Tuesday, May 08, 2018

US INEQUALITY

Income inequality in the United States has increased dramatically in recent decades. Most of the increase can be traced to gains going to those near the top of the income distribution. The increase in U.S. income inequality since 1970 largely reflects gains made by households in the top 20 per cent of the income distribution. Estimates suggest that households outside this group have suffered significant losses from foregone consumption, measured relative to a scenario that holds inequality constant. 

The top 10 per cent of U.S. households share of before-tax income (excluding capital gains) increased from 32 per cent in 1970 to 47 per cent in 2014. The corresponding income share for the top 20 per cent of households rose from 43 per cent in 1970 to 51 per cent in 2014. The faster rise of the top 10 per cent share reflects the disproportionate gains of the highest earners.

Another way to track income is by source. Labour income includes wages and other types of employee compensation. Capital income includes corporate profits, rental income, and net interest income. The share of total income from capital sources increased from 35 per cent in 1970 to 43 per cent in 2014. During this period, the top 20 per cent of households ranked by income owned more than 90 per cent of total financial wealth.  The increase in capital’s share of income would be expected to disproportionately benefit households in the top 20 per cent of the income distribution. 

For households in the top income group, the increase in income inequality has delivered a gain that is equivalent to a 3 per cent increase in annual consumption every year in perpetuity. By contrast, each household outside the top income group has suffered a loss that is equivalent to a 1 per cent drop in annual consumption every year in perpetuity.

The increase in U.S. income inequality over the past half-century can be traced to gains made by those near the top of the income distribution—where financial wealth and corporate stock ownership is highly concentrated. 

http://blogs.lse.ac.uk/businessreview/2018/05/07/rising-us-income-inequality-the-disproportionate-gains-of-the-highest-earners/

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