That’s how textbooks tell us things work. Firms will hire more workers, driving up wages, until the wage (cost) of an hour of work is just equal to the value (productivity) of that worker. And if wages grow more slowly than productivity, hiring additional workers is profitable. If wages grow faster than productivity, it’s expected that labor will become too expensive, firms will lay off workers, and wage growth will slow. That’s a surprising development, since, in economics theory, real wages and productivity should be closely aligned. This trend translates into an understanding that wealthier households are doing better than “us.” Even relatively affluent households may experience this, since even households in the top 80th percentile see their incomes and lifestyles declining, or at least improving more slowly, relative to people at the very top of the income scale.
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In both cases, the relative income of the less-well-off households has fallen substantially. Figure 6b shows the ratio of income of 95th-percentile households to that among households in the 80th percentile (fairly affluent, but not at the top). And, in fact, that is what appears to be happening-but not just to the poorest households.įigure 6a shows the ratio of income of households at the 95th percentile of income (that is, the top 5 percent of households, so very wealthy) to income among households at the 40th percentile (that is, somewhat below the country’s median income). 4 If this is the case, rising income inequality could reduce happiness even if lower-income workers are better off in absolute terms, because these lower-income workers see themselves falling farther behind their wealthier contemporaries. However, James Duesenberry’s “relative income hypothesis” suggests that people’s happiness is related to their income relative to others as much as to their absolute level of income.
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These measures are relative, which means that they do not take into account the fact that absolute incomes may be rising even at lower levels of the income distribution. Their share of total income fell from 20 percent in the 1970s to just over 10 percent today. Some of the loss was borne by the middle 40 percent, but much of this increase among the top 10 percent has come at the expense of workers in the lower half of the distribution. The share of total income earned by the top 10 percent has risen from around 31 percent in the 1970s to about 50 percent today. The real question is whether the trend is toward equality or inequality.įigure 2 shows that the trend is indeed toward greater income inequality. And some people earn less because they have less experience, have not invested in their careers, suffer from changes in market forces, are simply unlucky, or face hurdles such as racial discrimination.
![returning values in robotstudio rabid returning values in robotstudio rabid](https://i.imgur.com/VEahby7.png)
Some people earn more because they’ve invested in their careers, some because they take advantage of unforeseen market forces, and some because they are lucky, or even just born lucky. Now, nobody should expect income to be distributed equally, and that has never been the case in any event. The next 40 percent earned slightly more than 40 percent of total income, and the bottom half of all earners took home just 13 percent of all income earned that year. The top 10 percent of workers in the United States earned about half of the year’s total income. However, if 10 percent of the income-earner population receives 20 percent of the total available income, these people will have higher incomes than other people.įigure 1 shows income shares in the United States in 2014. If income is distributed equally, any 10 percent of the income-earner population will earn 10 percent of the total available income. There is no one measure that summarizes income inequality for a society.Īnalysts who study the topic often look at the share of total income going to groups at different levels of the income distribution. But it’s harder to effectively measure the level of income inequality in a way that lets us compare different times and places. The idea that some people earn more income than others is easy to think about-especially if we are comparing ourselves to wealthier people. It may sound simple to talk about the distribution of income, but trying to measure it can quickly become confusing. Measuring the distribution of income and wealth 1 But how do we know that? And what do we mean by income inequality? This edition of Issues by the Numbers explores the data underpinning the claim of growing US income inequality, and describes the possible causes of this trend. It’s widely said that the United States has been experiencing growing income inequality. View the related infographic Introduction