The American economic pie may have increased in size, but 95 percent of Americans are getting a smaller slice than in the past. This is partly because the top 1 percent of the country has nearly quadrupled the size of its own helping. Their nearly 300 percent increase in take-home pay over that time dwarfs the more modest progress of the rest. Furthermore, while conservatives allege that progressives seek equal outcomes for all, at the cost of American economic freedom, the fact is our storied “equality of opportunity” is overstated. Economic mobility is scarce in the U.S. compared to other advanced economies, and most born into wealth or poverty stay more or less where they started.
Earnings Have Exploded For The Top 1 Percent, While Everyone Else Has Seen Much More Modest Growth
Economic Boom Following World War II Saw Income Gains “Distributed Rapidly Across Income Classes.” From the Economic Policy Institute’s State of Working America: “Between 1947 and 1973, economic growth was both rapid and distributed equally across income classes. The poorest 20% of families saw growth at least as fast as the richest 20% of families, and everybody in between experienced similar rates of income growth. Since then, growth in average living standards has unambiguously slowed. Between 1973 and 1995, growth in productivity, or how much income can be generated in each hour of work, collapsed to less than half the rate that characterized the previous quarter century.” [The State Of Working America, accessed 3/7/12]
Since 1979, Top 1 Percent Of Earners Have Seen Their Income Nearly Quadruple, While No Other Group’s Even Doubled. From the CBO:
- For the 1 percent of the population with the highest income, average real after-tax household income grew by 275 percent between 1979 and 2007 (see Summary Figure 1).
- For others in the 20 percent of the population with the highest income (those in the 81st through 99th percentiles), average real after-tax household income grew by 65 percent over that period, much faster than it did for the remaining 80 percent of the population, but not nearly as fast as for the top 1 percent.
- For the 60 percent of the population in the middle of the income scale (the 21st through 80th percentiles), the growth in average real after-tax household income was just under 40 percent.
- For the 20 percent of the population with the lowest income, average real after-tax household income was about 18 percent higher in 2007 than it had been in 1979.
The Center on Budget and Policy Priorities produced a graph of after-tax income gains for different earnings groups, based on the CBO data:
Share Of After-Tax Income Going To Top 1 Percent Has Doubled, While Share Going To The Poor Has Shrunk. From the Congressional Budget Office:
As a result of those changes, the share of household income after transfers and federal taxes going to the highest income quintile grew from 43 percent in 1979 to 53 percent in 2007 (see Summary Figure 3). The share of after-tax household income for the 1 percent of the population with the highest income more than doubled, climbing from nearly 8 percent in 1979 to 17 percent in 2007. The population in the lowest income quintile received about 7 percent of after-tax income in 1979; by 2007, their share of after-tax income had fallen to about 5 percent. The middle three income quintiles all saw their shares of after-tax income decline by 2 to 3 percentage points between 1979 and 2007. [CBO.gov, October 2011]
Only Top 5 Percent Of Households Have Seen Their Share Of Earnings Increase Since 1979. From Kevin Drum of Mother Jones:
If you look at the raw CBO figures, they show that a full tenth of the national income has shifted since 1979 to the top 1% of the country. The bottom quintiles have each given up a bit more than two percentage points each, and that adds up to 10% of all earnings. That 10% has flowed almost entirely to the very tippy top of the income ladder.
