urban institute nonprofit social and economic policy research

Inequality

In the past several decades, income inequality in the United States has increased dramatically. Over the same period, year-to-year variation in individual incomes—or income volatility—has increased more modestly, while Americans’ economic mobility—movements up or down the economic ladder—has changed little.

Inequality and equality can take many forms: equality of opportunity is desirable, but equality of outcomes (like money income) might not be, if the inequality motivates entrepreneurial activity and hard work that benefit society as a whole. Some advocate focusing not on income inequality but on poverty.

On the other hand, the greatest increases in inequality have come at the top, with implications for policy and politics, as most of the country’s resources are concentrated in fewer hands.  Tax policy, asset-building policy, and policies directly affecting low-income working families are among the most salient levers.


Post-War Growth in U.S. Income Inequality
Inequality was relatively stable from 1947 to 1970 but increased steadily from 1970 to 2010; the 95th percentile of real family income increased from $70 thousand in 1947 to $121 thousand in 1970 and $200 thousand in 2010, while the 60th percentile increased from $30 thousand in 1947 to $57 thousand in 1970 and $74 thousand in 2010, and the 20th percentile increased from $14 thousand in 1947 to $26 thousand in 1970 and $27 thousand in 2010.


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Featured Publications

Downward Mobility from the Middle Class: Waking Up from the American Dream (Research Report)
Gregory Acs

A middle-class upbringing does not guarantee the same status over the course of a lifetime. A third of Americans raised in the middle class (between the 30th and 70th percentiles of the income distribution) fall out of the middle as adults. Marital status, education, test scores and drug use have a strong influence on whether a middle-class child loses economic ground as an adult. Race is a factor only for men. There is a gender gap in downward mobility from the middle, but it is driven entirely by a disparity between white men and white women.

A Detailed Picture of Intergenerational Transmission of Human Capital (Research Report)
Austin Nichols, Melissa Favreault

Using data from the Health and Retirement Study, we consider how parental education relates to four outcomes in the children's generation: education, lifetime earnings, health, and wealth. By focusing on parents' and children's ranks, we characterize relative mobility in terms of distributions of outcomes and can see patterns that even a relatively disaggregated analysis, like a quintile-based transition matrix, can obscure. Our results show relatively high intergenerational mobility except at extremes, where very low-ranked parents are much more likely to have very low-ranked children and very high-ranked parents are much more likely to have very high-ranked children.

Rising Tides and Retirement: The Aggregate and Distributional Effects of Differential Wage Growth on Social Security (Research Report)
Melissa Favreault

Recent growth in wage inequality has important implications for Social Security solvency and benefit distributions. Because only earnings below the taxable maximum are subject to payroll taxes, concentrated wage growth among higher earners generates less revenue than more evenly distributed growth. Social Security's progressive benefit formula increases benefit payouts when shares of workers with low wages grow. We use a dynamic microsimulation model to examine aggregate and distributional consequences of alternative scenarios about future wage growth. We find that relatively modest changes in assumptions about wage differentials generate marked changes in projected Social Security benefits, poverty, and long-term financing status.




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Educational Attainment and Earnings Inequality among US-Born Men: A Lifetime Perspective (Research Report)
Josh Mitchell

This report tracks the lifetime earnings of men born in the U.S. between 1940 and 1974, focusing on how earnings differences by educational attainment, age, and year of birth have evolved. Both annual and lifetime earnings inequality increased dramatically for men born in the mid-1950s onward. That increase reflects both absolute earnings gains to highly educated workers (especially those with more than a four-year college degree) and absolute earnings losses to less educated workers. Earnings inequality also increases substantially among those with the same level of educational attainment, complicating standard assumptions about the lifetime value of a college degree.

Posted to Web: April 08, 2014Publication Date: April 08, 2014

A Comparison of State Minimum Wages (Article/Tax Facts)
Norton Francis, Yuri Shadunsky

This Tax Fact examines minimum wages across states. The current federal minimum wage, which applies to almost all employees, is $7.25 per hour — unchanged since 2010. The District of Columbia and 21 states set minimum wages higher than the federal rate.

Posted to Web: April 01, 2014Publication Date: March 31, 2014

Raising Medicare Premiums for Higher-Income Beneficiaries: Assessing the Implications (Policy Briefs)
Juliette Cubanski, Tricia Neuman, Gretchen Jacobson, Karen E. Smith

As policymakers consider ways to slow the growth in Medicare spending as part of broader efforts to reduce the federal debt or offset the cost of other spending priorities, some have proposed to increase beneficiary contributions through higher Medicare premiums. Some proposals would increase Medicare premiums paid by all beneficiaries, while others would raise premiums only for beneficiaries with higher incomes. This issue brief explains provisions of current law that impose income-related premiums under Medicare Part B and Part D, describes recent proposals to modify these requirements, and analyzes the potential implications for the Medicare population.

Posted to Web: February 28, 2014Publication Date: January 15, 2014

Income and Assets of Medicare Beneficiaries, 2013 - 2030 (Policy Briefs)
Gretchen Jacobson, Jennifer Huang, Tricia Neuman, Karen E. Smith

Many Medicare beneficiaries live on fixed incomes supplemented by the savings they accumulated during their working years. Their income and savings are tied to many life experiences, including their education, health status, marital status, number of work years, household income, access to employer retirement benefits, inheritance, and various economic factors. As a result, the income and assets of Medicare beneficiaries vary greatly. This brief describes the income and assets of Medicare beneficiaries now and in the future and provides context for understanding the extent to which current and future generations of beneficiaries can afford to absorb higher health care costs.

Posted to Web: February 28, 2014Publication Date: January 09, 2014

Redistribution Under the ACA is Modest in Scope (Policy Briefs/Timely Analysis of Health Policy Issues)
Stan Dorn, Bowen Garrett, John Holahan

Claims that the ACA involves "the largest income transfer in American history" are exaggerated. Low- and moderate-income people receive benefits equaling 0.9 percent of GDP, a fraction of spending on Medicare, Social Security, and tax preferences for employer-sponsored insurance. The affluent contribute just 0.2 percent of GPD, with taxes limited to 2.4 percent of tax-filers, who pay an average of 0.5 percent of income. Nearly three-quarters of ACA's funding comes, not from the wealthy, but from the health care industry, through reimbursement cuts or taxes and fees. However, these contributions are offset by new revenue from people gaining health insurance.

Posted to Web: February 12, 2014Publication Date: February 14, 2014

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