The Fall And Rise Of U.S. Inequality, In 2 Graphs

The Fall And Rise Of U.S. Inequality, In 2 Graphs

FEBRUARY 11, 2015 1:05 PM ET

Since World War II, inequality in the U.S. has gone through two, dramatically different phases.

In the first phase, known as the great compression, inequality fell. Incomes rose for people in the bottom 90 percent of the income distribution, as the postwar boom led to high demand for workers with low and moderate skills.

At the same time, income was basically stagnant for the top 1 percent of earners. A combination of high marginal tax rates (around 80 percent) for the wealthy, and social norms, may have kept a lid on wages at the top, according to the economists who gathered the data we used to make the graphs.

In the last 35 years, the reverse occurred. Top marginal tax rates fell sharply. Incomes rose for those in the top 1 percent, largely driven by rapidly rising pay for top executives.

At the same time, a combination of global competition, automation, and declining union membership, among other factors, led to stagnant wages for most workers.

In theory, it should be possible for incomes to rise for everyone at the same time — for the gains of economic growth to be broadly distributed year after year. But the takeaway from these graphs is that since World War II, that’s never really happened in the U.S.

Note: The data in the graphs comes from the World Top Incomes Database. The data is based on income tax records, which mix people filing as individuals and married couples filing jointly. Reported income is pre-tax and does not include government transfer payments. Also, since there is generally an incentive to underreport income to the government, incomes (particularly at the high end) may be biased downward.

A one-chart summary of changes in United States income distribution from 1913 to 2012

April 21, 2015

from David Ruccio

Bui

Here, in one chart (by Quoctrung Bui), is a summary of changes in the distribution of income from the early-twentieth century (1913) to the present (2012) in the United States. 

The story is, grosso modo, one of declining inequality until the late-1970s (with average incomes of the bottom 90 percent growing much faster than those of the top 1 percent) and growing inequality thereafter (with stagnant incomes of the bottom 90 percent and huge gains at the top).

We can also see that sharp right turn by calculating the 1:90 ratio (the ratio of average incomes of the top 1 percent to the average incomes of the bottom 90 percent, both including capital gains and expressed in 2013 dollars). They are:

1917: 26.8*

1943: 16.6

1973: 12.4

2013: 35.36

As Bui explains,

In theory, it should be possible for incomes to rise for everyone at the same time — for the gains of economic growth to be broadly distributed year after year. But the takeaway from these graphs is that since World War II, that’s never really happened in the U.S.

Bui’s chart is basically a summary of the information contained in these two charts (from theWorld Top-Incomes Database):

chart copy chart

 

This entry was posted in REAL HISTORY UNCOVERED, IMPERIAL HUBRIS AND HYPOCRISY, Neoclassical and Neo-liberal Economics, rise and fall of empires, EPISTEMOLOGY AND SCIENTIFIC METHOD, despotic academia, ideological classrooms, Real World Economics, Imperial Impotence, Academic Left. Bookmark the permalink.

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