Causes of income inequality in the United States

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Causes of income inequality in the United States describes the reasons for the unequal distribution of income in the US and the factors that cause it to change over time. This topic is subject to extensive ongoing research, media attention, and political interest.

U.S. inequality from 1913 to 2008.[1]

Income inequality in the United States grew significantly beginning in the early 1970s,[2][3][4] after several decades of stability.[5][6][7] The US consistently exhibits higher rates of income inequality than most developed nations, arguably due to the nation's relatively less regulated markets.[8][9][10]

According to the Congressional Budget Office, "the precise reasons for the [recent] rapid growth in income at the top are not well understood", but "in all likelihood," an "interaction of multiple factors" was involved.[11] Researchers have offered several potential rationales.[12][13] Various rationales conflict or overlap.[14] They include:

  • Globalization – Lesser-skilled American workers have been losing ground in the face of competition from workers in Asia and other emerging economies.[15]
  • Changes in labor demand – The rapid pace of progress in information technology has increased the relative demand for higher-skilled workers.[15]
  • Superstar hypothesis – Compensation in many sectors turned into a tournament in which the winner is richly rewarded, while the runners-up get far less. This affects both workers and investors (in dominant firms).[15][16][17]
  • Tax policy – Pre-tax income inequality in the U.S. is similar to other developed countries, but markedly rises after taxes and transfers.[18]
  • Immigration – Relatively high levels of immigration of less-skilled workers since 1965 may have reduced wages for American-born high school dropouts.[19]
  • Decline of unions – Unions helped increase wages, benefits and working conditions. Unionized workers declined from over 30% to around 12%.[20]
  • Social norms – Social norms constrained executive pay. CEO pay rose from around 40 times the average workers pay in the 1970s to over 350 times in the early 2000s.[21]
  1. ^ Chart was made using data initially published as Thomas Piketty and Emmanuel Saez (2003), Quarterly Journal of Economics, 118(1), 2003, 1–39. Data (and updates) shown at http://inequality.org/income-inequality
  2. ^ "US Census Bureau. (2001). Historical Income Tables – Income Equality". Archived from the original on July 10, 2009. Retrieved June 20, 2007.
  3. ^ "Weinberg, D. H. (June 1996). A Brief Look At Postwar U.S. Income Inequality. US Census Bureau" (PDF). Retrieved June 20, 2007.
  4. ^ "Burtless, G. (January 11, 200). Has U.S. Income Inequality Really Increased?. The Brookings Institution". Retrieved June 20, 2007.
  5. ^ Gilbert, Dennis (2002). American Class Structure in an Age of Growing Inequality. Wadsworth.
  6. ^ Beeghley, Leonard (2004). The Structure of Social Stratification in the United States. Boston, MD: Pearson, Allyn & Bacpn.
  7. ^ Piketty, Thomas (2014). Capital in the Twenty-First Century. Belknap Press. ISBN 067443000X "The Explosion of US Inequality after 1980": pp. 294–96.
  8. ^ Weeks, J. (2007). Inequality Trends in Some Developed OECD countries. In J. K. S. & J. Baudot (Ed.), Flat World, Big Gaps (159–74). New York: ZED Books (published in association with the United Nations).
  9. ^ Income distribution and poverty – OECD. OECD
  10. ^ Cite error: The named reference RDWolff was invoked but never defined (see the help page).
  11. ^ Congressional Budget Office: "Trends in the Distribution of Household Income Between 1979 and 2007". October 2011. p. 13
  12. ^ Congressional Budget Office: "Trends in the Distribution of Household Income Between 1979 and 2007". October 2011. p. xi
  13. ^ Yellen, J. L. (November 6, 2006). "Economic Inequality in the United States". University of California, Irvine: Federal Reserve Bank of San Francisco. Retrieved June 20, 2007.
  14. ^ "The rich, the poor and the growing gap between them". The Economist. June 15, 2006. Archived from the original on February 19, 2018.
  15. ^ a b c Krugman, Paul (October 20, 2002). "For Richer". The New York Times.
  16. ^ the superstar hypothesis was coined by the Chicago economist Sherwin Rosen) used the example of the passing of the hundreds of comedians that made a modest living at live shows in the borscht belt and other places in bygone days that have been replaced by a handful of superstar TV comedians.
  17. ^ Autor, David; Dorn, David; Katz, Lawrence F; Patterson, Christina; Van Reenen, John (2020). "The Fall of the Labor Share and the Rise of Superstar Firms*". The Quarterly Journal of Economics. 135 (2): 645–709. doi:10.1093/qje/qjaa004. hdl:10.1093/qje/qjaa004. ISSN 0033-5533.
  18. ^ Cite error: The named reference sixcharts was invoked but never defined (see the help page).
  19. ^ Krugman, Paul (January 12, 2009). The Conscience of a Liberal. W. W. Norton & Company. p. 34. ISBN 978-0-393-06711-8., estimate by economist George Borjas
  20. ^ Krugman, Paul (2007). The Conscience of a Liberal. W.W. Norton Company, Inc. ISBN 978-0-393-06069-0.
  21. ^ "CEO Pay Continues to Rise as Typical Workers Are Paid Less". Economic Policy Institute.