Inequality is rising while trends deepen – Unequal recovery from economic crises has exacerbated wealth gaps

Backgrounder The U.S. Inequality Debate Public policy experts call income and wealth inequality one of the defining challenges of this century. Recent crises have accelerated these divisions, and the COVID-19 pandemic has deepened them further. Summary Income and wealth inequality is higher in the United States than in almost any other developed country, and it is rising. There are large wealth and income gaps across racial groups, which many experts attribute to the country’s legacy of slavery and racist economic policies. Proposals to reduce inequality include a more progressive income tax, a higher minimum wage, and expanded educational opportunities. Introduction Income and wealth inequality in the United States is substantially higher than in almost any other developed nation, and it is on the rise, sparking an intensifying national debate. The 2008 global financial crisis, the slow and uneven recovery, and the economic shock caused by the COVID-19 pandemic have deepened these trends and challenged policymakers to respond. Economists say the causes of worsening inequality are complex and include a failure to adapt to globalization and technological change, shifting tax policy, reduced bargaining power among workers, and long-standing racial and gender discrimination. The effects of inequality are similarly varied, and they have exacerbated crises such as the pandemic and deepened societal divisions. Inequality can also weaken democracy and give rise to authoritarian movements. President Joe Biden has pledged to reduce economic inequality with new social spending financed by higher taxes on the wealthy and corporations, but he faces opposition from those who say his plans go too far. How unequal is the United States? According to the nonpartisan Congressional Budget Office [PDF], income inequality in the United States has been rising for decades, with the incomes of the highest echelon of earners rapidly outpacing the rest of the population. Even among high earners, income gains have been heavily skewed toward the top of that bracket. The growth of CEO pay is illustrative of this trend. In 1965, a typical corporate CEO earned about twenty times that earned by a typical worker; by 2018, the ratio was 278:1, according to the Economic Policy Institute, a progressive think tank. Between 1978 and 2018, CEO compensation increased by more than 900 percent while worker compensation increased by just 11.9 percent. U.S. Income Distribution Weighted Toward the Top Average household income after taxes and transfers, 2018 A bar chart of the U.S. income distribution, showing that it is heavily weighted toward the top The picture is much the same when looking at wealth—that is, total net worth rather than yearly income. In 2021, the top 10 percent of Americans held nearly 70 percent of U.S. wealth, up from about 61 percent at the end of 1989. The share held by the next 40 percent fell correspondingly over that period. The bottom 50 percent (roughly sixty-three million families) owned about 2.5 percent of wealth in 2021. Moreover, inequality in the United States outpaces that of other rich nations. This is captured by the steady rise in the U.S. Gini coefficient, a measure of a country’s economic inequality that ranges from zero (completely equal) to one hundred (completely unequal). The United States’ Gini coefficient was forty in 2019—the same as Bulgaria’s and Turkey’s, and significantly higher than that of Canada, France, and Germany—according to the Organization for Economic Cooperation and Development (OECD), a group of advanced economies. Recent economic shocks have deepened these trends. The so-called Great Recession from 2007 to 2009 caused incomes to fall, and even when they recovered to pre-recession levels in 2015, the median income was the same as it was in 2000: $70,200. The recovery was also unequal: by 2016, the top 10 percent had more wealth than they did in 2007 while the bottom 90 percent had less. Experts say the economic turmoil caused by the COVID-19 pandemic, including the largest spike in unemployment in modern history, will similarly exacerbate inequality. Low-wage workers were far more likely to be laid off and less likely to be rehired, though massive government stimulus helped blunt the impact. Meanwhile, a boom in stock and home prices primarily benefited wealthy Americans, who own more of these assets. Though wages rose at the fastest pace in decades, so did prices, and this inflation effectively canceled out wage gains.