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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Wealth in America: Policies to Support Mobility (Research Brief)
Signe-Mary McKernan, Caleb Quakenbush, Caroline Ratcliffe, C. Eugene Steuerle

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.

Posted to Web: July 22, 2014Publication Date: July 22, 2014

Flattening Tax Incentives for Retirement Saving (Research Report)
Barbara Butrica, Benjamin H. Harris, Pamela Perun, C. Eugene Steuerle

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.

Posted to Web: June 30, 2014Publication Date: June 30, 2014

Do Racial Disparities in Private Transfers Help Explain the Racial Wealth Gap?: New Evidence From Longitudinal Data (Research Report)
Signe-Mary McKernan, Caroline Ratcliffe, Margaret Simms, Sisi Zhang

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.

Related Publications

Does Financial Support and Inheritance Contribute to the Racial Wealth Gap?

Private Transfers, Race, and Wealth



Posted to Web: May 28, 2014Publication Date: May 20, 2014

Self-Employment, Family-Business Ownership, and Economic Mobility (Research Report)
Elizabeth Brown, Austin Nichols

Surprisingly little is known about whether self-employment and family businesses promote mobility, despite a recurring theme in the policy discourse of families achieving upward economic and social mobility through entrepreneurship. The rewards of entrepreneurship can be great for those who succeed, but the risks are also greater. Looking over numerous decades of panel data on Americans, we document that family-business owners have more upward mobility and less downward mobility than wage-and-salary workers, but that the self-employed do not outperform other workers.

Posted to Web: May 28, 2014Publication Date: May 28, 2014

Disparities in Wealth Accumulation and Loss from the Great Recession and Beyond (Research Report)
Signe-Mary McKernan, Caroline Ratcliffe, C. Eugene Steuerle, Sisi Zhang

And here's the abstract for the published version, which can be included on it’s own landing page with the publication link under it's published title: Using over two decades of Survey of Consumer Finances data and a pseudo-panel technique, we measure the impact of the Great Recession on US family wealth relative to the counterfactual of what wealth would have been given wealth accumulation trajectories. Our synthetic cohort-level models find that the Great Recession reduced average family wealth by 28.5 percent–nearly double the magnitude of previous pre-post mean descriptive estimates and double the magnitude of any previous recession since the 1980s. The housing market was only part of the story; all major wealth components fell as a result of the Great Recession.

Posted to Web: May 01, 2014Publication Date: May 01, 2014

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