Sunday, September 12, 2010

More on US income inequality

Several fascinating graphics in Slate illustrating the Great Divergence of widening income inequality in the US. The economic history of the US over the past seventy years is the "Great Convergence" (1940-73, coined by Claudia Goldin of Harvard and Robert Margo of Boston University) of incomes of the first forty years, followed by the "Great Divergence" (1979 onwards, coined by Paul Krugman) of the past thirty years.

In 1979 the top quintile's income share was eight times that of the bottom quintile, while it rose to 14 times by 2007. The top quintiles share increased only slightly relative to the middle quintile, rising from three times in 1979 to four times by 2007. These trends reflect in large part a growing "college premium." Since 1979 the income gap between people with college or graduate degrees and people without them has grown. The moderately skilled middle class is hollowing out.

Among all developed economies with income inequility problems, the US easily tops the list in being the most unequal economy. This chart shows select nations where the income share of the top 1 percent was highest in 2005.

Update 1 (19/10/2010)

Chad Stone writes, "the average middle-income American family had $13,000 less after-tax income in 2007, and an average household in the top 1 percent had $782,600 more, than they would have had if incomes of all groups had grown at the same average rate since 1979".

Update 2 (7/11/2010)

Nicholas Kristof says that inequality in the US has reached a "banana republic point where our inequality has become both economically unhealthy and morally repugnant". The richest 1% of Americans now take home almost 24% of income, up from almost 9% in 1976. The CEO’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. From 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1%.

A recent paper by Robert H. Frank of Cornell University, Adam Seth Levine of Vanderbilt University, and Oege Dijk of the European University Institute found that inequality leads to more financial distress. They looked at census data for the 50 states and the 100 most populous counties in America, and found that places where inequality increased the most also endured the greatest surges in bankruptcies.

Update 3 (30/3/2011)

Economix writes that the top 1 percent of earners receive about a fifth of all American income; on the other hand, the top 1 percent of Americans by net worth hold about a third of American wealth.

Update 4 (16/4//2011)

Series of graphics from CBPP on income inequality in the US and the role of taxation system.

Update 5 (7/6/2011)

The chart below shows how far things have moved off their traditional ratios in terms of US incomes. The top 1% are earning more income, and keeping more of it, than anytime since the roaring 1920s.

1 comment:

sai prasad said...

Income inequalities shall persist and this differential is probably the motivation for people to work harder and innovate.

Like has been discussed in all economic debates, the challenege lies in raising the bottom and providing the basics. Of course, every society decides as to what is basic for itself, at a given point of time.