GINI Country Report: Growing Inequalities and their Impacts in the United States

In brief, we find that inequality is high and rising in the United States, but the great majority of the increase was captured by the top end of the distribution since the mid-1990s—the top 1 percent in any given year and the top 5 to 10 percent overall—over the past 40 years. Overall inequality increased at a slow pace in recent years owing to the better economic status of the elderly, but inequality among families and children has continued to rise in the United States. The general focus in chapter 2 is on longer-term trends in inequality and poverty going back to 1967 or 1979. Data on trends in income and consumption inequality, poverty, and wealth inequality, show considerable increases over this period but a relatively constant level of poverty using European relative poverty definitions. When we assess the proximate causes or driving factors of U.S. inequality and find that labor markets (rising inequality in wages and earnings) and income from capital drive the inequality distribution in the United States, with redistribution playing only a minor and more or less constant role. There is a huge body of research on the causes of rising inequality and the consensus view is that technological change has increased the demand for skilled workers faster than the supply of skilled workers in the United States. Goldin and Katz (2008) show that the growth of U.S. schooling slowed for people entering the labor market in the late 1970s. As the supply of skills slowed down and the demand for skills continued to rise (due to technological change and wider international markets), the premium for having an education led to a rapid rise in wages at the top of the distribution.