A Changing Nation—Wealth and Income Distribution - Growing Income Inequality

The Census Bureau has tracked a growing inequality in income in the United States that began in the 1980s. For comparison purposes, the bureau divides the population into five income groups (quintiles). In 2001 the income differences were close to record highs, with only the top fifth having increased its percentage of the nation's income since the 1980s. According to the Census Bureau's Historical Income Table for income dispersion among the five quintiles, the average income of the top fifth of households, after adjusting for inflation, was 27.7 percent higher in 2001 than in 1990. In contrast, the average income of the poorest fifth of households was only 7 percent higher than in 1990. Census data show that in 2001 the quintile of households with the highest incomes received 50 percent of the national income, about the same as that received by the other 80 percent of the population combined.

Why Is the "Income Gap" Growing?

Many reasons exist to explain the growing inequality, although observers disagree about which are more important. One reason is that the proportion of the elderly population, who are likely to earn less, is growing. Using the data from the Census 2000, the bureau has analyzed income data as it relates to various characteristics, including race, age, employment, and education level of householder, as well as type and size of household. These data showed that in 2001, 20.6 percent of all households were headed by a householder sixty-five years of age or older. (A "household" may consist of a single individual or a group of related or unrelated people living together, while a "family" is made up of related individuals.) In addition, more people are living in nonfamily situations (either alone or with nonrelatives). In 2001, 32 percent lived in nonfamily households, which tend to earn about half the median income of family households. (See Table 4.1.)

Also contributing to growing income inequality is the increase in the number of households headed by females, as well as the increase in labor force participation of women. In 2001 the proportion of female-headed households constituted 29.8 percent of all households in the nation. (See Table 4.1.) Female-headed households typically earn significantly less than other types of households. According to the U.S. Census Bureau in "Facts for Features" (February 14, 2003), on average, women earn 76 percent of what men earn.

Other factors that contribute to the growing income gap include the decline in the influence of unions and the changing occupational structure, in general, from better-paying manufacturing positions to lower-paying service jobs. The average wage paid to less-educated workers (after adjusting for inflation) has actually dropped since the 1980s. In 2000 the annual income of male workers who attended one to three years of high school without graduating was 21.5 percent lower than in 1980. High-school graduates experienced an 18 percent wage decline. In addition, the proportion of low-wage workers who receive employer-based health insurance and pension benefits dropped significantly between 1979 and 2000.