Income Inequality in The United States - History

History

The level of concentration of income in America has not been constant throughout its history. Going back to the early 20th Century, when income statistics started to become available, there has been a "great economic arc" from high inequality "to relative equality and back again," in the words of Nobel laureate economist Paul Krugman. In 1915, an era in which the Rockefellers and Carnegies dominated American industry, the richest 1% of Americans earned roughly 18% of all income. By 2007, the top 1 percent account for 24% of all income. In between, their share fell below 10% for three decades.

The first era of inequality lasted roughly from the post-civil war era ("the Gilded Age") to sometime around 1937. But from about 1937 to 1947—a period that has been dubbed the "Great Compression"—income inequality in America fell dramatically. Highly progressive New Deal taxation, the strengthening of unions, and regulation of the National War Labor Board during World War II raised the income of the poor and working class and lowered that of top earners. This "middle class society" of relatively low level of inequality remained fairly steady for about three decades ending in early 1970s, the product of relatively high wages for the US working class and political support for income leveling government policies.

Wages remained relatively high because of lack of foreign competition for American manufacturing, lack of low skilled immigrant workers, competition for US workers in general, and — arguably most important — strong trade unions. By 1947 more than a third of non-farm workers were union members, and unions both raised average wages for their membership, and indirectly and to a lesser extent, raised wages for workers in similar occupations not represented by unions. Scholars believe political support for equalizing government policies was provided by high voter turnout from union voting drives, the support of the otherwise conservative South for the New Deal, and prestige that the massive mobilization and victory of World War II had given the government.

The return to high inequality—or what Krugman and journalist Timothy Noah have referred as the "Great Divergence"—began in the 1970s.

Studies have found income grew more unequal almost continuously except during the economic recessions in 1990-91, 2001 (Dot-com bubble), and 2007 sub-prime bust.

The Great Divergence differs in some ways from the pre-Depression era inequality. Before 1937 a larger share of top earners income came from capital (interest, dividends, income from rent, capital gains). Post 1970, income of high-income taxpayers comes predominantly from "labor", i.e. employment compensation.

Until 2011, the Great Divergence had not been a major political issue in America, though stagnation of middle class income was. In 2009 the Barack Obama administration White House Middle Class Working Families Task Force convened to focus on economic issues specifically affecting middle-income Americans. In 2011, the Occupy movement drew considerable attention to income inequality in the country.