Chris Uggen's Blog: u.s. income inequality

Wednesday, October 05, 2005

u.s. income inequality

a new nytimes story by david cay johnston presents some intriguing data on u.s. income inequality. a few summary points and excerpts from the article:

1. It takes $327,000 per year to make the top 1% in the nation, but income is rising significantly for this (and only this) group.
Only for those Americans in the top 1 percent, the nearly 1.3 million taxpayers who made at least $327,000, did incomes increase significantly more in 2003 than the rate of inflation. And this increase was concentrated within the top tenth of 1 percent. ... For the bottom 99 percent of taxpayers, income rose by slightly less than 2 percent, which was below the inflation rate of 2.3 percent.

2. The top 1% makes more (17.5% of all income) and pays more taxes (33% of all taxes) than other groups.
The top 1 percent of taxpayers received almost 17.5 percent of all income and paid a third of all income taxes in 2003, the I.R.S. found. The top tenth of 1 percent received 7.57 percent of reported income and paid more than 15.3 percent of all income taxes.

3. The top tenth of 1% (.1%) makes more than the bottom 33% and inequality between these groups has risen sharply in the last 25 years.
The top tenth of 1 percent had more income in 2003 than the poorest third of taxpayers, a group with 330 times the number of people, analysis of the data showed. This is a sharp change from 1979, the earliest year in the I.R.S. report, when the total income of the poorest third of Americans exceeded that garnered by the top tenth of 1 percent by 2.5 to 1.

4. The US has less income disparity than Mexico and Russia, but greater disparity than other nations.
Other data show that among major world economies, the United States in recent years has had the third-greatest disparity in incomes between the very top and everyone else. Only Mexico and Russia, among major economies, have greater disparity.

I don't know whether the IRS counts prisoners among the bottom 33%. If not, the change in inequality is presumably even greater. Also, inequalities of wealth are far greater than those of income. The relationship between inequality and crime is contested, but the long-term trend toward greater inequality makes me nervous -- are we really building a "stakeholder" society for the bottom third? does an ideology of meritocracy become less tenable with such disparities?


At 2:26 PM, Blogger Mike W. said...

Why would the IRS omit ex-offenders (at least those fortunate enough to participate legitimately in the workforce)?

In regards to how this might affect the stability of the notion of a meritocratic society, I tend to think that quantitative changes (such as income inequality) rarely turn into meaningful patterns of diminished opportunities that the other 99% would recognize as inequality. Posing that question (to me, anyway) reminds me of some of the early social movements theorists (the "collective behavior" school of thought), who posited that movements arose as greivances/strain/bad things increased (which was accused of falsely claiming that greivances weren't a social constant).

At 4:11 PM, Anonymous Ryan said...

Whether intended or not, the previous comment raised a question for me: Is economic inequity necessarily bad? My knee-jerk reaction is yes, but a strand of economic thought does not view inequality in a zero-sum sense. A couple of years ago the lead article in the Economist proclaimed that greater success among western nations (i.e., the US and Britain) meant greater investment in poorer countries, notably Africa. The data Chris put forth cast doubt on an analogous association WITHIN the US, but it’s an interesting thesis that challenges sociological ideas on wealth distribution (or at least the consequences). I think Chris hit the proverbial nail on the head with his closing comment – does economic marginality impede a ‘stakeholder’ society.

At 6:20 PM, Anonymous chris said...

mike, i was thinking of current prisoners rather than ex-prisoners. the prison population now makes up a much larger percentage of the total low-income population than in 1979. if the irs doesn't count prisoners and other institutionalized populations(the vast majority needn't file income tax forms), then the "bottom third" might be closer to the "bottom 35-40%."

ryan, sociologists have made such arguments too. as i recall, functionalists such as kingsley davis argued that inequality has all sorts of positive functions (e.g., motivating and rewarding effort). for me, the question is "how much inequality?" the stats in the times today gave me pause.

i think that civilized society rests on an implicit contract that being "good" results in doing "okay" with a decent chance of doing "well" (many, of course, disagree on this!). i guess one needs to consider poverty or deprivation ("not doing ok") as well as inequality ("not doing ok relative to the rich"). you raise an interesting unit of analysis question for measuring inequality. someday we might see a similar implicit contract in which poor nations are no longer "good" (e.g., in a nuclear proliferation or human rights sense) because they have no shot at doing "well" materially. the importance of inequality probably rests on locating the appropriate reference groups and assessing the extent of relative deprivation.

At 10:29 AM, Blogger Tom Volscho said...

The "tolerance" of rising income inequality is likely due to the proliferation of credit cards--as income inequality increases and an individual's income becomes more volatile from month to month, they keep their consumption the same by absorbing credit card and other forms of debt.

We are probably moving into a debtor society.

Wealth is THE thing to look at but the wealthy make it hard to look at by not funding surveys of wealth.

At 10:44 AM, Anonymous chris said...

that makes sense, tom. if nsf isn't interested, maybe george soros' o.s.i. would fund good survey research on wealth. for me, the income numbers (like, say, the numbers on racial disparity in incarceration) almost speak for themselves. i don't teach strat, but i'd spend a lot of time on the basic social facts of income (and wealth) inequality. i agree that wealth is where the action is.

At 11:13 AM, Blogger Brayden said...

I just finished reading Lisa Keister's book on wealth. If you're interested in learning more about it, her book (Getting Rich) is probably the best source out there on the subject. She argues that wealth, of course, isn't perfectly correlated with income, but there is a connection, e.g. having wealthy parents helps you acquire better human and social capital, which feeds back into income. She also shows though that there is a lot of variation in wealth that is not explained by hereditary factors.

At 8:32 PM, Anonymous chris said...

thanks, brayden. i'll definitely check it out.

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