Economic inequality is on the rise, driven by growth in income among the wealthiest Americans, while those of more-modest means saw their earnings stagnate or even decline.
The Census Bureau’s annual report on income, poverty, and health insurance coverage, released on Wednesday, revealed that the top fifth of earners’ share of the country’s income rose by 1.6 percent in 2011. And within the top quintile, the top 5 percent’s portion climbed by 4.9 percent. By contrast, the share of income declined for those in the middle and was essentially unchanged in the bottom quintiles.
The report could provide fodder for President Obama on the campaign trail. He has hammered Mitt Romney for the Republican nominee's support for tax cuts for the wealthiest Americans and said that his opponent's policies would be harmful to the middle class. Romney has countered by accusing Obama of engaging in class warfare.
A separate Census Bureau measure of inequality, known as the Gini index, calculates household income inequality on a scale of 0 (perfect equality) to 1 (perfect inequality). In 2011, it was 0.477—up 5.2 percent from 1993, the first year for which comparable measures of income inequality are available, the report found.
“What income growth we had clearly eluded middle- and lower-income households,” Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities who served as a member of President Obama’s economic team, said on a conference call with reporters.
Bernstein pointed out that the share of income going to the bottom and middle fifths of households was the lowest on record, 3.2 percent and 14.3 percent, respectively, with data going back to the mid-1960s. The top fifth, by contrast, held the highest share on record with 51.1 percent.
The data come with caveats, though. Many noncash benefits that the poorest Americans receive, such as food stamps, aren’t included in the Census Bureau’s count. But capital gains and dividends, which tend to bolster the income of folks at the top, are also omitted. “Do they perfectly offset each other? Maybe, but who knows,” said Nicholas Eberstadt, a political economist at the American Enterprise Institute.
Even though the data measuring the level of inequality aren’t perfect, the trend of a long-widening gap is clear. “It is a long-term phenomenon that seems to have begun in the early 1970s, and it is continuing in America; it is continuing in most other [Organization for Economic Cooperation and Development] countries; it’s continuing in a number of the emerging economies,” Eberstadt said. “And there’s no indication that it’s set to stop widening. It’s been going on now for almost four decades.”
With the current tepid economy, it’s not surprising that wages have stagnated for middle and bottom earners. At the top, however, the turnaround in American business since the depths of the recession account for the gains, says Brookings Institution economist Gary Burtless. “The incomes of the top 1 percent are awfully powerfully affected by profitability of American businesses, because a lot of compensation that the top 1 percent receives—and of course, a lot of it is unearned income, by which I mean income from capital--is very, very sensitive to the business cycle,” he said.
“It’s not been a good recovery for workers,” he added. “It’s been a much better recovery for business, and that’s going to really help the incomes of the top end, in terms of percentage gains, anyway.”
Overall, the Census Bureau’s report was not as dire as had been expected, with the poverty rate dropping one-tenth of a percent—not a statistically significant change, but not the anticipated rise.