10 Fundamental Facts of American Inequality

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  1. AMERICA ONCE HAD TIGHTER INCOME EQUALITY. The U.S. Census Bureau’s Current Population Survey (CPS) data trace a J-shaped evolution of post–World War II inequality. In 1947, the top quintile of families received $8.60 for every dollar of income received by the bottom quintile. This ratio fell gradually through the 1950s and 1960s until 1969, when it reached $7.25 to $1.00—the low point of inequality. Beginning in the late 1970s, the ratio began to rise again until, by 2002, it had increased to $11.36 to $1.00, significantly greater than in 1947. Household data tell a similar story. [http://www.econlib.org/library/Enc/DistributionofIncome.html#lfHendersonCEE2-042_table_018]

    This image illustrates by the Gini index the last century of inequality trends, showing the sharp increase since 1979. The Gini index is an indicator of social inequality, with a higher coefficient corresponding to greater income stratification.

  2. RECENT ECONOMIC BENEFITS FAVOR ALREADY-RICH. By one estimate, 95% of the benefits of economic growth between 1967 and 1996 went to the richest 5%. In the past few decades we have seen a huge increase in inequality in America. According to the Economic Policy Institute, a Washington think-tank, between 1979 and 2000 the real income of households in the lowest fifth (the bottom 20% of earners) grew by 6.4%, while that of households in the top fifth grew by 70%. The family income of the top 1% grew by 184%—and that of the top 0.1% or 0.01% grew even faster. [http://www.osjspm.org/101_income_facts.aspx#6]
  3. INEQUALITY DATA EXCLUDE SUPER-ELITE. The most frequently cited income inequality statistics come from the U.S. Census Bureau’s Current Population Survey (CPS), the monthly household survey best known as the source of the official unemployment rate.  Since 1948, the March edition of the CPS has collected household income information for the previous year, as well as the personal characteristics of household members—their age, education, occupation, and industry (if they work), and other data that help give insight into changing income patterns.  The CPS uses a restricted income definition: pretax money receipts excluding capital gains. This definition is further restricted by a “cap,” currently $999,999, imposed on reported annual earnings for reasons of confidentiality.  [http://www.econlib.org/library/Enc/DistributionofIncome.html#lfHendersonCEE2-042_table_018]
  4. This representation of income distribution resembles a wine glass, and provides an ironic metaphor for the way luxuries are accorded in today’s globalized industrial society: the lower quartiles form the glass stem that supports the nectar to be drunk only as one nears the top class.

    TRADITIONAL STATISTICS SKEW INCOME SPREAD. A second source of inequality statistics is the U.S. Treasury’s Statistics of Income (SOI), which summarizes income reported on federal income tax returns.  Inequality estimates based on SOI data expand the income picture.  At the outset, SOI data do not “cap” high incomes, so household income inequality as reported in the SOI is significantly larger.  Using “capped” statistics, the CPS reports that the top 20% of households receives 49 percent of all pretax money income. The SOI estimates, more accurately, that the top 10% of households, with average annual income of about $200,000, receives 42 percent of total pretax money income. The top 1 percent of households with average annual incomes of about $800,000 receives 15 percent of all pretax income. [ibid]

  5. A RACIAL INCOME HIERARCHY EXISTS. African-Americans earn the lowest average annual income of all the statistic racial divisions.  The ratio of black-to-white family incomes was about 64% in 2001. Households with householders who reported Asian as his or her only race category had the highest median income under all definitions of income.  In between, ascending, include: Hispanics, the national average, and Caucasians. [http://www.census.gov/prod/2003pubs/p60-221.pdf
  6. CHANGING DEMOGRAPHICS AFFECT INCOME. Family structure. Over time, the two-parent, one-earner family was increasingly replaced by low-income single-parent families and higher-income two-parent, two-earner families. A part of the top quintile’s increased share of income reflects the fact that the average family or household in the top quintile contains almost three times as many workers as the average family or household in the bottom quintile. Expanded markets. With improved communications and transportation, people increasingly functioned in national, rather than local, markets. In these broader markets, persons with unique talents could command particularly high salaries. Immigration. In 2002, immigrants who had entered the country since 1980 constituted nearly 11 percent of the labor force (see immigration). A relatively high proportion of these immigrants had low levels of education and increased the number of workers competing for low-paid work.[http://www.econlib.org/library/Enc/DistributionofIncome.html#lfHendersonCEE2-042_table_018]

