Economic Inequality Continues to Grow in the United States

by Hank Van den Berg
UNL Professor of Economics

In an updated report, the well-known economist Emmanuel Saez of the University of California-Berkeley shows that nearly all of the recent income recovery from the economic recession has been captured by the top 1 percent of income earners. Since the 2007-2009 economic crash, the top 1 percent of income earners have captured 95 percent of the total overall growth in U.S. income over the past four years.

Saez’ estimates are given in the table below. His estimates are based on U.S. national income data, and it is updated for 2012 using IRS data.

Unprecedented concentration of earnings

What is clear from the table is that never before have so few gained such a disproportionate share of economic growth during a recovery from a recession. During the recovery and expansion after the 1991 recession, the top 1 percent captured 45 percent of the overall growth of 31.5 percent growth in income. After the 2000 dot.com recession, the top 1 percent captured 65 percent of the much slower income growth of 6.8 percent during the recovery and subsequent expansion. But since the 2007-2009 crash, the top 1 percent have captured 95 percent of the very meager 6 percent of total income growth. Obviously, the recovery is not yet complete, and there will, hopefully, be further income gains. But what is clear is that from the perspective of the 99 percent, the recovery has not even started.

Time will tell how this recovery will progress. So far, however, the 1 percent seem to be doing quite well relative to the 99 percent. The stock market is booming, but that is of little consolation to the great bulk of the American population that has few, if any, stocks.

The recent numbers should, perhaps, not be surprising. Contemplate the graph below showing the share of U.S. income captured by the richest 10 percent of U.S. households. This graph shows the income shares excluding and including capital gains. Remember, the wealthy earn more of their income in the form of capital gains rather than wages, in part for tax reasons, so the capital-gains inclusive measure is a more accurate depiction of income.

Note that in 2012, when most households had seen little or no gain from the alleged economic recovery, the share of the top 10 percent rose to exceed 50 percent of total national income. Not even in 1928—the year before the crash that marked the beginning of the Great Depression—did the top 10 percent share surpass 50 percent of total income. In 2012, the income of the mere 0.01 percent captured nearly 6 percent of total U.S. income! Note, also, how the top 10 percent’s share fell to about 35 percent during World War II, and then remained around 35 percent of total income for almost four decades. U.S. Economic growth was the fastest in our history during that period. There was plenty of inequality in the 1950s and 1960s, but now that period looks egalitarian compared to what came to pass after the 1970s.

Many things changed in the late 1970s and early 1980s to trigger a consistent rise in the top 10 percent’s income share. Taxes on the wealthy were reduced, unions were weakened, imports grew rapidly and U.S. wages stagnated, and overall productivity growth slowed. Clearly, higher income of the wealthy relative to the rest of the population does not increase economic growth, and the slower growth certainly does not ‘trickle down.’

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