Pay Gap, Racism and More Contribute to Growing Economic Inequality in the US
During the coronavirus pandemic, millions of Americans have faced financial hardship with more than 50 million filing for unemployment benefits. But even before the COVID-19 crisis, many Americans were dealing with economic issues. According to the Economic Policy Institute, the federal minimum wage hasn’t been enough to meet cost of living demands since the 1960s.
This is just one factor contributing to widening economic inequality. This term refers to either gaps in income or wealth between America’s richest and the rest of the country, and both continue to grow year after year. Here are some other important facts about economic inequality in our country that Americans should be aware of.
The wage gap is widening
Economic inequality may be measured in a number of different ways, but according to Pew Research Center, no matter how it’s measured, it is on the rise in the U.S. One of the ways this is demonstrated is by looking at income or wage inequality in America. According to the Stanford Center on Poverty & Inequality, wage inequality in the United States has increased significantly in the last three decades, with overall inequality levels approaching those prior to the Great Depression. From 1963 to 2016, the income of families near the top percentile increased roughly 90% while that of families in the lowest income range increased less than 10%, per the Urban Institute.
The wealth gap is worsening as well
Along with the wage gap, the wealth gap of Americans is widening as well. According to the Institute for Policy Studies, the U.S. has wider wealth disparities between rich and poor than any other major developed nation. And the rich are getting richer while the poor are getting poorer. According to the Urban Institute, between 1963 and 2016, families in the bottom percentile of wealth went from having no wealth on average to being about $1,000 in debt, while the top 10% saw their wealth increase by five times and the wealth of the top 1% increased sevenfold.
Median wealth for American families has been stagnant for decades
The wealth gap between upper-income families and lower- and middle-income families is even bigger than the income gap and is growing wider faster, per Pew Research Center. From 1983 to 2001, the median wealth of middle-income families increased 42%, while the median wealth of upper-income families increased by 85% over the same period.
Middle- and low-income families lost wealth in the 21st century
From 2001 to 2016, middle-income families saw their median net worth shrink by 20%, while lower-income families lost 45%, per Pew Research Center. Meanwhile, upper-income families added 33% to their median wealth during this period. Upper-income families were able to benefit from the stock market after the recession, while the wealth of lower- and middle-income families was more dependent on home equity, which took a major hit when the housing bubble burst in 2006.
The US middle class is shrinking
The U.S. middle class, which once included the majority of Americans, is shrinking, per Pew Research Center. The amount of American adults living in middle-income households has decreased from 61% in 1971 to 51% in 2019.
The poverty rate hasn’t considerably improved in decades
About 40% of the U.S. population — 140 million people — are either poor or low-income, according to the Institute for Policy Studies. And based on data from the U.S. Census Bureau, the poverty rate has only inched up or down a few percentage points, hovering between about 10-15% since the 1970s. The 2019 poverty rate of 10.5% was the lowest rate observed since estimates were initially published in 1959.
CEO pay has skyrocketed
In recent decades, the gap between CEO compensation and the salary of the average worker in manufacturing or production has significantly widened. According to the Economic Policy Institute, CEOs made 24 times more than typical workers in 1965 but made 295.9 times more by 2013. From 1978 to 2013, CEO compensation adjusted for inflation increased 937% while the typical worker’s compensation rose a meager 10.2%
The typical US family can’t survive on minimum wage
The minimum wage does not provide a living wage for the majority of American families. According to the Massachusetts Institute of Technology’s Living Wage Calculator, a family of four with two working adults and two children would need to work nearly two full-time minimum wage jobs each to earn a living wage. However, a single parent with two children would need to work the equivalent of 3.5 full-time jobs — 139 hours per work week, or more hours than there are in five days — to earn a living wage at a minimum-wage job.
