Economic inequality

Added December 2020

Distribution of income in the US, 2017

Group Annual Family Income
Bottom Quintile $33,551 and below
Second Quintile $33,552–$60,032
Middle Quintile $60,033–$92,358
Fourth Quintile $92,359–$145,380
Top Quintile $145,381 and above
Top 5 percent $261,508 and above

The US has more inequality than the typical country, and much greater income disparity than other economically advanced countries. From 1935 to 1970, the distribution of income in the US gradually became more equal, but since then, inequality has increased. This increase has been driven by increases in international trade with low-wage countries and changes in technology, which have reduced the demand for unskilled labor and raised the demand for skilled labor. The increase in inequality appears to be especially concentrated among the super-rich.

The poverty rate is the percentage of the population whose family income falls below an absolute level called the poverty line. The US poverty rate fell between 1959 and 1973 as average income in the economy rose significantly, but has not declined further since then, despite continued growth. Poverty is greater among blacks and Hispanics, and in families headed by a single mother.

Measuring inequality is complicated by in-kind transfers and tax credits, the economic life cycle, differences between transitory and permanent (normal) income, and economic mobility. Alternative measures, such as consumption, result in a smaller level of inequality.

Policies to reduce poverty include:

  • minimum-wage laws
  • welfare programs, such as Temporary Assistance for Needy Families (TANF) and Supplemental Security Income (SSI)
  • a negative income tax or universal basic income, such as the Earned Income Tax Credit (EITC), though this applies only to the working poor
  • in-kind transfers, such as the Supplemental Nutrition Assistance Program (SNAP)
  • Potential costs of antipoverty programs include depressed employment (in the case of the minimum wage) and decreased work incentives.

    Resources: Mankiw 2019, Chap. 20; Our World in Data