Home > business and economics, Congressional Research Service, income inequality/wealth gap, social and cultural issues > CRS — The U.S. Income Distribution and Mobility: Trends and International Comparisons

CRS — The U.S. Income Distribution and Mobility: Trends and International Comparisons

December 5, 2012

The U.S. Income Distribution and Mobility: Trends and International Comparisons (PDF)

Source: Congressional Research Service (via Federation of American Scientists)

The historically slow rebound in the labor market from the 2007-2009 recession appears to be partly responsible for the current focus of some within the public policy community on the unequal distribution of the benefits of economic growth (e.g., higher national income) across U.S. households. This report examines changes over time and across countries in the shape of the income distribution to afford Members of Congress a broader perspective when deliberating such policy issues as the progressivity of income tax rates, the generosity of social insurance programs, and the level of the minimum wage.

If income were equally divided across households, each quintile (fifth) of households would account for 20% of total income. Inequality is the term commonly used to describe an income distribution in which one or more quintiles account for less (more) than 20% of aggregate income. The Congressional Budget Office and others have documented that the bottom fifth has long accounted for much less than its proportionate share (20%) of total income. The bottom quintile’s share of income has remained little changed for the past few decades at less than 4%, according to U.S. Census Bureau data. The middle class, defined as the middle 60% of households, received a disproportionately smaller share of the total economic pie in 2011 (45.7%) than in 1968 (53.2%). Over the same period, the disproportionately large income shares of the top 20% and the top 5% of households have trended upward. The top fifth’s share of total household income rose from 42.6% in 1968 to 51.1% in 2011; the top 5%’s share rose from 16.3% to 22.3%.

Estimates derived from federal income tax data, which allow researchers to look within the top 5% of the U.S. income distribution, suggest that those at the very top have reaped disproportionately larger gains from economic growth. These, among other measures of income dispersion, have led analysts to conclude that inequality has increased in the United States as a result of high-income households pulling further away from those lower in the distribution.

Based on the limited data that are comparable across nations, the U.S. income distribution appears to be among the most unequal of all major industrialized countries and the United States appears to be among the nations experiencing the greatest increases in measures of income dispersion. Three leading explanations are put forth for these cross-country differences: (1) other advanced economies devote a larger share of national output to transfers, which tends to equalize income across households; (2) the progressivity of tax rates varies by country and thus has different effects on the distribution of after-tax income; and (3) equality in the distribution of earnings, which account for most household income, varies substantially across countries. The extent to which countries undertake policies that affect their income distributions may reflect national differences in perceptions about the degree of income mobility. In the United States, a longstanding argument against redistributionary policies has been that each person has an equal opportunity to move up the income ladder. Research raises questions about whether Americans’ perceptions of their likelihood of upward mobility are exaggerated. Empirical analyses estimate that the United States is a comparatively immobile society, that is, where one starts in the income distribution influences where one ends up to a greater degree than in several advanced economies. Children raised in families at the bottom of the U.S. income distribution are estimated to be especially less likely to ascend the income ladder as adults.

%d bloggers like this: