The Hierarchy: Income Inequality in the United States. (Income and Wealth Inequality in the USA)

Multinational Monitor, May 2003 | Go to article overview

The Hierarchy: Income Inequality in the United States. (Income and Wealth Inequality in the USA)


An Interview with Jared Bernstein

Jared Bernstein is the co-director of research at the Economic Policy Institute in Washington, D.C. He is the coauthor of The State of Working America 2002/2003, the premier source of information on economic trends affecting working people, as well as numerous other books and reports. Between 1995 and 1996, he served as deputy chief economist at the U.S. Department of Labor, where he worked on the initiative to raise the minimum wage.

Multinational Monitor: What is the best way to measure and describe income inequality?

Jared Bernstein: Probably the most intuitive way is to look at the ratio of those at the very top of the income scale to those at the very bottom, and to see how that ratio has changed over time.

If you go back to 1979, prior to the period when the growth in inequality really took off in the United States, the top 5 percent on average had 11 times the average income of the bottom 20 percent. If you fast forward to the year 2000, the most recent economic peak, you find that that ratio increased to 19 times. So over the course of those two decades, the gap between the wealthiest and the lowest income families grew from 11 times to 19 times.

MM: What is the disparity just in benefits?

Bernstein: The previous figures were for income, so that includes most income sources, including both wages and non-wage income, such as interest payments and government transfers.

If you divide the work force into quintiles, or fifths, based on their wages, in the bottom fifth, 18 percent of the workforce has pension coverage and one-third has health coverage. If you then look at the top fifth, you'll find that 73 percent has pension coverage, and 81 percent has healthcare coverage.

Practically any variable that has to do with how economic growth is distributed -- compensation, benefits, pensions, health insurance, quality of education, quality of housing, exposure to crime -- will yield this kind of highly skewed result. Wealth disparity is far more concentrated than income disparity.

MM: And what happens when you look at that set of data by race?

Bernstein: Minorities tend to be concentrated on the lower end of the spectrum whether we're talking about income or wealth. And if you're looking at the impact of some of these other inequalities, they are more acutely felt by minorities as well, For example, minorities experience more crime than whites on average, and majority populations have better access to higher quality public education than minority populations.

If you're talking about wealth, the gap between white wealth and black wealth is very extreme because wealth is a more historical variable than income. African Americans by dint of their history in this country have had much less opportunity to accumulate wealth over time.

MM: To what extent do the income disparities correlate with educational disparities?

Bernstein: Well, folks with less education tend to have less income at any point in time. So there is definitely a correlation between inequality and education. However, over time the growth in inequality has been as much within education groups as between them.

While education differentials themselves have grown, they only explain about half of the growth in overall inequality. That is, the gap between the earnings of; say, college and high school workers explains part of the increase in equality, but only about half of it. The rest of the increase has occurred within pretty narrowly defined educational groups. Even within college-educated workers, there is more inequality than there used to be, and among high school-educated workers as well.

Educational disparities are one explanation for why income or wages are unequally distributed at any point in time, Such disparities, though, do little to explain the increase in inequality.

MM: How does the level of unemployment affect the income ladder? …

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