The federal minimum wage hasn’t met the cost of living in decades
The federal minimum wage was established in 1938, but since the 1960s, the increases to the minimum wage rate have been too small to counter the decline in value of the dollar, according to the Economic Policy Institute. In 1968, the minimum wage was the equivalent of $10.15 in 2018 dollars. But in 2018, the federal minimum wage of $7.25 was worth 14.8% less than when it was last raised in 2009. Today, a parent who is the sole breadwinner and earning minimum wage at a full-time job does not make enough to bring their family above the federal poverty line.
Wages also have not risen with productivity
Worker productivity, how much workers produce each hour, has risen steadily since 1948, and the wages and benefits of typical workers increased to match — until the 1970s. Despite an almost 70% increase in productivity since then, hourly pay has only increased 11.6%, meaning productivity has grown six times what pay has, according to the Economic Policy Institute. This means that although Americans are more productive than ever, the financial gains from this have primarily gone to those at the top and to corporate profits.
Millions of children live in poverty
According to Children International, one in six American children lives in poverty. This rate is higher than in most other developed nations. More than 4 million children in the U.S. also do not have health insurance, based on 2018 figures from the U.S. Census Bureau.
Gender pay gaps endure
There is still a significant pay gap between men and women in America. Women are paid an average of nearly 23% less per hour than men, according to the Economic Policy Institute. This is across nearly every occupation, regardless of whether that job is traditionally held by men or women, as well as at every level of education.
Racism also contributes to income inequality
Racism’s many forms, including discriminatory workplace practices as well as institutional inequalities, cause an earnings gap. According to the Bureau of Labor Statistics, in the second quarter of 2020, the median income for a white worker was 26% more than the average Black worker and almost 30% more than the typical Latino worker.
The racial wealth divide has grown as well
It should be no surprise that persisting racial income inequality leads to a wealth gap for people of color as well. According to a 2019 study by the Institute of Policy Studies, the median white family has 41 times more wealth than the median Black family and 22 times more than the median Latino family.
Economic mobility has not improved in decades
During their work careers, most Americans aspire to climb the economic ladder. However, the rate at which a person moves to a higher or lower income level during her or his work career has not changed very much despite periods of economic growth in the U.S. According to a study from the Economic Institute, from 1984 to 1994 and 1994 to 2004, about half of the individuals in the bottom income quintile still remained there 10 years later.
Intergenerational economic mobility is limited as well
Many Americans dream that their children and grandchildren will have the chance at a better life than they had. However, intergenerational income mobility, meaning the ability for individuals to move to higher income brackets than that of their families of origin, has not become more attainable. According to a three-decade study done at the Harvard Kennedy School on family background and income, the percentage of sons and daughters from the bottom quartile of family background who stayed in the bottom quartile as adults aged 30-59 hovered around the same range — about 40% and 44%, respectively — in the 1970s, ‘80s and ‘90s.
America’s income inequality is worse than our peers
Not only is income inequality on the rise in the U.S., but it is also higher than in most other advanced economies. According to data from the Organization for Economic Cooperation and Development, it is higher than all the other G7 countries — Canada, France, Germany, Italy, Japan and the United Kingdom.
Most Americans see income inequality as a problem
According to a January 2020 report from Pew Research Center, 61% of American adults believe there’s too much economic inequality in our country. However, only 42% of people believe reducing economic inequality should be a top priority for the government.
Coronavirus fallout is worse than the Great Recession
The economic fallout Americans experienced in the first three months of the coronavirus pandemic was worse than the two years of the Great Recession, which officially lasted from December 2007 to June 2009. According to the Pew Research Center, 8.8 million people became unemployed between the end of 2007 and the beginning of 2010, while the number of unemployed workers grew by more than 14 million from February 2020 to May 2020.
Billionaires have grown $545 billion richer during the pandemic
While millions of Americans have financially struggled during the pandemic, the richest people in the country have continued to get richer. The fortunes of America’s almost 650 billionaires reaped $845 billion in collective wealth gains since March 2020, according to a report by the Institute for Policy Studies.