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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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Congressional Research Service (CRS)

 

The U.S. Income Distribution and Mobility: Trends and International Comparisons

Linda Levine, Specialist in Labor Economics

March 7, 2012

https://www.fas.org/sgp/crs/misc/R42400.pdf

[full-text, 21 pages]

 

Summary

Approaching three years into the recovery from the 2007-2009 recession, the unemployment rate

remains over 8%. The persistent difficulty of many of the workers who lost jobs to find

reemployment has meant reduced incomes for them and their families. An historically slow

rebound in the labor market appears to be partly responsible for some groups’ focus on the

distribution of the benefits of economic growth and for some policymakers’ interest in

redistributing income through the tax code, for example. Varying perceptions about a trade-off

between economic growth and income equality appear to underlie longstanding congressional

deliberations about such policy issues as the progressivity of income tax rates, the tax treatment

of capital gains, and the adjustment of the federal minimum wage.

 

If income were equally divided across households, each quintile (fifth) would account for 20% of

total income. The Congressional Budget Office and others have documented that the bottom fifth

has long accounted for much less than 20% of total income. The bottom quintile’s share of

income has remained little changed for the past few decades at less than 4%, according to Census

Bureau data. In contrast, the income shares of the top fifth and the top 5% of households appear

to have trended upward. The top fifth’s share of total household income rose from 42.6% in 1968

to 50.2% in 2010; the top 5%’s share, from 16.3% to 21.3%. (Estimates derived from federal

income tax data suggest that those at the very top of the income distribution have experienced

greater gains.) The middle class, defined as the middle 60%, received a disproportionately smaller

share of the total economic pie in 2010 (46.5%) than in 1968 (53.2%).

 

Two explanations are most often offered for the changes in recent decades in the U.S. distribution

of income. They are skill-biased technological change (SBTC) and globalization. Additional

support for education and training is a frequently cited policy measure to both improve U.S.

competitiveness in the international marketplace and raise the relative incomes of low- and

middle-skill workers as well as the incomes of their children when they enter the labor force.

 

Based on the limited data that are comparable across nations, the U.S. income distribution

appears to be among the most uneven of all major industrialized countries and the United States

appears to be among the nations experiencing the greatest increases in measures of inequality.

Three leading explanations are put forth for these cross-country differences: (1) other advanced

economies devote a larger share of national output to transfers, which tends to equalize income

across households; (2) the progressivity of tax rates varies by country and thus has different

effects on the distribution of after-tax income; and (3) equality in the distribution of earnings,

which account for most household income, varies substantially across countries.

 

The extent to which countries undertake policies that affect their income distributions may reflect

national differences in perceptions about the degree of income mobility. In the United States, a

longstanding argument against redistributionary measures has been that each person has an equal

opportunity to move up the income ladder. Research raises questions about whether Americans’

reported perceptions about their likelihood of changing position in the income distribution are

exaggerated.

 

Contents

Introduction...................................................................................................................................... 1

Measures of Income......................................................................................................................... 2

Measures of the Distribution of Income .......................................................................................... 3

Explaining Recent Trends in the Distribution of U.S. Household Income ...................................... 7

International Comparisons of Income Distributions........................................................................ 9

Explaining Cross-Country Differences in the Distribution of Income .......................................... 12

Income Mobility in the United States ............................................................................................ 14

Intergenerational Mobility....................................................................................................... 14

The Trend in Intergenerational Mobility in the United States........................................... 14

Cross-Country Comparisons of Intergenerational Mobility.............................................. 16

Intragenerational Mobility....................................................................................................... 16

Concluding Remarks ..................................................................................................................... 18

 

Figures

Figure 1. Gini Coefficients for U.S. Households, 1968-2010.......................................................... 5

 

Tables

Table 1. Distribution of U.S. Household Income by Quintile, Selected Years ................................ 4

Table 2. Summary Measures of Disposable Household Income Distributions for Selected Countries in the Mid-2000s ......................... 10

Table 3. Summary Measure of Disposable Household Income Distributions for Selected

Countries in the Late 2000s and Change from Mid-1980s to Late 2000s .................................. 11

 

Contacts

Author Contact Information........................................................................................................... 18

 

 

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