Is income inequality in the U.S. really rising?

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When it comes to income inequality in Rochester, many of us have come to terms with what sometimes seems like unrelenting bad news. In 2018, for instance, the Brookings Institution’s Metropolitan Policy Program pointed out that Monroe County ranked fifth-worst in the nation in the median household income gap between white residents and residents of color. Another study found that for the 2017-2021 time period, the median income of African Americans in Monroe County was only $36,168 even though the corresponding number for New York was $53,697. Similarly, even though the median income of Asians—the highest earners—in Monroe County was $64,700, the corresponding number for Asians in the Empire State was $83,399.

Amitrajeet A. Batabyal

Even though these income figures for Rochester and Monroe County are dispiriting, we know that misery loves company. As such, some of us have taken comfort in knowing that even though the degree of income inequality in Rochester may be more than what it is in other places, Rochester is like the United States generally in that income inequality in both has been rising in the past couple of decades.

This rise in income inequality in the U.S. has been much publicized with the media reporting on it copiously. According to one report, between 1979 and 2020, the average income of the richest 0.01 percent of American households, a group that represents approximately 12,000 households, grew 17 times as fast as the income of the bottom 20 percent of earners. This and similar findings have given rise to populist left-wing movements such as Occupy Wall Street in 2011 and many Americans have made a clear distinction between the one percenters (the very wealthy) and the 99 percenters (the rest of the population).

Given the wide publicity about this “rising income inequality” story, it is time to ask whether it is actually true. The intellectual case for the popular line that inequality has been increasing in the U.S. has been provided primarily by the empirical research of a trio of economists: Thomas Piketty based in France and Emmanuel Saez and Gabriel Zucman, both based in the University of California at Berkeley. These scholars have looked at income tax data to measure the distribution of income and generate conclusions about income inequality.

It is important to comprehend that measuring the distribution of income over time is very difficult because of a variety of issues such as changes in social conditions (marriage rates and household composition), demographics (age distribution), and rising education standards. Even so, if the finding that income inequality in the U.S. has been rising over time is empirically true and robust then it must be possible for other scholars, also working with income tax data, to come to broadly similar conclusions.

This is where things get interesting. Very recently, Gerald Auten of the Treasury Department and David Splinter of the Joint Committee on Taxation have altered the methodology of the trio of economists mentioned above and have addressed some of the inherent difficulties associated with work based on income tax data. Their findings are noteworthy: It looks like post-tax income inequality in the U.S. has hardly gone up since the 1960s! This finding has generated considerable debate in the economics profession about which result—rising income inequality vs. little change in income inequality—one ought to put one’s faith in.

The salient point is not that there is discussion and debate about the verity of one set of empirical results versus another. Instead, the key point to grasp is that as noted by The Economist, “the idea that inequality is rising is very far from a self-evident truth.” It is unclear what this contrarian finding about income inequality at the level of the entire nation means for inequality in Rochester. What is clear is that we need to do a much better job of addressing a point that is specific to Rochester—we need to make the link between overall inclusion and racial inclusion a strong and enduring one.

Amitrajeet A. Batabyal is a Distinguished Professor, the Arthur J. Gosnell professor of economics, and the Interim Head of the Sustainability Department, all at Rochester Institute of Technology, but these views are his own. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected]

13 thoughts on “Is income inequality in the U.S. really rising?

  1. Income inequaltiy before and after taxes and transfers are two different measures. A phrase that I found in Fiona Hill’s book: There is Nothing for you Here, is Inequality of Opportunity. The U.S. Census measures the Gini index, including eight sources of income. I would like to see Census make undistorted measures of income before and after transfers and taxes for a wide spectrum of the geographies (U.S., states, counties, county subdivisions, etc.) revealing local government and societal impacts that mitigate inequality. And to cap it all some, yet undiscovered way to measure inequality of opportunity.

    • The USA Gini index was 40.4 in 1993 and a lower 39.7 in 2020 – slightly down over a 27 year period.
      YET the richest families annually increased income by larger percentage than poor & workers.
      These rises were not removed by taxation and transferred all to the rest like some would like us to think.
      So compounded to massive disparity between the population – so how was this lower 39.7 Gini index possible?
      The calculation merely compares poorest 20% of population to an average income (not to rich) then continues to underestimate with rest of population.
      How is it measuring inequality if you ignore the difference between poorest and those above middle income?
      With comparative metrics like S80/S20 economists pretend they are simply two families who share all income.
      Like comparing just one family in each group, thus any result ignores much worse inequality with millions of poorest and also most rich at top.

  2. One question I have is Section 8, rents, school meals which sometimes include breakfast, lunch & supper; low income tax credits, virtually free health insurance including dental, fooid stamps. guaranteed income, essentially free college, no income taxes, some housing down payments, free legal defense. ,low interest loans. free utilitarian, etc. Some families get all of that and more. How much would that total as gross income before state and federal income taxes along with FICA? It should be very sizable.

  3. Yeah. No. Apparently the professor had neglected to drive his Kia to anywhere in Northern Metro Rochester. Park it and expect it to be there when he returns or find a functional grocery store in that food desert of “income equality”. I suggest the professor get out of his office at RIT and walk the areas he is making “erudite observations” about. Because income inequality in Rochester is self evident.

    Had inequality increased? I suggest he check what many of those families now living in poverty were making when Kodak and xerox employed most of the people in the city. Unlike now where colleges such as the one he works at do.

    You don’t need a degree to see inequality. Just your eyes.

