US Income Inequality High With A Caveat

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Income inequality is a big issue in the United States as well as fodder for government and world leaders. Late last year, President Barack Obama mentioned a growing divide between the nation’s ten percent and the rest of the country. He also used income distribution as an impetus to raise minimum wage. Lawmakers are also doing their part to shrink the deficit by deciding who should pay the most taxes based on income and possibly wealth.

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This information can easily lead one into believing the inequality problem is severe in the United States but it is important to take a closer look at the claims. The Federal Reserve Bank of St. Louis recently took a closer look at the facts and what it means. FRBSL analyzed U.S. income data and population distribution. They also looked at additional data from various demographics. Here is a sampling of what they found.

income inequality

Significant differences between rich, middle class, and poor in United States

Those in the top 10 income bracket have total earnings great enough to raise the mean income over the median for the total population. In 2010, the median household income was $46,000 and the mean income was $78,500. Within the 10% rankings, mean income was roughly 70% higher than the median. To avoid a bias, FRBSL looked at the median income rather than the mean for this analysis.

income inequality

Earnings for the middle class income bracket ranged from $35,000 to $78,500.2,  a drop from 43% to 31%. By contrast, those on the upper income spectrum earned the largest shares over the period. Households earning $75,000 increased from 17% to nearly 34% distribution. Those who are earning over $150,000 jumped from 2% to nearly 10%.

Although the middle class continues to shrink and the poor remain stagnate in the United States, Americans are still earning more across the income bracket.

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The paper notes

The table shows the highest and lowest 19 (representing roughly the top and bottom 10 percent of the sample) countries in the IMF data with respect to 2012 GDP per capita. The top 19 developed nations had a median GDP per capita of about $51,700; this was also the GDP per capita of the U.S. For the bottom 19 developing countries, we originally took those with the lowest GDP per capita as we did for the state and OECD analysis. This sampling consisted of almost all African nations and had very little geographic diversity. Consequently, African nations were temporarily omitted from the sample used in the table. Of the bottom 19, Yemen fell in the middle with a GDP per capita of about $1,400. The global inequality ratio of 38.2 surpasses that of the U.S. household income inequality (21), and adding the African nations back to the sample raises that ratio to 99.

While not to diminish the ample income inequality in the U.S., a focus on absolute inequality would suggest income disparity among the world’s population is a far greater concern. To put things in perspective, the poorest 10 percent of the U.S. income distribution hold a median income that is more than seven times that of the poorest 19 developing nations as listed in the table. Upward income mobility is out of the question when basic human rights (food and water, medical care, safety) are not available.

Income inequality: Education makes a difference

FRBSL also discovered that many of the households in the top echelons don’t exactly fit the rich people stereotype. Data from Bureau of Labor Statistics Occupational Outlook Handbook show that married couples with high paying jobs sometimes qualify for the top percentile. Examples include a chemist who makes $73,000 and a chef who makes $43,000; a librarian who makes $55,000 and a fashion designer who makes $63,000. Many unmarried individuals with a professional degree would also qualify. For example, a single dentist who makes about $149,000 annually could qualify.

income inequality

Education has a big influence in income earnings which isn’t really surprising. An individual with just a high school diploma makes 77% more in median earnings than a high school dropout, but individuals with a bachelor degree make about 102% more than those with a high school diploma. Those with a professional degree make 61% more than those with just a bachelor degree. These numbers show that education is still the best way to improve income earning opportunities. Thanks to the many post-secondary colleges and universities that offer degree programs across the United States, the opportunity for Americans has never been greater.

income inequality


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