User:BrendelSignature/Income inequality in the United States

NOTE: This is the rough draft for a new article I am writing

Income inequality in the United States referes to the extent to which income, most commonly measured by household or individual, is distributed in an uneven manner. While there seems to be consensus among social scientists that some degree of income inequality is needed, the extent of income inequality and its implications on society continue to be the subject of great debate, as they have been for over a century. Many social scientists such as sociologist Dennis Gilbert, and economists Michael Zweig and Alan Greenspan beleive that income inequality currently poses a problem for American society with Greenspan stating it to be a "very disturbing trend." Meanwhile, other, mostly conservative, social scientists argue that income inequality with contemporary trends persisting is not a cause for concern and that current measures used to determine income inequality are not precise enough to produce accurate readings. Data from the United States Department of Commerce and Internal Revenue Service indicate that income inequality has been increasing since the 1970s,    whereas it had been declining during the mid 20th century. As of 2006, the United States had one of the highest levels of income inequality, as measured through the gini index, among high income countries, comparable to that of Russia or Turkey.

As I've often said... this [increasing income inequality] is not the type of thing which a democratic society—a capitalist democratic society—can really accept without addressing. - Alan Greenspan, June 2005

Despite a decrease in inequality during the 1940s, 50s and 60s, inequality has been been increasing since. While income increased among all demographics, the upper-most earners saw substantially larger increases. According to economist Janet Yellen "the growth [in real income] was heavily concentrated at the very tip of the top, that is, the top 1 percent." A 2006 anaylsis of IRS income data by economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics showed that the share of income held by the top 1% was as large in 2005 as in 1928. The data revealed that reported income increased by 9% in 2005, with the mean for the top 1% increasing by 14% and that for the bottom 90% dropping slightly by 0.6%. Between 1967 and 2003 the percentage growth in household income for the 95th percentile was 54.63% larger than that experienced by households in the 20th percentile. percentile was  In addition to the top earners receiving a great share of earnings than the rest of society, the emergence of a two-tier labor market has led to larger income differences along the lines of educational attainment. In addition to expertise, productiveness, work experience, inheritance, gender, race had a strong influence on personal income while household income was largely effected by the number of income earens. Yet, other causes for income inequality, especially some of those behind its recent rise, remain unknown. While income rose among for all demographics and gender as well as race gaps were closing, inquality has increased with those at the very top of the economic strata have been receiving an increasing share.

Household income


Inflation adjusted income data from the Census Bureau shows that household income has increased substantially for all demographics, with larger gains experienced by those with higher incomes. The emergence of dual-earner households has had a substantial impact on increasing household income, especially among households in the upper 20%. Along with the entrance of women into the labor force, the discrepency between those households with one and those with multiple earners was amplified significantly. As of 2005, 42% of all U.S. households and 76% of those in the top quintile had two or more income earners. Income rose considerably faster in the higher regions of the household income strata. Between 1967 income increase experienced for the 95th percentile, the lower threshold for the upper 5%, was 555.73% as large as the increase in median income, which in turn was 150.63% as large as the increase in income for the 20th percentile. While the percentage of household with two or more income earners varied greatly across these three demographics, it is nearly identical for the 80th and 95th percentile. In 2003 a household in the 95th percentile earned 77.2% more than a household in the 80th percentile, compared to 60.5% in 1967, a 27.6% increase in the earnings increase discrepency between the two groups. Overall the income of the 95th percentile grew 15.2% faster than that of the 80th, 146.8% faster than that of the median and 159.9% faster than that of the 20th percentile.

Gross annual household income does not, however, always accurately reflect standard of living or socio-economic status, as it does not consider household size. Therefore, a large household in the upper quintile may have a lower standard of living than a small household in the fourth quintile. Similarly an upper middle class household with one income earners may have a lower gross annuall household income than a lower middle class household with two income earners. As household in the upper quintile tend to be larger than household in lower quintiles, differences in household income may be larger than differences in standard of living. A recent analysis of income quintile data revealed that the aggregate share of income held by the upper quintile decreases by 20.3% when figures are adjusted to reflect household size. It should thereby be noted that since 1967, the mean household size in the US has decreased 20.8%, while income disparities have increased. In 2003, the upper 20% household, who were home to roughly 25% of persons, earned 49.7% of all income before and 39.6% of income, after size adjustements. Conservatives commonly focused on the flaws of household income as a measure for standard of living in order refute claims that income inequality is growing, becoming excessive or posing a problem for society. Liberals maintain that all measures have certain flaws but seem to undoubtely indicate a significant increase in income inequality

SOURCE: U.S. Census Bureau, 2004 (Page 44/45)

