On Tuesday, the Census Bureau released the latest data on poverty and
income distribution for U.S. households. They show small improvements for 2018
compared with the year before, as would be expected with unemployment nearing
50-year lows. However, the short-term gains were not large enough to constitute
a break with long-term trends.
One piece of welcome news was a drop in the percentage of
people living in poverty from 12.7 percent in 2017 to 11.8 percent in 2018.
Still, as the following chart shows, the 2018 poverty rate remains above the
lows reached in the 1970s and again at the turn of the century. The longer-term
trend of the official poverty rate since the late 1960s remains upward even
when recent decreases are taken into account.
The official poverty rate is only one of several ways of
looking at income distribution in America. The Gini
index provides another perspective. This statistic varies from a
possible value of zero, when distribution is perfectly equal (like a cake cut
into equal slices) and 100 for a winner-take-all situation (like a hand of
poker where the winner gets everyone else’s chips). The same statistic is
sometimes on a scale of zero to one, in which case it is called the Gini
coefficient or Gini ratio.
The latest reading for the U.S. Gini index is 48.6, down
fractionally from 48.9 the previous year. As shown in the next chart, income
inequality has been on a long upward trend in the United States. Half a century
ago, the Gini index was a full ten points lower than it is today.
We can put the data in a wider context with the help of data
from the CIA World Factbook. Drawing on various data sources, the
Factbook reports a U.S. Gini index of 45 for 2007 — about the same as Saudi
Arabia or Mozambique. South Africa, with a Gini index of 63, is the most
unequal of the world’s major countries. For comparison, France, Denmark,
Germany, and several other wealthy democratic countries have Gini indexes in
the 20s.
The value of a country’s Gini index is heavily influenced by
data from the middle class. Another way to look at inequality is to focus on
only the richest and the poorest households. The next chart includes two such
data series. The first shows the percentage of total income earned by the top 5
percent of U.S. households. The second shows the ratio of the income share of
the richest income decile to that of the poorest decile. Both measures have
climbed steadily over the years, despite slight decreases from 2017 to 2018.
Finally, it is informative to look not just at ratios and
percentages, but at the spread of absolute levels of income. The next chart
shows inflation-adjusted household incomes for population quintiles and for the
top five percent. The chart shows at a glance how top earners have claimed the
largest share of overall increases in income over the past half century. Gains
farther down the income scale are much less impressive.
The bottom three lines in the preceding chart are so close
to flat that it is hard to make out the direction of recent trends. For
example, although you can hardly see it from the chart, a closer look at the
underlying data show that real incomes of the lowest fifth of U.S. households
reached an all-time high way back in 1999 and have decreased since then by
about 8 percent. The second quintile has fared only slightly better, with an
income increase of only 1 percent over the past 20 years. The next chart
directly compares the percentage gains in income since 1999 for income
quintiles and for the richest 20 percent of households.
The bottom line: The United States paradoxically combines a
level of overall wealth characteristic of the world’s most prosperous
democracies with a level of inequality more commonly found in much poorer
countries of the developing world. Furthermore, we are becoming more of an
outlier as time goes by. Trends in inequality conspicuously do not cycle up or
down according to the party in power in Washington. They seem structurally
embedded in the U.S. economy. It will require fundamental reforms if these
established trends are ever to be broken.
Previously published at Medium.com
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