America the Unequal

The current level of inequality in the United States can be summarized in one word: ugly!  By most measures, we are far behind other democratic societies, such as Canada, most European countries and Australia.

     One of the most common measures of income inequality is known as the Gini Index of Inequality (a value of 0 means perfect equality—everyone earns the same amount; and a value of 100 means perfect inequality—one person earns all), has gone up since the late 1960s. Whereas in 1970 the index for the United States was 35, in 2007 it was at 45, larger than any other industrialized nation (in contrast, the Gini for Canada is 31; the Netherlands is 31, while Sweden is the most equal with a score of 23). (This information can be found in the CIA World Fact Book.)

          An excellent web site for data on inequality is Inequality.org. On a couple of charts shown on this web site it is noted that “Between 1979 and 2009, the top 5 percent of American families saw their real incomes increase 72.7 percent, according to Census data. Over the same period, the lowest-income fifth saw a decrease in real income of 7.4 percent. This contrasts sharply with the 1947-79 period, when all income groups saw similar income gains, with the lowest income group actually seeing the largest gains.” The top 1% also own 50.9% of all stocks, bonds, and mutual fund assets.  In the post-World War II growth period (1947–79) it was literally the case that a “rising tide lifts all boats.” Since that time, it has been more like a “rising tide lifts all yachts,” writes Ezra Klein in the Los Angeles Times.

This same web site also reports that the average wage in constant dollars increased from the early 1950s until the early 1970s. Real dollars (what money will actually buy) have declined since then. Wages have not kept up with inflation for the average worker.  For instance, between 1972 and 1993, in 2008 dollars, the average hourly wage dropped from $20.06 to $16.82. In 2008, the average wage was lower than it was in 1979, in constant dollars. As for the minimum wage and what it can purchase, the news is not good: according to the “State of Working America,” in 2007 dollars, the minimum wage in 1960 was $5.98 and in 2009 it was $6.92. Meanwhile, what these workers actually produced (called “productivity”) increased by 64% between 1979 and 2004. In other words, workers produced more for the owners while getting proportionately less.

Another revealing chart shows that during the recent recession (2007-2009 – many, myself included, would disagree that the recession ended in 2009) Wall Street profits went up by 720%, while the unemployment rate increased by 102%.  Meanwhile, home equity of Americans dropped by 35%. Another chart shows that since 1979 the productivity of American workers has grown by about 80% while the income of the top 1% has gone up by 240% and the income of the average worker remained more or less stagnant in constant dollars.

According to a recent report, in 2007, the median family income was $50,233, while “the top-earning 400 households earned a median $345 million, almost 6900 times as much income.  In contrast, in 1992 the ratio was just a sixth as large, with the top 400 households having 1124 times as much income.”  For these wealthy families, recent years have been extremely kind.  For instance, between 1992 and 2007 there pre-tax income went up by 409%; their after-tax income increased by 476%.  This is mostly the result of all the generous tax cuts during this period of time.

The effects on the typical male worker have been especially negative. According to the Bureau of Labor Statistics, the median earnings of males have decreased, while wages for females have increased. In fact, many male workers have in effect disappeared from the labor force. While in 1950 almost 90% of the men in the United States were “in the labor force” (meaning they were either working or actively seeking work), by 2010 this percentage had shrunk to about 73%; in contrast the proportion of women in the labor force had gone from 34% to 60%.

Another Bureau of Labor Statistics report notes that a portion of the gains for women may be accounted for by the incredible increase in the proportion of workers employed as temporary workers. As of 2009 one-fourth of women workers worked part time, compared to only 11% of the men; about 17% of all workers are working part-time. Temporary workers have been utilized more often in the last two decades, and the trend appears to be one that will continue, according to another report by Luke Shaefer writing in the Bureau of Labor Statistics.

Charts Provided by Mother Jones Tell it Better

But wait, there’s more!  Mother Jones magazine has produced some really incredible charts that do an even better job than Inequality.org. These charts are found here.  To begin with, the huge income growth for the top 1% was helped by the fact that from 1992 to 2007 when their income grew by 392%, their tax rate dropped by 37%.  Because payroll taxes constitute the largest tax contribution for American workers, the result is that “the effective tax rate for people earning more than $370,000 is nearly the same as for those earning between $43,000 and $69,000 a year,” according to the Mother Jones report. Also, during the past 50 years revenue from corporate taxes has declined from just under 30% to less than 10%, while revenue from individual income taxes has gone almost exactly in the reverse direction, from about 10% to around 40%.  An example they cite is General Electric.  From 2001 to 2008 their tax rate plummeted from 28% to 5.5%; and then in 2009 it was -10% - meaning they got a huge refund!  In effect GE has paid no taxes during the past five years!  

There are several charts that deal directly with the infamous “1%” of Americans.  To begin with, this group owns about half of all stocks and mutual funds, 60% of all financial securities and more than 60% of business equity. The richest 10% owns about two-thirds of the total net worth. Most of their income is derived from capital gains and thus not subject to much taxing.  One consequence is that their median income in 2008 dollars was $1,137,384 (up from about $400,000 in 1980).  By contrast, the bottom 90% of the population remained stagnant at $31,244 during this time.  The rich have been riding the elevator while everyone else has been walking a straight line!

With a Little Help from their Friends in Congress

          The super-rich have made these gains with help of members of Congress.  These are good friends to have. As a reward for passing the huge tax cut legislation in recent years, members of Congress have about a 50-50 chance of being millionaires, compared to a 1 in 22 chance for average Americans. Whereas the median net worth of Americans is around $120,000, for members of Congress it is $912,000 (see this chart). 

Poverty Rises

Another part of the same report in Mother Jones reveals new data on poverty in America, noting first of all that about one-fourth of all jobs “pay less than a poverty-level income.”  These are the “working poor” that rarely come to the attention of the mainstream media (but were the focus on Barbara Ehrenreich’s best seller Nickeled and Dimed). Officially, 13% of all Americans (37 million) are poor. 

According to the National Poverty Center more than one in five (22%) children live in poverty.  Among black children the rate is 38%; for Hispanic children it is 35%.  Black and Hispanic families are about three times more likely than whites to live in poverty (27% vs. 9.9%).  These facts impact the court system as between 60 and 70 percent of felony defendants are indigent – meaning they cannot afford an attorney – according to a recent study (another study “between 80 and 90 percent of all state criminal defendants rely on indigent defense system for counsel”). Look inside any urban juvenile detention center and you will see nothing but black and brown faces, and kids from single-parent impoverished homes (for example, see studies here and here; also see the study by Elizabeth Brown and Mike Males in the spring, 2011 issue of the Justice Policy Journal).  Not to mention the fact that gangs have always been concentrated in the poorest areas of the city, as noted in my forthcoming book on the subject.

According to the latest census report, there are about 112 million households in the United States. One-quarter of the households are single member while the remaining 75% have two or more members. Almost two-thirds (62%) of African-American families are single-parent families. A closely related development has been described as the feminization of poverty. This refers to the increase in female-headed households, which are the most likely to be living in poverty. In fact, in 2008 about 40% of black female-headed households lived under the poverty level, in comparison to 27% of white females.

These numbers help explain the vast differences in crime rates between the United States and other democratic societies.  If we want to seriously reduce crime, the first step is to reduce inequality.