Picturing Income Inequality, Part 1

With the increased emphasis on income inequality in both Washington and the media, we are certain to be bombarded with competing partisan and ideological claims about the nature and severity of that inequality. As a political scientist, I'd like to focus on what the data say and in that way hopefully contribute to the civic discourse on the issue. This installment uses data available from the Census Bureau's Current Population Survey (CPS)—one of the key sources of information on income inequality. (For the truly wonkish, I discuss these data in more detail at the end of the post.)

The Bottom Line

The evidence from the CPS data supports the following claims:

• The richest households have a greater share of income today than they did in 1967; everyone else has seen their share go down.
• Average household income has increased across the board, but the growth has been unequal and tilted toward the richest households.
• The top 5% have enjoyed the greatest increase in both share of income and average household income.
• Consequently, there is greater income inequality in the US today than there was in 1967.

The Evidence

Figure 1 graphs the share of income from 1967 to 2012 for American households grouped into five equally-sized groups (quintiles). Two things are apparent in the figure. First, there is a fair amount of income inequality across those years.* Second, the bottom 80% of American households have seen their share of income decrease, while the richest 20% have seen their share go up.

A more intuitive way to understand income shares is to imagine 100 people who together earned $100. We could divide those 100 people into five groups of 20 (income quintiles). An equal distribution of income would result in each group having $20. The data show, however, that in 2012 the top 20 people had $51 collectively, the middle 20 (middle class) had $14, and the bottom 20 had only $3.