Income Inequality

Income Inequality in United States

United States

Research demonstrates an association between greater income disparity and worse population health in developed nations. Income inequality creates chronic social stress and social sensitivity among populations affected by low income and low social status. This stress can contribute to poorer health through decreased life expectancy, educational attainment and social mobility, as well as increased rates of mental illness, obesity, infant mortality, teenage births, homicide and imprisonment. Income inequality has increased over the past 50 years in the United States, with the top 20% of earners receiving more than half of all U.S. income in 2021. 

Income inequality is detrimental to the economy, according to a 2014 report from Standard and Poor’s Ratings Services. The U.S. income inequality level is diminishing gross domestic product (GDP) growth and, if left unchecked, is estimated to continue reducing long-term economic growth. 

The income inequality ratio, sometimes called the S80/S20 or quintile ratio, is the ratio of the average income of the top 20% (richest) to the bottom 20% (poorest) in a population. A high ratio indicates greater income inequality and a ratio of 1 would indicate total income equality. This ratio is one of the measures of income inequality used by the Organization of Economic Cooperation & Development (OECD) to track and compare human development worldwide.

Income inequality affects society as a whole. However, those with the lowest income suffer the most. Populations more affected by income inequality include:

• Black adults, who consistently have the lowest median income compared with Asian, non-Hispanic white and Hispanic households.
• Women compared with men. A recent study of 2018 census data found that women earn 82 cents for every $1 earned by men. This gender pay gap is even wider for women of color.
• Adults with low educational attainment. Lower educational attainment is associated with worse jobs and lower earnings compared with higher educational attainment.

Investing in education is an effective strategy to reduce income disparity. Standard and Poor’s Rating Services estimated a 2.4% increase in GDP (equivalent to $525 billion) over five years if the American workforce were to complete one more year of school on average. Redistributive tax policies, reducing income inequality before tax and expanding the earned income tax credit are other suggested strategies available to policymakers to tackle income disparity. The Peterson Institute for International Economics (PIIE) offers additional solutions by inequality experts for reducing income inequality, which include expanding tax policies, improving access to education and childcare and increasing the federal minimum wage.

Dorling, Danny. 2015. “The Mother of Underlying Causes - Economic Ranking and Health Inequality.” Social Science & Medicine 128 (March): 327–30. https://doi.org/10.1016/j.socscimed.2015.01.008.

Hoynes, Hilary W., and Ankur J. Patel. 2015. “Effective Policy for Reducing Inequality? The Earned Income Tax Credit and the Distribution of Income.” 21340. Working Paper 21340. National Bureau of Economic Research. https://doi.org/10.3386/w21340.

Kondo, Naoki, Rob M. van Dam, Grace Sembajwe, S. V. Subramanian, Ichiro Kawachi, and Zentaro Yamagata. 2012. “Income Inequality and Health: The Role of Population Size, Inequality Threshold, Period Effects and Lag Effects.” Journal of Epidemiology & Community Health 66 (6): e11. https://doi.org/10.1136/jech-2011-200321.

Ma, Jennifer, Matea Pender, and Meredith Welch. 2019. “Education Pays 2019: The Benefits of Higher Education for Individuals.” Trends in Higher Education Series. College Board. https://research.collegeboard.org/pdf/education-pays-2019-full-report.pdf.

Maguire, Joe. 2014. “How Increasing Income Inequality Is Dampening U.S. Economic Growth, And Possible Ways To Change The Tide.” Standard & Poor’s Financial Services. https://www.ncsl.org/Portals/1/Documents/forum/Forum_2014/Income_Inequality.pdf.

Pickett, Kate E., and Richard G. Wilkinson. 2015. “Income Inequality and Health: A Causal Review.” Social Science & Medicine 128 (March): 316–26. https://doi.org/10.1016/j.socscimed.2014.12.031.

Semega, Jessica, and Melissa Kollar. 2022. “Income in the United States: 2021 Current Population Reports by Jessica Semega and Melissa Kollar Issued September 2022 P60-276.” Current Population Reports P60-276. Washington, D.C.: U.S. Census Bureau. https://www.census.gov/content/dam/Census/library/publications/2022/demo/p60-276.pdf.

“Why Education Matters to Health: Exploring the Causes.” 2014. Issue Brief #2 2. Education and Health Initiative. Richmond, VA: The VCU Center on Society and Health and Robert Wood Johnson Foundation. https://societyhealth.vcu.edu/media/society-health/pdf/test-folder/CSH-EHI-Issue-Brief-2.pdf.

Wilkinson, Richard G, and Kate E. Pickett. 2006. “Income Inequality and Population Health: A Review and Explanation of the Evidence.” Social Science & Medicine 62 (7): 1768–84. https://doi.org/10.1016/j.socscimed.2005.08.036.