Why does income inequality matter




















More tepid growth in the income of middle-class households and the reduction in the share of households in the middle-income tier led to a steep fall in the share of U. These trends in income reflect the growth in economic inequality overall in the U. Even among higher-income families, the growth in income has favored those at the top. This disparity in outcomes is less pronounced in the wake of the Great Recession but shows no signs of reversing. From to , the change in mean family income ranged from a loss of 0.

Thus, the s marked the beginning of a long and steady rise in income inequality. A similar pattern prevailed in the s, with even sharper growth in income at the top. The period from to is unique in the post-WWII era. Families in all strata experienced a loss in income in this decade, with those in the poorer strata experiencing more pronounced losses. The pattern in income growth from to is more balanced than the previous three decades, with gains more broadly shared across poorer and better-off families.

Other than income, the wealth of a family is a key indicator of its financial security. Wealth, or net worth, is the value of assets owned by a family, such as a home or a savings account, minus outstanding debt, such as a mortgage or student loan.

Accumulated over time, wealth is a source of retirement income, protects against short-term economic shocks, and provides security and social status for future generations. The period from the mids to the mids was beneficial for the wealth portfolios of American families overall. Housing prices more than doubled in this period, and stock values tripled.

But the run up in housing prices proved to be a bubble that burst in Home prices plunged starting in , triggering the Great Recession in and dragging stock prices into a steep fall as well. The wealth gap among upper-income families and middle- and lower-income families is sharper than the income gap and is growing more rapidly. The period from to was relatively prosperous for families in all income tiers, but one of rising inequality.

Figures are expressed in dollars. The wealth gap between upper-income and lower- and middle-income families has grown wider this century. As of , upper-income families had 7. These ratios are up from 3. The reason for this is that middle-income families are more dependent on home equity as a source of wealth than upper-income families, and the bursting of the housing bubble in had more of an impact on their net worth. Upper-income families, who derive a larger share of their wealth from financial market assets and business equity, were in a better position to benefit from a relatively quick recovery in the stock market once the recession ended.

As with the distribution of aggregate income, the share of U. The richest families in the U. The tilt to the top was most acute in the period from to The wealthiest families are also the only ones to have experienced gains in wealth in the years after the start of the Great Recession in By , this ratio had increased to , a much sharper rise than the widening gap in income. S has increased since and is greater than in peer countries Income inequality may be measured in a number of ways , but no matter the measure , economic inequality in the U.

We find that wealth inequality reduces economic growth, but when we control for the fact that some billionaires acquired wealth through political connections, the effect of politically connected wealth inequality is negative, while politically unconnected wealth inequality, income inequality, and initial poverty have no significant effect. These necessary cookies are required to activate the core functionality of the website. An opt-out from these technologies is not available.

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The Effect of Billionaire Wealth, Inco Keywords economic growth wealth inequality income inequality billionaires political connections. The story is unfolding before our eyes, but the data for full assessment will not be available for some time. By then, it could be too late for several generations of Americans to make up lost ground. SSN Basic Facts. Share pdf twitter facebook. Charlotte Cavaille. Georgetown University. For instance, one study finds that married women are more likely to seek employment if their stay-at-home sisters are married to men earning more than their own husbands.

The concentration of income at the top shifts consumption patterns in ways that ripple through the entire society. If the rich up the ante by acquiring bigger, faster cars and huge houses with lots of perks, this shifts consumption patterns for everyone. Trying to keep up, middle-class households — whose income has been growing at a much slower pace — take on more debt. Researchers have found a relationship between inequality and savings: the greater the increase in economic inequality in a country, the smaller the increase in household savings.

Citizens may also channel resentments into politics and demand policies that redistribute income from the very rich to others. This does not occur straightforwardly, because such political responses depend on inequalities and their effects becoming visible to average citizens, who also must have the capacity to express shared grievances through votes, opinion polls and mass protests.

As scholars have learned, the necessary conditions are often lacking to make political responses possible.



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