  4. Assuming the stats somewhat accurately reflect the trends (always worth scrutinizing with the saying “there are lies, blankety-blank-lies and statistics”), how did we get here? We pay a HUGE tax burden for School Systems with robust salaries for District Principals, where everyone from the Principal down to the worker who waxes the floors gets a taxpayer backed pension into perpetuity. Not to mention a gold plated secondary education system (that is still somewhat well thought of) that are undergoing a reduction in admission standards (presumably to give more students opportunities) , making the Regents irrelevant , and waiving tuition . How did we end up with a bunch of unskilled people below the mean income??? Apparently the local School Board meetings don’t allow much public comment or you would think the Citizens would be petitioning it to see where all of the money went?

    • Teacher (and other public employee) pensions in New York are funded by their own contributions of 3% or more of pay, plus a contribution from the employer. This employer contribution can be viewed as part of overall compensation which is one reason why public employee pay is usually lower than in the private sector. Yes, that employer contribution, like the salary, comes from the taxpayer while the person is employed, but the payout upon retirement does NOT involve any additional taxpayer dollars. Investment income makes up the bulk of what is paid out. The system is over 99% funded, unlike systems in other states where governors raid pension funds to cover state operating deficits.

      • Thank you for reading my post. Your rosy description of the pension system leaves out a few things. In the event of a economic downturn /financial crisis where the pension investments don’t perform well, the taxpayer is still on the hook to pay benefits to the employees. Also the pension benefits in many states (Im sure its true in NY) are often politicized (Investing for or against somebody’s cause), which is not in the fiduciary interest of the employee. (for ex DEI, credit card cos that transact gun sales etc) I’m all for employees having a retirement plan. IMO a better choice would be a 401K, the employe benefits because the resulting fund is THEIR money, (it belongs to them, not the pension fund) , they can bequeath it to their heirs (instead in the event they are unfortunate to die early in retirement their family has no benefit). In addition to being better for the employee, its better for the taxpayer, as the matching contribution is sunk cost, once the employee retires the taxpayer is NOT on the hook to pay into perpetuity.

  5. Inequality worsens every year in all countries – all metrics are statistical cons.

    USA Gini index was 40.4 in 1993 and a slightly lower 39.7 in 2020.

    YET richest had annually increased by larger percentage than poor & workers – compounded MASSIVE disparity.

    40.4 or 39.7 or any Gini number is meaningless and incomparable with any country or even year on year as demonstrated.

  6. Inequality at its foundation, is the result of a failing educational system. Education is the key to prosperity, to a profession, to a career, to financial stability and opportunity. It also provides CHIOCE. Bring a vocational education back to Rochester. A relevant education is the key to addressing this inequality. Sad it over and over and will never stop the promotion of a sound education.

  7. Thanks for sharing this information. Another interesting look at this that I recently read is a book called The Myth of American Inequality by Phil Gramm, Robert Ekelund and John Early. It looks at inequality including government transfer payments (not just income). Including these payments, inequality is much lower than you hear in the public debate.

  8. The claim put forth here, that income inequality has not changed since the 1960’s and is not the problem is nothing but misdirection. Measuring post tax income in the last forty plus years does not measure obscene wealth and tax avoidance. Billions of dollars invested, with most of the profits reinvested, shows little income that is taxable. These elites then borrow millions of dollars to live on, secured by private or business property where the interest is tax deductible. In a society with the greatest wealth in history we have about ten percent of our children in poverty. Millions unhoused and food deprived, more without affordable, adequate medical care, and underfunded and unequal education. Where educational opportunity does exist, continued segregation in education and a lack of necessary government supports so that children are in school ready to learn are lacking. Our history results in the worst in all areas, per capita, falling on people of color. Rochester and NY may be better off than many, but we are not an island isolated from national policy. We may disagree on solutions, but this article does nothing to address real problems. In my view, hundreds of billionaires are a crime against humanity.

    • Quit pointing the finger in every direction but the education. I want the RCSD/RCSB members to look in the mirror….look in the mirror and see the problem. You’re NOT educating. If you don’t have education what happens….right, you will never gain a position that is self supporting. We need to show kids professions and carriers. We need to have them identify their gift, their innate skills with those many, many opportunities that can become a reality WITH education. You want to do a survey?! Survey all the youth that gets arrested. See what their education level is. Any graduates, any BS or BA degrees and PhD’s? Surprised? Duh, no. This doesn’t require a survey, it requires that the RCSD/RCSB do their job. DO THE JOB OF EDUCATING!

      • You cannot adequately educate a person who doesn’t have 3 square meals a day – no matter what your education system is.
        You cannot adequately educate someone who fears for their life when walking to and from school.
        You cannot adequately educate someone who is not supervised at home because their parent works 3 jobs to put food on the table.
        You cannot adequately educate someone who has no hope.
        You cannot adequately educate someone without access to technology and the internet.
        You cannot adequately educate a child without the full attention and cooperation of the parent.
        You cannot adequately educate a person who doesn’t have the resources to continue that education on to anything but an out-of-high-school trade position.
        Some people aren’t school smart – they have other skills. You cannot adequately educated someone when the school system itself is geared ONLY to college prep. Or ONLY to trades. Helping kids identify their skills and then channeling them into the RIGHT educational process is key here.

        Blaming this all on schools when the real answer is – fixing poverty fixes the educational system – is where this is at. Education only fixes poverty if it can be provided contextually, and has the parental backup that not having to work 3 jobs to get by provides. The issue is poverty. Not education. Fix education and you may affect poverty. Fix poverty and you fix education. Simple as that.

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