Inequality

Social and Economic Inequality in the U.S.

In recent years income inequality in America has increased. Researchers have observed that the rich have become richer, relative to the middle and lower income classes, since 1980. One way of measuring income inequality is to rank the U.S. population by household income and divide it into five equally sized groups (quintiles). Researchers can then evaluate how much of the total income each quintile receives. The U.S. Census Bureau has found that the highest quintile increased its share of total household income from around 44% in 1980 to just over 50% in 2005.¹ In other words, by 2005 fully half of all household income in America was earned by the richest 20% of the population. Each of the remaining quintiles of the population lost income share over the same period.² This pattern is illustrated in the figure below.

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¹ Members of the top quintile in 2005 had annual incomes of at least $91,705.
²Some of the increase in inequality between 1992 and 1993 is attributable to changes introduced in 1993 in the way the U.S. Census Bureau measures income. Nonetheless, researchers agree that the overall trend during the period from 1980 to 2005 was one of increasing inequality.

Another way to look at changes in income distribution is to examine average income over time for members of each population quintile. The figure below illustrates that the average household income of the richest one fifth of Americans grew 19% between 1980 and 1992 while the income of the lowest quintile grew by only 2% over the same period. Between 1993 and 2005, the income of the richest group grew by 18% and average income for those in the fourth quintile – what some consider the upper middle class – grew by about 13%. In contrast, average income for those in the bottom quintile grew by 9% over the same period – the slowest growth rate of any group.

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While there is little question that income inequality has increased, there is less agreement regarding the principal causes. The decline of the manufacturing sector that has historically provided high wages for less educated workers coupled with expansion of the low wage, low skill service sector is one factor often cited (link to labor markets section). Other factors that may have increased income inequality include the large influx of low skill immigrants, increased reliance on low wage, part time and temporary jobs, a decline in union membership, a decrease in the real value of the minimum wage, and an increase in single parent families (link to family section) (U.S. Census Bureau, 1996, “A Brief Look at Postwar U.S. Income Inequality”).

What Value Education?

Stagnant wages in low skill occupations since 1980 means that having a high school diploma does not promise future prosperity. Among people old enough to have completed their education (at least 25 years of age) in 2005, nearly one quarter (23.8%) of those who did not finish high school were poor. The corresponding poverty rate for those who completed high school but went no further was 10.8%. In contrast only 3.6% of persons with a college degree were poor.

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How are Racial and Ethnic Minorities Faring?

Along with education, race and ethnicity are closely tied to economic prosperity. As shown below, the median household income³ of blacks and Hispanics was substantially lower than that of Asians and non Hispanic whites in 2005.

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³ Half of households have incomes greater than the median; half have incomes less.

These racial and ethnic disparities in income underlie the higher poverty rates among blacks and Hispanics. About one in four blacks (24.9%) was living in poverty in 2005, compared with less than one in ten whites (8.3%) and slightly more than one in ten Asians (11.1%). More than 9 millions Hispanics⁴, 21.8% of the total Hispanic population, were living in poverty in 2005. Asians were the only group to experience a significant increase in poverty and non Hispanic whites were the only group who showed a decrease in poverty over 2004 rates (U.S. Census Bureau, “Income, Poverty and Health Insurance Coverage in the United States, 2005”).
As shown below, racial and ethnic minorities were disproportionately represented among poor people in 2005. Whereas blacks made up one eighth of the U.S. population, nearly one quarter of all poor people were black (24.8%). Similarly, whereas about one seventh of the U.S. population was of Hispanic ethnicity, one quarter of poor people identify as Hispanic (25.4%).⁵

• Link to data in Microsoft EXCEL format
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⁴Hispanics may be of any race.
⁵Note that there is some overlap in the categories, since Hispanics may be of any race. The categories in the figure exclude the 2.6% of individuals who identified themselves as being of more than one race.

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