A Guide to Economic Inequality
Policymakers, researchers, and commentators are constantly debating the nature and meaning of inequality in America. Depending on the data analyzed and the time frame applied, some conclude that inequality is skyrocketing, while others say it is falling. Some deem it the nation’s most pressing problem, while others see little to worry about. Here, we provide a straightforward overview of what the data actually show and why it matters.
1. Inequality in America is wide and getting wider. Using the Gini coefficient, a basic measure of the dispersion of incomes, American inequality has been rising steadily for 50 years and is at its highest point of the post-World War II era. Inequality is higher in the U.S. than in any other developed country—closer to the level of Mexico or Costa Rica than to the OECD median.
2. The major problem is not the wide but the wider. A society with high levels of inequality can still be one where everyone is getting ahead. In America, that is not the case. Inequality is widening because the economic growth of recent decades has been unevenly shared, with the vast majority of gains going to those already at the top. Over the past 50 years, household incomes have grown three times faster for the top quintile than for the middle quintile.
3. As a result, only the wealthy are accumulating wealth. With income growth concentrated at the top, middle-income households have not successfully accumulated savings in recent decades, which also means they have not shared in the gains from rapidly rising asset values. Over the past 30 years, top-quintile households gained nearly $500,000 in liquid net worth on average (after excluding the top 1%), while households in the middle quintile saw their debt rise faster than their financial assets.
This is not the widespread prosperity that market capitalism is supposed to generate, and it is not an outcome that Americans at any income level should accept.