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
Related Policy Centers and Projects
Downward Mobility from the Middle Class: Waking Up from the American Dream (Research Report)
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)
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)
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.
Publications on Income and Wealth Distribution
Debt in America (Research Report)
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Debt can be constructive, allowing people to build equity in homes or finance education, but it can also burden families into the future. Total debt is driven by mortgage debt; both are highly concentrated in high-cost housing markets, mostly along the coasts. Among Americans with a credit file, average total debt was $53,850 in 2013, but was substantially higher for people with a mortgage ($209,768) than people without a mortgage ($11,592). Non-mortgage debt, in contrast, is more spatially dispersed. It ranges from a high of $14,532 in the East South Central division to a low of $17,883 in New England.
Delinquent Debt in America (Research Report)
|Posted to Web: July 29, 2014||Publication Date: July 29, 2014|
Roughly 77 million Americans, or 35 percent of adults with a credit file, have a report of debt in collections. These adults owe an average of $5,178 (median $1,349). Debt in collections involves a nonmortgage bill—such as a credit card balance, medical or utility bill—that is more than 180 days past due and has been placed in collections. 5.3 percent of people with a credit file have a report of past due debt, indicating they are between 30 and 180 days late on a nonmortgage payment. Both debt in collections and debt past due are concentrated in the South.
Wealth in America: Policies to Support Mobility (Research Brief)
|Posted to Web: July 29, 2014||Publication Date: July 29, 2014|
What role can policymakers play in helping families rebuild their balance sheets after the Great Recession and in helping young families, families of color, and those with less education who were falling behind even prior to it? This brief, based on a convening of nearly 25 national wealth-building experts, presents the facts and identifies four promising policy reforms: (1) providing universal children’s savings accounts; (2) reforming the mortgage interest deduction to better target incentives; (3) expanding access to retirement accounts and automatic enrollment; and (4) promoting emergency savings while addressing barriers such as asset tests in safety net programs.
Flattening Tax Incentives for Retirement Saving (Research Report)
|Posted to Web: July 22, 2014||Publication Date: July 22, 2014|
Under current law, a large share of tax benefits for retirement saving accrues to high-income employees. We simulate the short- and long-term effect of three policy options for flattening tax incentives and increasing retirement savings for low- and middle-income workers. Our results show that reducing 401(k) contribution limits increases taxes for high-income taxpayers; expanding the saver's credit raises saving incentives and lower taxes for low- and middle-income taxpayers; and replacing the exclusion for retirement saving contributions with a 25 percent refundable credit benefits primarily low- and middle-income taxpayers, and raises taxes and reduces retirement assets for high-income taxpayers.
Do Racial Disparities in Private Transfers Help Explain the Racial Wealth Gap?: New Evidence From Longitudinal Data (Research Report)
|Posted to Web: June 30, 2014||Publication Date: June 30, 2014|
How do private transfers differ by race and ethnicity, and do such differences explain the racial and ethnic disparity in wealth? Using panel data and a family-level fixed-effect model, we find that African Americans and Hispanics (immigrant and nonimmigrant) receive less in both financial support and large gifts and inheritances than whites. Large gifts and inheritances, but not net financial support received, are related to wealth increases for African American and white families. Overall, we estimate that the African American shortfall in large gifts and inheritances accounts for 12 percent of the white-black racial wealth gap.
Does Financial Support and Inheritance Contribute to the Racial Wealth Gap?
Private Transfers, Race, and Wealth
|Posted to Web: May 28, 2014||Publication Date: May 20, 2014|