In his speech described as a 21st century echo of President Theodore Roosevelt’s “New Nationalism” address, President Obama stated that the growing inequality of wealth in the United States is “the defining issue of our time.” With that speech, President Obama kicked off a flurry of charges of class warfare that is framing the 2012 election to some extent.
President Obama went on to state that, in recent times, “those at the very top grew wealthier from their incomes and investments than ever before.” This point was, perhaps, inadvertently reinforced and made more political by Mitt Romney’s tax returns and Rick Santorum’s response.
Of course, the notion that the rich are getting richer has also been presented in a recent Census Bureau report on income inequality. The Occupy Wall Street movement also drew attention to this subject. The question remains, is this just political rhetoric–populist class warfare–or are the rich really getting richer while the poor are getting poorer?
Rather than simply relying on one of the two opposing arguments, we decided to look at the facts using the gold standard in U.S. income measures, the Current Population Survey administered by the US Census Bureau. Using this data, we looked at income disparity. First, we used a standard technique used by economists and checked the difference between the upper income of lowest fifth of households and the lowest income of the highest fifth of households in the United States; essentially looking at the richest and the poorest. The following chart shows this data in graphical form:
Source: Current Population Survey, US Census Bureau
In short, the data show two divergent trends: when we adjusted incomes for inflation by putting everything into 2010 dollars, we noticed that the highest income of the bottom fifth had not changed since 1967 and had actually been declining for most of the last decade. In contrast, the lowest income of the top fifth had increased by almost 67 percent over this period. In 1967, the lowest paid of the top fifth earned about six times the top pay of the bottom fifth. By 2010, the lowest paid in the top fifth earned about nine times the top pay of the bottom fifth.
In addition, we decided to take a look at the rest of the population to see if only the richest of the rich were prospering or whether the wealth had trickled down, but had not yet reached the bottom fifth.
Source: Current Population Survey, US Census Bureau.
As shown in the chart, we divided the population into quintiles by income (this chart includes the middle three quintiles) and again found the same flat line, with a decade long downward trend through the first three quintiles. In fact, the second quintile of households saw their incomes increase at a slower pace than the lowest fifth (13.9 percent versus 16.80 percent). It would appear that the disparity is increasing, especially between the top fifth and all other groups of households.