A recent Congressional Budget Office analysis of household income distribution revealed growing inequalities over the past 30 years. The report examined market and household income growth from 1979-2007, before and after federal tax and government transfers (more commonly known as social benefits, such as Social Security, unemployment, and disability payments).
The causes of the “growing unevenness in the distribution of after-tax income”, says the report, has to do with an increased concentration of market income (money earned through employment, trading, or financial investments) “in favor of higher-income households.”
“The incomes of the wealthiest one percent have nearly tripled since 1979,” says Washington Post’s Ezra Klein. After transfers and taxes, the top one percent saw their income grow by 275 percent, four times the 65 percent growth experienced by the rest of the top 20 percent. The bottom 60 percent saw an increase of 40 percent, with the bottom 20 percent seeing an 18 percent increase. To compare, the top one percent’s income growth was fifteen times that of the bottom 20 percent.
Put another way, those with the most resources saw the largest gain. The highest income earners in 2007 saw an increase in jobs and higher market income between 1979 and 2007, while the bottom eighty percent saw a decrease in both.
The report attributes two factors to the rising inequalities.
The first is an uneven distribution of the sources of market income (income coming from labor industries, business, finance, capital income etc). The population with the highest income had wider access to the industries that generated more income, such as finance, business, trading and investment, while those less skilled, and on the middle and lower end of the income scale, only had access to shrinking industries such as labor, manufacturing, and production.
The second factor was a change in the ways in which income was earned. The study reported a decrease in the share of income generated by from labor and capital – money generated by small businesses, manufacturing, and other production jobs – and an increase in income generated by business and finance industries. This created a service-heavy economy in which much was traded, but little was produced.
Furthermore, executives have received ever greater pay since 1979, possibly due to weak corporate governance controls on pay increases, says Klein.
The distribution of social benefits – such as unemployment, disability payments, and Social Security – shifted away from households on the lower part of the income scale, declining from 50 percent in 1979 to 35 percent in 2007. The CBO attributes this shift to increased spending on elderly populations instead of impoverished persons from various age brackets.
“Increasingly, the question of income inequality is becoming a volatile political issue,” says Digital Journal writer Sadiq Green. As politicians develop budgets, Green hopes they will turn to “the mountain of data” in order to make policy decisions that would benefit all Americans.