[Mother Jones, 9/18/10]
Ratio Of CEO Pay To Worker Pay Exploded From 24:1 To Nearly 300:1 Prior To Recession. The Economic Policy Institute’s State of Working America published a graph of the ratio of CEO compensation to that of the average production worker:
[The State of Working America, accessed 3/7/12]
Inequality Has Not Gotten Better Since The Financial Crisis
Although The Top 1 Percent Of Earners Absorbed Half The Income Losses Of The Great Recession, Their Earnings Rebounded Dramatically In 2010. From “Striking It Richer” by income inequality expert Emmanuel Saez: “The top 1% absorbed 49% of income losses from 2007 to 2009 while they absorbed a bigger 57% share of the income losses from 2000 to 2002. In 2010, average real income per family grew by 2.3% but the gains were very uneven. Top 1% incomes grew by 11.6% while bottom 99% incomes grew only by 0.2%. Hence, the top 1% captured 93% of the income gains in the first year of recovery. Such an uneven recovery can help explain the recent public demonstrations against inequality. It is likely that this uneven recovery has continued in 2011 as the stock market has continued to recover. […] This suggests that the Great Recession will only depress top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s.” [“Striking It Richer: The Evolution Of Top Incomes In The United States,” Emmanuel Saez, 3/2/12, emphasis added, internal citations and headers removed]
In 2010, The Top 1 Percent Saw Their Incomes Rise By Over $105,000 From The Previous Year, While The Bottom 99 Percent Earned $80 More Than In 2009. Roosevelt Institute fellow and financial blogger Mike Konczal prepared a chart of changes in income, with and without capital gains, from 2009-2010, by percentile:
The Center on Budget and Policy Priorities prepared a graph of the top 1 percent’s share of total pre-tax income from 1913-2010:
The Truth About Economic Mobility: Most Do Better Than Their Parents, But Wealth And Poverty Are Entrenched
In Absolute Terms, 84 Percent Of Americans Earn More Than Their Parents Did. According to the Pew Economic Mobility Project: “Eighty-four percent of Americans have higher family incomes than their parents did, and across all levels of the income distribution, this generation is doing better than the one that came before it.” [Pew Economic Mobility Project, July 2012]
“Those At The Ends Of The Income Distribution Tend To Be Stuck There.” According to the Pew Economic Mobility Project: “Americans raised at the top and bottom of the income ladder are likely to remain there themselves as adults. Forty-three percent of those who start in the bottom are stuck there as adults, and 70 percent remain below the middle quintile. Only 4 percent of adults raised in the bottom make it all the way to the top, showing that the “rags-toriches” story is more often found in Hollywood than in reality. At the other end of the ladder, 40 percent of those raised in the top stay there as adults, and 63 percent remain above the middle quintile. This lack of relative mobility is called “stickiness at the ends” because those at the ends of the income distribution tend to be stuck there over a generation.” The following chart shows the percentage of Americans who end up in each income quintile based on where they start:
[Pew Economic Mobility Project, July 2012]
- Race Is A Factor In Absolute Mobility Of Income And Wealth. According to the Pew Economic Mobility Project: “A gap in absolute mobility exists between blacks and whites for both family income and wealth. For family income, a majority of all Americans exceed their parents; however, blacks have lower absolute mobility gains than whites. […] While many fewer Americans surpass their parents’ wealth than surpass their parents’ income across the distribution, a majority in the bottom three quintiles do. However, when further analyzed by race, only 23 percent of blacks raised in the middle exceed their parents’ wealth compared with 56 percent of whites.” [Pew Economic Mobility Project, July 2012]
- Black Americans Experience Less Relative Mobility And Are More Downwardly Mobile. According to the Pew Economic Mobility Project: “A significant black-white gap also exists for relative mobility. More than half of black adults (53 percent for family income and 50 percent for family wealth) raised at the bottom remain stuck there as adults, but only a third of whites (33 percent for both) do. Blacks also are more downwardly mobile than whites. For family income, over half (56 percent) raised in the middle fall to the bottom or second rung as adults, compared with almost a third (32 percent) of whites. For family wealth, more than two-thirds (68 percent) of blacks raised in the middle fall to the bottom or second rung as adults, compared with just under a third (30 percent) of whites.” [Pew Economic Mobility Project, July 2012]
Poverty And College Costs Help To Restrict Economic Mobility. From the New York Times: “One reason for the mobility gap may be the depth of American poverty, which leaves poor children starting especially far behind. Another may be the unusually large premiums that American employers pay for college degrees. Since children generally follow their parents’ educational trajectory, that premium increases the importance of family background and stymies people with less schooling.” [New York Times, 1/4/12]
Your Parents’ Earnings Have A Much Stronger Influence On How Much You’ll Make In America Than In Other Advanced Economies. From the Economic Policy Institute’s State of Working America:
This version of the American dream is actually less common in the United States than in many peer nations. This chart shows the relationship between a son’s earnings and his father’s earnings. A far higher portion of a son’s earnings in the United States can be explained by his father’s earnings, illustrating once again the relatively low income mobility found in this country. [The State of Working America, accessed 3/7/12]