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Income Inequality

Income inequality is a major dimension of social stratification and social class. It affects and is affected by many other forms of inequality, such as wealth, power, and status. Income is a major determinant of the life chances, health, and well-being of individuals and families, and varies by social factors such as sex, age, rural/urban location, and race or ethnicity.

On a global level, income inequality is extreme by any measure, with the richest 1% of people in the world receiving as much as the bottom 56%. Within the United States, income inequality is much greater than in most other developed countries. In 2003, the richest 1% received more income than the bottom 40%, and the top 20% of U.S. households received almost half of total income (see Table 1).

Because income is such an integral factor determining access to other resources and overall well-being, it is important for anyone concerned with justice and social change to become informed about the kinds, nature, extent, causes, and consequences of income inequality, the degree to which it can and should be reduced, and the ways in which misconceptions, differing values, and entrenched interests distort public policy regarding income. The focus here is on income inequality in the United States and globally.

Table 1 Share of Aggregate Income Received by Each Fifth and Top 5% of Households, U.S., All Races, 2003
Share of Aggregate Income
Lowest FifthSecond FifthThird FifthFourth FifthHighest FifthTop 5%
All Races3.48.714.823.449.821.4
Source: Adapted from U.S. Census Bureau, Historical Income Tables—Households (Table H-2) (http://www.census.gov/hhes/income/histinc/h02ar.html).

Kinds of Income Inequality

One's occupation is a central basis for differences in income for most people. In more developed countries such as the United States, wages and salaries are the major source of income for most households, while property is a major source for the most affluent. Income inequality can be studied within countries, between countries, or across the world's population, without regard to national boundaries.

Despite popular belief that income inequality largely reflects individual differences in talent and motivation, there are also significant structural and cultural causes, such as segmented labor markets, discrimination, institutionalized racism and sexism, gender roles, and family responsibilities. Other legal, political, and economic factors such as corporate power, degree of private versus public (or common) ownership and control of resources, collective-bargaining frameworks, and minimum-wage laws also affect income levels independently of individuals' traits. Income inequalities can have different implications for levels of well-being in different countries, depending on whether other basic needs such as housing, health care, and food are largely market based, and on whether people have access to productive resources such as land, water, and technology.

U.S. Income Inequality

In 2003, the top 5% of U.S. households received 21.4% of aggregate income, while the lowest fifth received 3.4% (see Table 1). Income inequality in the United States has been rising since 1979, with the exception of a brief decline in the early 2000s. From 1979 to 2000, average after-tax income increased by 9% ($1,100) for the bottom fifth of the population, 15% ($5,500) for the middle fifth, and by 201% ($576,400) for the top 1%. There are also sharp income disparities by race (see Table 2), age, and sex. While the male/female wage gap in the United States has been decreasing, in part due to declining wages for men, gender disparities still persist. black and Hispanic families, and female-headed households, are more likely to be poor, or near-poor, than other households.

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