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Commentary
When Income Growth Doesn't Justify Income Gaps
Conservatives often argue that gaps in income are justified because inflation-adjusted wages of all income groups are increasing.
Indeed, real incomes have increased since 1976.
But the absolute and relative gains for lower income groups (the bottom 90 percent of American wage earners) are so small that "stagnant" and "falling behind" rather than "gain" are more accurate descriptors.
For example, a family earning $3,400 in 1976 (the medium income of the bottom 50% of wage earners who I call the "working class") would now have an income of about $4,000, only $600 more after 47 years. Figure 1.5 above shows that this is a 19 percent gain or an average annual gain of just 0.4 percent. In inflation-adjusted 2023 dollars, their income went from $17,800 to $21,100, a measly $3,300 increase.
Middle class workers (those in the 50% to 90% wage category) did a little better. Their incomes grew 60 percent, from about $18,000 to $28,800 in 1976 dollars (a $10,800 gain). That may seem like a lot, but it only increased an average of 1.3 percent per year. Their income in 2023 inflation-adjusted dollars increased from about $99,000 to $158,000 (a $59,000 gain).
Now let's compare these working and middle class incomes to the wealthy, first those in the top 9 percent group.
A wage earner whose salary was $45,000 in 1976 would now have an income of about $68,000. This is a 151 percent increase, or an average annual gain of 3.2 percent. In 2023 dollars, that's an increase from about $250,000 to $378,000 (a substantial $128,000 gain).
But the richest 25,100 Americans (the top 0.01%) gained the most. A 1976 income of $500,000 would now be nearly $3.4 million, a whopping 670 percent increase or 14.3 annualized gain. In 2023 dollars, they now would be earning about $18.7 million a year.
In sum, 90 percent of the working population (225 million wage earners) have seen very little gain in wages over time and are quickly falling behind relative to the wealthiest 10 percent (28 million wage earners). These findings also apply to wealth gaps. The bottom 90 percent have an average of $67,000 in assets (the bottom 50 percent have only $14,000), compared with $3.5 million for the top 10 percent.
The conservative argument that income gaps are justified because all wages are going up in absolute terms would be on much stronger ground if the relative increases between the income groups were equal (e.g., if every group received 14.3 percent gains each year), but even this would not eliminate absolute gaps in income. The only solution is to flip the yearly percent gains and give the poor a greater slice of the income and wealth pies, a matter I'll take up in a future posts. DD
When Income Growth Doesn't Justify Income Gaps
Conservatives often argue that gaps in income are justified because inflation-adjusted wages of all income groups are increasing.
Indeed, real incomes have increased since 1976.
But the absolute and relative gains for lower income groups (the bottom 90 percent of American wage earners) are so small that "stagnant" and "falling behind" rather than "gain" are more accurate descriptors.
For example, a family earning $3,400 in 1976 (the medium income of the bottom 50% of wage earners who I call the "working class") would now have an income of about $4,000, only $600 more after 47 years. Figure 1.5 above shows that this is a 19 percent gain or an average annual gain of just 0.4 percent. In inflation-adjusted 2023 dollars, their income went from $17,800 to $21,100, a measly $3,300 increase.
Middle class workers (those in the 50% to 90% wage category) did a little better. Their incomes grew 60 percent, from about $18,000 to $28,800 in 1976 dollars (a $10,800 gain). That may seem like a lot, but it only increased an average of 1.3 percent per year. Their income in 2023 inflation-adjusted dollars increased from about $99,000 to $158,000 (a $59,000 gain).
Now let's compare these working and middle class incomes to the wealthy, first those in the top 9 percent group.
A wage earner whose salary was $45,000 in 1976 would now have an income of about $68,000. This is a 151 percent increase, or an average annual gain of 3.2 percent. In 2023 dollars, that's an increase from about $250,000 to $378,000 (a substantial $128,000 gain).
But the richest 25,100 Americans (the top 0.01%) gained the most. A 1976 income of $500,000 would now be nearly $3.4 million, a whopping 670 percent increase or 14.3 annualized gain. In 2023 dollars, they now would be earning about $18.7 million a year.
In sum, 90 percent of the working population (225 million wage earners) have seen very little gain in wages over time and are quickly falling behind relative to the wealthiest 10 percent (28 million wage earners). These findings also apply to wealth gaps. The bottom 90 percent have an average of $67,000 in assets (the bottom 50 percent have only $14,000), compared with $3.5 million for the top 10 percent.
The conservative argument that income gaps are justified because all wages are going up in absolute terms would be on much stronger ground if the relative increases between the income groups were equal (e.g., if every group received 14.3 percent gains each year), but even this would not eliminate absolute gaps in income. The only solution is to flip the yearly percent gains and give the poor a greater slice of the income and wealth pies, a matter I'll take up in a future posts. DD