Income Inequality in the U.S.: The Hard Numbers

NEW YORK (MainStreet) — It’s no secret that the income gap is growing in this country, with one recent report from the Congressional Budget Office showing that the wealthiest 1% saw their incomes almost triple between 1979 and 2007 while the rest of the population’s remained comparatively stagnant. Now, the chairman of the President’s Council of Economic Advisors, Alan Krueger, is hoping to paint an even clearer picture of income inequality by putting a dollar value on that statistic.

The rapid growth in the share of the nation’s overall income that goes to the wealthiest Americans in this time period has led to the top 1% earning an extra $1.1 trillion each year that might otherwise have been distributed to the rest of the country, according to a presentation Krueger gave to the Center for American Progress on Thursday. This has left most consumers and the economy as a whole in a much weaker position.

The wealthiest income earners tend to be less likely to spend the extra money they make on goods and services than middle- and lower-class individuals. As a result, Krueger notes that if the $1.1 trillion in wage increases had gone to the 99% rather than the top 1%, annual consumption in the U.S. would have been roughly $440 billion higher (an increase of 5%).

At the same time, the average household would be in a stronger position today if income distribution were better. As Krueger's chart above shows, median household earnings remained stagnant or declined throughout the 2000s, whereas if it had continued to increase at the pace it did during the 1990s, these households would have earned nearly $9,000 more in 2010. For many households, that might have been the difference between paying down medical bills and loans rather than going into debt.

The increase in income inequality over the years can’t be pinned to one single cause. Instead, Krueger points to several long-term factors including changes in technology that broadened the gap in wages between higher and lower educated workers, along with the consolidation of wealth in certain industries like finance and real estate, the increasing prevalence of labor demands outsourced to countries like China and the long decline of unions to help protect wages.  All of this, Krueger argues, has only been exacerbated by federal tax policies in the past decade, which significantly lightened the burden on higher income earners.

(Hat tip to @ThinkProgress for highlighting this report)

Seth Fiegerman is a staff reporter for MainStreet. You can reach him by e-mail at seth.fiegerman [at] thestreet.com, or follow him on Twitter at @sfiegerman.