Understanding Income Inequality In The U.S. And World

Photo courtesy of mSeattle via Flickr. Modified by Curiousmatic.

For years, the gap between lower and higher income population has grown larger and larger, on both a global and national level.

Breaking Updates

September 17, 2013: A recent study from the University of California, Berkeley, that found 95% of income gains from 2009 to 2012 went to the top 1% of the earning population. (Click to expand)

The report concludes that the “top 1% incomes are close to full recovery [since the recession] while bottom 99% incomes have hardly started to recover.”

President Obama acknowledged the issue publicly on ABC’s “This Week with George Stephanopoulos,” claiming the increase is out of Washington’s control due to globalization and technology, despite his administration’s continuous efforts.

Income inequality worldwide is at an all-time high, with the U.S. leading the way with an ever-increasing gap in earnings and shares. The United States is now among the top developed countries with the largest disparity in income, according to the Atlantic, putting it on par with countries such as Cameroon, Madagascar, Rwanda, Uganda, and Ecuador.

Here’s a look on what’s changed over time in terms of income inequality.

Income inequality before the financial crisis

Research by the Congression Budget Office (CBO) found that most of the increase in after-tax income between 1979 and 2007 – before the financial crisis of 2008 – went to the top 1% of households, which increased by 275 percent. The bottom 20%, in contrast, had an income gain of only 18 percent over this time-span.

While income for all did rise over the years, however marginally for the lower-income population, the share of income decreased for all households except for those in the top fifth of the population (income share which mostly went to the top 1 percent.)

Image courtesy of the CBO.

The shares of all other groups declined by 2 or 3 percentage points, as you can see illustrated in the chart above.

During the recession, from 2007 – 2009, income dropped 17% for all household incomes, according to a paper by Emmanuel Saez of Berkeley University.

Income inequality today

Saez’ paper continues to detail that in the years following the crisis, from 2009 – 2011, recovery showed an extremely uneven gain, with the top 1% growing by 11.4% and the bottom 99% shrinking by .4%.

Newer data presented by the OECD shows that on a global scale, income inequality increased more in the three years following the crisis than it had in the 12 years previous.

Income inequality is usually measured by something known as the Gini coefficient, which runs from 0 (perfect equality) to 100 (one rich household holding income of the entire country). A report from the International Labor Organization (ILO) indicates that the U.S. Gini coefficient is 47.7


Image courtesy The Atlantic, via data from the CIA.

Considering that’s almost halfway toward 100, and that America has greater inequality than almost all of Western Africa, North Africa, Europe, and Asia, (on par with some of the world’s most troubled countries, the Atlantic reports) – it’s not the best of news.

The United States currently ranks in fourth in terms of the income gap, according to the OECD, following Chile, Mexico, and Turkey. The gap is lowest in Iceland, Slovenia, Norway and Denmark.

Are things getting better? Unfortunately, no. According to the International Business times as detailed in a report by the CBO, this income inequality, which has been growing steadily for the past 40 years, will likely continue to widen over the next two decades.

What do you think about income inequality? Would you rather move to Norway, where inequality is lower? Tweet us @curiousmatic.

Jennifer Markert