Personal income


Personal income represents the earnings of individuals and, therefore, directly reflects occupational status, acheveivement and educational attainment. While many, though not the majority, of income earners reside in households with more than one income earner, trends in personal income are more indicative of the job market and the economy than household income. Personal income has risen considerably since 1953, especially for female workes. For male workers, however, income stagnated during the 1970s and 1980s, increasing substantially during the 1990s and then stagnating once more since 2000. During the early 1980s, median earnings decreased for both sexes, not increasing substantially until the late 1990s. Since 1974 the median income for workers of both sexes increased by 31.7% from $18,474 to $24,325, reaching its high-point in 2000. Income inequality has increased consierably as well with the top 1% reveiving much larger gains than all other demographics. This group has pulled ahead of other income earners including the remainder of the top 10% considerably during the past few years. Since the 1970s, inequality increased during the 1980s, decreased slighly during the late 1990s and has since continued its overall increasing trend. According to gini index data income inequality among all workers with incomes increased by roughly 20% since 1967. Both increasing median income, largely connected to an increase in educational attainment, and income inquality with the very top earners gaining a larger share has characertized personal income trends during the past thirty or so years.

...from 1973 to 2005... real hourly wages of those in the 90th percentile—where most people have college or advanced degrees—rose by 30 percent or more... among this top 10 percent, the growth was heavily concentrated at the very tip of the top, that is, the top 1 percent. This includes the people who earn the very highest salaries in the U.S. economy, like sports and entertainment stars, investment bankers and venture capitalists, corporate attorneys, and CEOs. In contrast, at the 50th percentile and below—where many people have at most a high school diploma—real wages rose by only 5 to 10 percent - Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco, 6 November, 2006

Gini index


To date, one of the most commonly used measure of income inequality is the Gini index. The Gini coefficient measures income inequality on a scale from 0 to 1, based on the Lorzen Curve. On this scale 0 represents perfect equality with everyone having the exact same income and 1 represents perfect inequality with one person having all income (Scores are then commonly multiplied by 100 to make them easier to understand). According to the United Nations (UN), gini index ratings for countries range from 24.7 in Denmark to 74.3 in Namibia. Most post-industrial nations had a gini coefficient in the high twenties to mid thirities. The UN places the US gini index rating at 40, comparable to that of Turkey, Tunisia or Russia. Since the Census Bureau started measuring the gini coefficient for in 1967, it has risen by 20% for full-time workers and 18% for households. Among households, the index has risen from 39.7 to 46.9, from 31.4 to 42.4 among men and from 29.8 to 35.7 among women. This means that inequality rose 76.8% faster among men than women and 10% faster among individual than households. The gini index rating for both sexes combined rose by 20.3% from 34.0 in 1967 to 40.9 in 2005. According to gini coefficient data, income inequality in the U.S., already among the highest in the post-indutrial world, has risen considerably between 1967 and 2005 among households and individuals.

SOURCE: U.S. Census Bureau, 2006

Causes
Income inequality has many causes, some of which remain unknown and others which remain disputed. All societies feature some income inequality as the positions people hold in these societies vary in responsiblity, importance and complexity. In order to provide sufficient incentive for a wide variety of occupations to be filled with motivated incumbents societies need to provide a variety of rewards. Income is among the perhaps most prominent forms of compensation. As scarcety creates value, the possession of scarce skills considerably increases income. Educational attainment, alongside the amount of work done by individuals were among the main determinents of income. The vast majority of Americans derive their income from occupational tasks and the utilization of their expertise. Two notable exceptions are the upper amd lower class, where the most common source of income was not occupational status. The former group derives most of its income from assetts, which are commonly inhertited. The incomes of the latter group are largely composed of government transfers. Yet, in general individual income is largely determined by occupational acheivement, with household income depending considerably on the number of income eaners.

As expected, households in the upper quintiles are generally home to more, better educated and harder working income earners, than those in lower quintiles. Among those in the upper quintile, 62% of householders were college graduates, 80% worked full-time and 76% of households had two or more income earners, comapred the national percentages of 27%, 58% and 42%, respectively. The trend does not, however, apply to the top 5%. Census Bureau shows a slight decrease in the percentage of 2+ earner households, those who worked 50+ weeks per year and those who worked full-time between the upper 20% overall and the top 5% in particular. This trend towards less work and fewer income earners per household among the top 5% may be indicative of those in the upper-most sphere of the economic strata, where income is largely derived from inherited assetts. US Census Bureau data indicated that occupational acheivenemt and the possession of scarce skills does correlate with higher income to a certain point in the higher levels of the economic strata. From that point on, the correlation between productiveness and income weakens. Unofrtunately detailed US Census data is not avaialable to the top 1% which has received the largest share of income gains. Thus, while education and hard work generally translate into higher incomes, other factors such as inhertiance as well as some of which remain unknown, shape income inequality.

