth distribution. In 1998, for example, the top 1 percent of households held 42 percent of the value of all stock owned in the United States; the top 5 percent accounted for about two-thirds; the top 10 percent for more than three-quarters; and the top 20 percent for almost 90 percent (Wolff 2001). From 1989 to 1999, the richest 10% of households in the U.S. reaped 85.8% of the growth in the stock market (Mishel et al. 1999).

 

·         In 1977, the richest 1 percent of Americans (2.7 million) had as much annual income to spend as the bottom 49 million Americans. In 1999, the richest 1 percent had as much annual income to spend as the bottom 100 million Americans. The ratio of the poorest to the richest more than doubled (Johnston 1999).

 

·         In 1965, CEOs in the U.S. took home 20 times the pay of the average worker. By 1990, this ratio has risen to 96. By 1995, the ratio had become 160. And in 2000, CEOs took home compensation that was 458 times the pay of the average worker. The level of CEO compensation in 2000 was 1223 times the pay of minimum wage workers (Sklar et al. 2001). Between 1990 and 1998, wages for average workers rose at the rate of inflation or at single-digit rates; pay for CEOs at major U.S. corporations rose 481 percent (Phillips 2002). By the late 1990s, U.S. CEOs were earning, on average, more than twice as much as CEOs in other advanced economies (Mishel et al. 1999).

 

·         Over the past three decades, pay for U.S. workers has been stagnant not only in comparison to CEO compensation, but also in comparison to business profits. From 1968 to 2000, the real value of the minimum wage dropped 35% and the real value of average wages dropped by 2.6%. By contrast corporate profits during this period rose 64.4% and retail profits rose 158.3%. If the minimum wage had kept pace with overall domestic profits during this 32-year span, it would have been $13.02 in 2000. Instead, it was $5.15 (Sklar et al. 2001).

 

·         Inequality in the United States has not only grown over time, it is also relatively large in comparative perspective. In fact, according to data from the Luxembourg Income Study, the United States exhibits the highest level of income inequality in any advanced industrial society (Jesuit and Smeeding 2002).

 

 

Sources

 

Bergmann, Barbara. 1996. Saving Our Children From Poverty. New York: Russell Sage Foundation.

Collins, Chuck, Betsy Leondar-Wright, and Holly Sklar. 1999. Shifting Fortunes: The Perils of the Growing American Wealth Gap. United for a Fair Economy.

Jesuit, David and Timothy Smeeding. 2002. “Poverty and Income Distribution.” Luxembourg Income Study Working Paper No.293.

Johnston, David Cay. 1999. “Gap Between Rich and Poor Found Substantially Wider.” New York Times. September 5: A14.

Mishel, Lawrence, Jared Bernstein, and John Schmitt. 1999. The State of Working America, 1998-99. Washington, DC: Economic Policy Institute.

Phillips, Kevin. 2002. Wealth and Democracy: A Political History of the American Rich. New York, NY: Broadway Books.

Shapiro, Isaac and Robert Greenstein. 1999. The Widening Income Gulf. Washington, DC: Center on Budget and Policy Priorities.

Sklar, Holly, Laryssa Mykata, and Susan Wefald. 2001. Raise the Floor. New York, NY: Ms. Foundation for Women.

Wolff, Edward N.. 2001. “The Rich Get Richer.” The American Prospect. 12(3).