    As population demographics change, Americans continue to deficit spend, and inflation debases the remaining middle-class assets, many Americans feel vaguely conned, and confused about their financial futures in the wake of the 2008 stock market collapse, such as this cartoon illustrates.

  7. EMPLOYMENT DOES NOT ASSURE A RESIDENCE. Up to 40% of the homeless are employed and working.  There are many reasons for homelessness.  Changing society, changes at the work place and health related issues are contributors, as well as disability, domestic violence and natural disasters. At least 3.5 million people experience homelessness at some point each year, including 1.35 million children. Based on estimates of the depth likely to be reached by the current recession, 1.5 million additional Americans are likely to experience homelessness over the next two years, over and above the number who usually become homeless. [http://www.endhomelessness.org/content/general/detail/2161]

    This chart shows the varying intensity with which American homeowners have been struck by bank foreclosures on their property. The housing bubble of the 2000s deceived many people about the value of their assets and encouraged heightened levels of risky lending, such as subprime mortgages.

  8. RISING HOME PRICES HURT MIDDLE CLASS. According to the Department of Housing and Urban Development (HUD), “affordable housing” should cost less than 30% of a family’s income.  Yet many middle class families have to pay much more of their disposable income for housing.  From the end of 1994 to the end of 2004, housing prices rose 46 percent faster than overall inflation. In the period of a weak labor market, from March 2001 through the end of 2004, housing prices outpaced overall inflation by 25 percent. According to Harvard Law School Professor Elizabeth Warren, families face more hardship now than they did a few decades ago.  Warren says “more and more families today are sending both parents into the workforce – it has become the norm, it is what we now expect. The overwhelming majority of us do it because we think it will make our families more secure. But that’s not how things have worked out. By the end of this decade, one in seven families with children will go bankrupt. Having a child is now the single best predictor of bankruptcy, and this holds true even for families with two incomes.” [Who Will Pay the US National Debt By Abbas Bakhtiar Al-Jazeerah, September 27, 2006 http://www.aljazeerah.info/Opinion%20editorials/2006%20Opinion%20Editorials/September/27%20o/Who%20Will%20Pay%20the%20US%20National%20Debt%20By%20Abbas%20Bakhtiar.htm]

  9. INFLATION HURTS MOST WAGE-EARNERS. For the sake of simplicity, we can assume that the economy is inhabited by two types of workers: “outsiders,” who accept nominal wage contracts; and “insiders,” who accept inflation-adjusted wage contracts. Great costs affect outsiders: inflation reduces the value of all nominal assets they hold.  Irrespective of time spent by the worker, the losses stemming from negative real returns can be avoided only if inflation is fully anticipated and if the holding of currency can drop to zero.  The latter is clearly an unsustainable assumption in a cash-in-advance economy. [Income Inequality: Does Inflation Matter? ALESˇ BULÍRˇ http://www.perjacobsson.org/External/Pubs/FT/staffp/2001/01a/pdf/bulir.pdf%5D
  10. INCOME INEQUALITY RESEMBLES PRE-DEPRESSION ERA. Income inequality grew significantly in 2005, with the top 1 percent of Americans — those with incomes that year of more than $348,000 — receiving their largest share of national income since 1928, analysis of newly released tax data shows. The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980. The top tenth of a percent reported an average income of $5.6 million, up $908,000, while the top one-hundredth of a percent had an average income of $25.7 million, up nearly $4.4 million in one year. [Income Gap Is Widening, Data Shows By DAVID CAY JOHNSTON http://www.americastoppriority.com/newsroom_details.asp?id=877]
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