Has the distribution of income and wealth in the USA got much more skewed towards the rich in the last 4 decades?

Question

I recently asked this question about a statistic quoted by Kurt Andersen designed to illustrate the current wealth distribution in the USA in his book Evil Geniuses. It provoked a great deal of (unintended) discussion as I only wanted to check whether his illustration was correct.

But he makes many other claims in the book (which are more relevant to much of the unintended commentary).

He specifically claims that the US distribution of income and wealth has skewed spectacularly in favour of the rich in the last three or four decades. In his words (my highlighting):

Before 1980, all Americans’ incomes grew at the same basic rate as the overall economy. Since 1980, the only people whose incomes have increased at that rate are people with household incomes in the range today of $180,000 to $450,000. People with incomes higher than that, the top 1 percent, have gotten increases much bigger than overall economic growth. (Meanwhile 90 percent of Americans have done worse than the economy overall.)

and

During the grand decades between World War II and 1980, when U.S. median household income more than doubled, 70 percent of all increases in Americans’ income went to the bottom 90 percent. Since 1980, nobody’s income has doubled except for the richest 1 percent, and the incomes of the entire nonrich 90 percent of Americans have gone up by only one-quarter.

Are these claims accurate in describing how inequality has skewed in the US since 1980?

Answer 1

According to Pew Research, the difference in median income classed by income strata, expressed in 2018 dollars, from 1970 to 2018, has skewed hard toward the rich, with both the middle and the poor losing ground as a relative share of total income in the US.

It is important to note that, as far as Pew is concerned, the top quintile is the typical grouping for the rich, and the top 5% is a particular subset also analyzed in the article.

Their analysis of the 90-10 ratio shows that, when compared with the G7, the USA has the greatest level of income disparity all told.

Kurt Anderson's claims pass the smell test in light of this data, with the numbers he provides being ballpark accurate, when you normalize to 2018 dollars. For those who are unfamiliar with why we express money in a given years currency, it's to account for inflation, so its a more accurate representation of buying power across time (where a dollar in 1970 would buy much more than a dollar in 2020).

Answer 2

Yes. (every metric I've looked at says that the distribution has become more skewed; whether it is "much" more skewed depends on which metric you look at, and how big you consider "much" to be ...)

This figure from a 2019 McKinsey study shows trends in the Gini coefficient over almost four decades (1980-2014), supporting the claim that income inequality has increased dramatically in the US (roughly in parallel with changes in other G7 countries, although France is much flatter and the UK had a really dramatic increase in the 1980s). The disadvantage of the Gini coefficient is that it's a different metric from the bottom 99%/top 1% quantity that Andersen uses (so it could be telling a different story, although that seems unlikely); the advantage is that it measures inequality across the whole spectrum of incomes, so that it's harder to cherry-pick cutoffs (90/10, 99/1, 99.9/0.1, etc.) that support a particular story. (This figure also measures "equivalized [whatever that is] disposable income" (emphasis added), so that could presumably also change conclusions; overall, though, it seems to support the conclusion.)

Another view, from the Congressional Research Service report The U.S. Income Distribution: Trends and Issues: this is over a slightly different time period and shows two different ways to break down income growth rate distribution:

• at the level of quintiles, from 2009 on there was progressively faster income growth in higher quintiles. The biggest jump is between the second quintile (60th-80th percentile) and the top quintile (>80).

Or, we can compare growth rates in progressively smaller slices of the top end of the distribution (bottom 90%/top 10%, 5%, 1%, 0.1%, 0.01%). Here growth rates also skew higher in higher income slices (although top 0.1% is greater than top 0.01% for 2009-2019).

I think all of this data broadly supports the claim. You could certainly make an argument that: "the most relevant comparison is (2d and 3d quintile) vs 4th quintile, and the growth rate difference between those categories is only 2%, which isn't very much", but at that point we would be having a "how-long-is-a-piece-of-string" (and "which-bit-of-the-string-is-the-best-part-to-measure") argument ...

If anyone wants to do the work to get the numbers that compare (say) the 20th-80th percentile with the 80th-90th percentile (to remove the top decline that @blankip feels is driving the whole pattern), I'd be curious ...

OK, here it is, data from https://wid.world/data/ : the lefthand plot is the mean incomes of the 20th-80th percentile and 80th-95th percentile, 1980-2019 (inflation-adjusted, I think to 2019 dollars). The righthand plot shows the year-by-year ratio of the change in income; the points in red are outliers >10 (up to a ratio of 51.2 for 1981 ...) which were squashed for display purposes. The line is a robust linear model (best-fit straight line, downweighting extreme points). Conclusion: top (80-95) US incomes were growing 2 to 5 times faster (in inflation-adjusted dollars) than middle (20-80) incomes.

Put another way, the middle incomes increased by 47% over this time period, the top incomes increased by 86%.

data here (I'm not sure of the difference between "inc1" and "inc2", one is labeled "equal split" and the other is "individual". This is "Pre-tax national income, average income or wealth, adults, ..., constant local")

Answer 3

Yes. The following spectacular charts from the former secretary of labor and professor at the University of California, Robert B. Reich, illustrate in a striking fashion how the income of "production and non-supervisory workers" stopped growing with productivity some time before 1980. The connection between economic growth and lower incomes was severed. Profits started to go elsewhere.

The claim that a profound change occurred some time before 1980 is specifically corroborated by this data.

I'm linking from the New York Times online, September 4, 2011, so the data is 10 years old. An accompanying article by Reich from September 3, 2011 ("The Limping Middle Class") makes the following analysis:

Although productivity continued to grow and the economy continued to expand, wages began flattening in the 1970s because new technologies — container ships, satellite communications, eventually computers and the Internet — started to undermine any American job that could be automated or done more cheaply abroad.

According to Reich,

• the government deregulated and privatized;
• cut spending on infrastructure;
• undermined labor organization;
• shifted the cost of higher public education to families;
• allowed unchecked globalization of American companies;
• cut income taxes at the top and increased them below;
• deregulated the financial sector while insuring it against losses;
• let finance dominate production instead of the other way around.

The top five percent of Americans around 2010 made 37% of all consumer purchases, and financial services accounted for 40% of corporate profits, up from 10 percent during the "great prosperity" (1950s-1970s).

One detail that I found particularly striking is that in most households today both partners must work to keep up the standard of living that was once provided by a single earner, something many readers can probably relate to.