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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A Review of Children's Savings Accounts (Research Report)
Barbara Butrica

Children's savings accounts (CSAs) aim to improve the lives of low- and moderate-income people by increasing their financial security, developing their financial capability, and improving their educational outcomes. With their benefits increasingly recognized, the past two decades have witnessed the adoption of and numerous proposals for CSAs. This brief reviews CSAs and their benefits, provides international and domestic CSA examples, and points to selected research on CSAs—including their distributional impact.

Posted to Web: March 23, 2015Publication Date: March 23, 2015

As the Recovery Progresses, Use of Nonbank Credit Rises (Fact Sheet / Data at a Glance)
Gregory B. Mills

From 2011 to 2013, the rate of alternative financial services (AFS) credit use increased from 6.0 percent to 6.6 percent, an increase of about 750,000 households. In 2013, the rate of AFS credit use including auto-title loans is 7.0 percent (unmeasured in 2011). Households that use AFS credit products are increasingly from the middle- and upper-income ranges. The share of AFS credit users with annual household incomes above $30,000 rose from 42 percent to 48 percent between 2011 and 2013, and the share of households with annual incomes of at least $75,000 increased from 7 percent to 11 percent over the same period.

Posted to Web: March 09, 2015Publication Date: March 09, 2015

Does Increasing Reliance on Student Debt Explain Declines in Entrepreneurial Activity?: Posing the Question, Gathering Evidence, Considering Policy Options (Research Report)
Sandy Baum

Concerns about declining entrepreneurial activity, rising student debt, and the possible relationship between the two deserve attention. New business enterprises can support innovation and increase employment, so any trend that might be interfering with individuals’ opportunities to take risks, finance start-ups, and build enterprises is worth exploring.

Posted to Web: January 22, 2015Publication Date: January 22, 2015

Servicing Is an Underappreciated Constraint on Credit Access (Research Brief)
Laurie Goodman

The heightened and uncertain cost of servicing delinquent mortgage loans is a significant, although underappreciated, constraint on access to credit. Lenders can price loans to reflect the anticipated servicing costs, but it is very difficult to price for the uncertain costs of default servicing. The penalties resulting from not meeting the GSE and FHA timelines, along with restrictive and anachronistic limits on reasonable foreclosure expenses, create uncertainties that are difficult to quantify and price for. The result: lenders forgo lending to borrowers more likely to go delinquent. The FHFA has made great strides with recent changes to compensatory fees, but more needs to be done. Servicing delinquent FHA loans presents an even greater challenge. To expand the tight credit box, these servicing issues must be addressed.

Posted to Web: December 16, 2014Publication Date: December 16, 2014

A Better Measure of Mortgage Application Denial Rates (Research Report)
Wei Li, Laurie Goodman

The Housing Finance Policy Center’s new measure of the rate at which mortgage applications are denied – the real denial rate (RDR)– improves upon existing denial rate measures by considering only low-credit-profile applicants. The RDR better tracks trends in credit accessibility over time and reveals that the conventional channel has had a consistently tighter credit box over time than the government channel. The RDR also shows much smaller racial and ethnic distinctions in mortgage denial rates over time than are shown by the traditional measure.

Posted to Web: December 02, 2014Publication Date: December 02, 2014

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