US Income Inequality Worsens, Poorest Americans' Share Rivals Developing Nations

Alarming Decline for Poorest Americans

A recent report from The Guardian has drawn attention to the escalating income inequality in the United States, revealing that the share of national income held by the poorest Americans has diminished to levels seen in some developing nations. According to the report, Americans in the poorest 10th percentile of the population now account for approximately 1.8% of the nation's total income. This figure is comparable to the share held by the poor in countries like Bolivia, where the poorest also reap around 1.8%. In contrast, the poorest populations in Nigeria receive 3%, in China 3.1%, and in Bangladesh 3.7% of their respective national incomes.

The Guardian's analysis underscores a significant trend: the income of Americans in the top 90th percentile of wealth grew more than twice as fast between 2000 and 2023 compared to those in the bottom 10th percentile.

The Widening Economic Chasm

Income inequality in the United States has been a persistent and growing issue since the 1970s. Data from 2021 indicates a stark distribution, with the average income before taxes and transfers for households in the lowest quintile (the bottom 20%) standing at $22,500, while for the highest quintile (the top 20%), it reached $418,100. The top 1 percent of households alone earned more than six times the total income of the entire bottom quintile.

Over the four decades leading up to 2021, average household income in the highest quintile surged by 165%, significantly outpacing the 38% growth experienced by the lowest quintile. This concentration of wealth is further evidenced by the fact that the richest 1% of households accumulated almost 1,000 times more wealth than the poorest 20% between 1989 and 2022. As of the first quarter of 2024, the top 1% of households in the U.S. held 30.5% of the country's wealth, while the bottom 50% collectively held only 2.5%.

US Inequality in a Global Context

The United States stands out among developed nations for its high level of income inequality. According to data from the Organization for Economic Cooperation and Development (OECD), the U.S. has one of the most unequal income distributions in the developed world, even after accounting for taxes and social-welfare policies. In 2010, the U.S. Gini coefficient, a common measure of income inequality, was 40.46, a figure remarkably close to the average Gini coefficient of African countries during the same period. After taxes and transfers, the U.S. ranked as having the second-highest level of inequality among 31 OECD countries, surpassed only by Chile.

Impact and Underlying Factors

The widening gap between the rich and the poor carries significant consequences for the nation. High income inequality can impede poverty reduction, slow economic growth, restrict access to economic and educational opportunities, and diminish social cohesion within a country. Factors contributing to this trend include disproportionate growth in executive compensation, with CEO pay increasing by over 900% between 1978 and 2018, while average worker compensation rose by just 11.9% during the same period.

Conclusion

The Guardian's report, supported by broader economic data, paints a concerning picture of persistent and deepening income inequality in the United States. The shrinking share of national income for the poorest Americans, now on par with some developing nations, highlights a critical challenge that continues to shape the economic landscape of the country.