NCPA - National Center for Policy Analysis

ECONOMIC INEQUALITY: FACTS, THEORY AND SIGNIFICANCE

June 10, 2008

The well-documented rise in economic inequality in the United States over the last two decades is somewhat misleading.  Almost all Americans, whether considered "rich" or "poor," are better off economically today than in previous times.  Furthermore, due to the high degree of income mobility in the United States, most people move between income groups throughout their life, says David R. Henderson, an associate professor of economics at the Naval Postgraduate School and a research fellow with the Hoover Institution.

Household income varies substantially for several reasons that are often ignored, including: differences in the number of family members who work and differences in the amount of work.

High-income households are not likely to consist of one person earning a very high income (as is often assumed); rather, they are likely to have two or more income earners:

  • In 2006, a whopping 81.4 percent of families in the top income quintile had two or more people working, and only 2.2 percent had no one working.
  • By contrast, only 12.6 percent of families in the bottom quintile had two or more people working; 39.2 percent had no one working.
  • The average number of earners per family for the top group was 2.16, almost three times the 0.76 average for the bottom.

Census data show a large difference in full-time work and in the number of weeks worked in a year:

  • Less than one-third of families in the lowest quintile had a head of household working full-time; in the top quintile, more than three-fourths of families did.
  • Thus, average families in the top group have many more weeks of work than those in the bottom and, in the late 1970s, the 12-to-1 total income ratio shrunk to only 2-to-1 per week of work, according to one analysis.

Source: David R. Henderson, "Economic Inequality:  Facts, Theory and Significance," National Center for Policy Analysis, Policy Report No. 312, June 10, 2008.

For text:

www.ncpa.org/pub/st312

 

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