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July 23, 2018

Income inequality has risen in every US state since the 1970s, finds new report

Income inequality has risen in every US state since the 1970s, finds new report

Income inequality has risen in every US state since the 1970s, a report by the Economic Policy Institute finds.

The report analyzed incomes across the US and assessed inequality using data from the Internal Revenue Service (IRS). In 43 states between 2009 and 2015, the incomes of the top 1% grew faster than the incomes of the bottom 99%. Furthermore, a family in the top 1% nationally, on average, earned 26.3 times more than a family in the bottom 99%.

Socio-economist at the Institute for Research in Economics and Social Sciences (IRES) and co-author of the report, Estelle Sommeiller, stressed that: "Rising inequality affects virtually every part of the country, not just large urban areas or financial centers."

To be included in the top 1% of earners in 2015, a family’s income would have to be $421,926 before tax, whereas the average income of a family in the bottom 99% is $50,107. Indeed, the income of CEOs in 2016 has increased by 271 times since 1965, compared to just 20 times for a standard worker.

This increase however is the opposite of what happened between 1928 and 1973, when the share of income held by the top 1% declined in every state. According to the report, the reasons for this were, "a rising minimum wage, low levels of unemployment after the 1930s, widespread collective bargaining in private industries (manufacturing, transportation, telecommunications, and construction), and a cultural, political, and legal environment that kept a lid on executive compensation in all sectors of the economy."  

Indeed, Ernesto Villanueva comments on the impact that collective bargaining can have on wages in his IZA World of Labor article Employment and wage effects of extending collective bargaining agreements. Villanueva argues that, "in many countries, the minimum wages and working conditions set in collective bargaining contracts negotiated by a limited set of employers and unions are subsequently extended to all the employees in an industry. Those extensions ensure common working conditions within the industry, limit wage inequality, and reduce gender wage gaps." Additionally, Lorenzo Cappellari comments that, "inequalities that reflect factors largely out of one’s control—such as local schools and communities—require attention in order to reduce income inequality."

Overall, to decrease income inquality, the report recommends increasing the bargaining power of US workers, increasing the levels of political participation by all citizens eligible to vote, and increasing investment in housing, education, child care, and health care.

Read more articles on economic inequality.