Education


As scarcety creates value, the increased aquission and subsequent possession of expertise and skill certified through an academic degree increases compensation including income. Increased certified expertise translates into increaed scarceity of an individual's occupational qualification which in turn leads to greater economic rewards. As the United States has developed into a post-industrial society over the course of the late 20th century, educational attainment has gained in importance. More and more employers now require workers to possess greater amounts of expertise than they did a generation ago while the manufacturing sector which employed many of those lacking a post-secondary education is decreasing in size. As a result the scarce intilectual skills transfered through post-secondary education curicula have become increasingly important. Thus, income differences between the varying levels of educational attainment were increasing. The resulting economic job market may be refered to as constituting a "two-tier" labor market. In this market the income discrepency between the professional and working class may be growing. Sociologists such as Dennis Gilbert refer to the professional class as a priveleged class due its favorable disposition in the two-tier labor market. Income gains and median levels were higher among those with the higher academic degrees, that is those who possess scarce amounts of certified expertise. In other words, higher educational attainment translates into higher personal income levels and larger income increases over time.

Average earnings in 2002 for the population 18 years and over were higher at each progressively higher level of education... This relationship holds true not only for the entire population but also across most subgroups. Within each specific educational level, earnings differed by sex and race. This variation may result from a variety of factors, such as occupation, working full- or part-time, age, or labor force experience. - Nichole Stoops, US Census Bureau, August 2004

While the higher education commonly translates into higher income, and the hihgly educated tend to reside in upper quintile households, differences in educational attainment fail to explain income discrepencies between the top 1% and the rest of the population. Large percentages of individuals lacking a college degree are present in all income demographics, including 38% of those with heading housholds with six figure incomes. In 2005, roughly 55% of income earners with doctorate degrees, the most educated 1.4%, were among the top 15% earners. Among those with Masters degrees, the most educated 10%, roughly half had incomes among the top 20% of earners. Only among households in the top quintile were householders with college degrees in the majority. While discrepencies in educational attainment cannot account for all aspects of income inequality, education remains one of the strongest influences on income distribution, thereby affecting income inquality.

SOURCE: US Census Bureau, 2004/06

Race and gender


Income levels remain considerably lower for females than for men with certain racial demographics having median income levels condierably below the national median. Despite, considerable progress in prusuing gender and racial equality, some social scientists attribute these discrepencies in income to continued discimination. According to this perspective certain ethnic minorities and women receive fewer promotions and opportunities for occupation and economic advancement than others. In the case of women this concept is refered to as the glass ceiling keeping women from climibing the occupational ladder. In terms of race, studies have shown that African Americans are less likely to be hired than European-Americans with the same qualifications. The continued prevelance of traditional gender roles and ethnic stereotypes may partially account for current levels of discrimination. In 2005, median income levels were highest among Asian and White males and lowest among females of all races, especially those idenitifying as African American or Hispanic. Despite closing gender and racial gaps considerably discerpencies remain among racial and gender demographics, even at the same level of educational attainement.

Since 1953 the income gap between male and female workers has decreased considerably but remains relatively large. Even though women currently receive the majority of Bachelor's degrees, male workers still hold higher educational attainment, as the success of women in academia is a relatively new phenomenon. Though it is important to note that income inequality between sexes remained stark at all levels of educational attainment. Between 1953 and 2005 median earnings as well as educational attainment increased, at a far greater pace for women than for men. Median income for male earners increased by 36.2% versus 157.2% among female earners. This mean that the median income of women rose 334.5% as fast as that of men. The extent by which men out-earned women reduced by 61.2%, indicating increased gender equality. Today male workers earn roughly 68.36% more than their female counterparts compared to 176.25% in 1953. Furthermore income has increased more or less continously for women, while the median earning for men have shown some flucatation and stagnation since the early 1970s. The median income of men in 2005 was 2% higher than in 1973 compared to a 74.6% increase for female earners. Racial differences remained stark as well with the the highest earning sex-gender demographic of workes aged 25 or older, Asian males (who were roughly tied with white males, earning more than twice, 109.7%, as much as the lowest earning demographic, Hispanic females. As mentioned above, inequality between races and gender presisted as similar education levels. In 2005, Asian men, age 25+, with a Bachelor's degree or higher earned 203.8% more than Hispanic females (age 25+) with the same educational attainment.  Racial differences were overall more pronounced among male than among female income earners.

SOURCE: US Census Bureau, 2006