What Is Income Inequality?

Income inequality is an extreme concentration of wealth or income in the hands of a small percentage of a population. It has been described as the gap between the richest and the rest.

The Basics of Income Inequality

An analysis of 50 years of economic data by the Urban Institute shows that the poorest have gotten poorer while the richest have gotten much richer. Between 1963 and 2016:

  • The poorest 10% of Americans went from having zero assets to being $1,000 in debt.
  • Families in the middle more than doubled their prior average wealth.
  • Families in the top 10% had more than five times the prior wealth.
  • Families in the top 1% had more than seven times their prior wealth.

The richest 1% of the U.S. population possessed 38.6% of the nation's wealth in 2016, according to a 2017 Federal Reserve report.


After the Great Recession

This general trend actually has accelerated since the Great Recession that began in 2008. Between 2009 and 2015, the income of those in the top 1% grew faster than the income of the other 99% in 43 states and Washington D.C., according to research by the Economic Policy Institute.

There are many factors to blame, including salary stagnation for wage-earning Americans, tax cuts for the richest Americans, a loss of manufacturing jobs, and a soaring stock market that inflated the worth of corporate CEOs and hedge fund managers.

Even the hot demand for certain highly-skilled workers may be contributing to income inequality. Companies are investing heavily to hire and keep workers with specialized skills in fields such as engineering and healthcare. This leads to cuts or automation in other functions, pushing down wages for workers in less competitive jobs.

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Income Inequality

Income Inequality by Gender and Race

Income inequality continues to hit some harder than others, with significant wage gaps remaining for women, African Americans, and Hispanics working in the U.S.

According to a study of 2017 income numbers by the Institute for Women's Studies, women of all races and ethnicities were paid an average 81.8% of the salaries paid to men. Historically, that's the narrowest that the gap has ever been. It has been improving year by year since 1980, when women made about 64% as much as men.

White men continue to earn more than any other ethnic group with the exception of Asian men. In 2015, the average hourly wage for white men was $21 an hour, compared with $15 for African American men and $14 for Hispanic men, according to a Pew Research study. Asian men had the highest average pay, at $24 per hour.

Key Takeaways

  • According to a study of 2017 income numbers by the Institute for Women's Studies, women of all races and ethnicities were paid an average 81.8% of the salaries paid to men.
  • The U.S. has the highest level of income inequality of any industrialized nation, according to Inequality.org.

The Global View

The U.S. has the highest level of income inequality of any industrialized nation, according to Inequality.org.

That doesn't mean that income inequality is not global in scope. The richest 1% in the world own 45% of the world's wealth. About 64% of all adults have assets under $10,000. Their share of global wealth altogether is under 2%.