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Income Inequality Keeps Growing–And It’s Worse Than We Thought

The bottom 50% of Americans haven’t seen any economic improvement in 34 years and the things that will fix it–higher taxes on the wealthy, stronger unions–aren’t coming any time soon.

Income Inequality Keeps Growing–And It’s Worse Than We Thought
[Photos: mediaphotos/iStock]

If you’re part of the bottom-half of the American income scale, the last 34 years has been a tough time. Your wages were stagnant and your share of national income–all the value this country creates–fell. While GDP was rising, the stock market was climbing, and people at the top were doing great, the bottom 50% saw no effective improvement in living standards at all.

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We already knew that income inequality was getting worse. But new research adds important new data, showing how the taxes we pay and the benefits we receive affect our incomes. Previous research, some critics have complained, has failed to account for the effect of progressive tax policies that see people on higher incomes pay proportionally more, and welfare programs like Temporary Assistance for Needy Families (TANF), which do some work to redistribute income.

The research, which factors in taxes and government transfers, comes from economists Thomas Piketty, at the Paris School of Economics and Emmanuel Saez and Gabriel Zucman, from the University of California, Berkeley. They find that while the bottom 50% saw no income increases between 1980 and 2014–adjusted for inflation, incomes stayed at an average of $16,000 a year–adults between the median and the 90th percentile gained 32%, the top 10% gained 68% and the top 1% gained 36%.

“It’s a tale of two countries. For the 117 million U.S. adults in the bottom half of the income distribution, growth has been non-existent for a generation while at the top of the ladder it has been extraordinarily strong,” say the authors summarizing the results. “An economy that fails to deliver growth for half of its people for an entire generation is bound to generate discontent with the status quo and a rejection of establishment politics.”

America isn’t alone in seeing increasing income inequality–all industrialized countries have become more unequal. But our levels put us in elite company. The 1% now earns 81 times more than the bottom 50% (up from 27 times in 1980), putting us in league with the war-ravaged Democratic Republic of Congo, the Central African Republic, and Burundi. After taxes and transfers, the bottom-50% in France now earn more than the same group here despite average incomes per adult there being 35% lower. France does much more to even up living standards than we do.

The research is important because it also points to what might work to decrease income inequality, and what won’t work. The paper calls for more equal education access, labor market reforms to boost workers’ wage bargaining power, corporate governance reforms to give workers more voice in the distribution of company profits (e.g. workers on boards), and more progressive taxation at the top-end (basically tax the rich more).

Some say inequality is a function of technology and globalization, but it’s also clear that public policy has a role, too. For example, the decline in unionization in the U.S is closely aligned with falling wages among working people. Governments at the federal, state and local levels “have the power to make income distribution more unequal, but they also have the power to make economic growth in America more equitable again,” the authors say.

About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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