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A convergence of demographic trends and disparities is contributing to a new economic reality for the U.S. population, characterized by higher levels of poverty and inequality.
Population aging, growing racial/ethnic diversity, changing family structure, and regional population shifts are changing the U.S. demographic landscape and exacerbating differences between the haves and the have-nots.
The United States is undergoing rapid demographic change. Baby boomers, who are mostly non-Hispanic white, have started to reach retirement age, exit the labor force, and collect Social Security benefits. But young adults, who are just starting to enter the workforce, look very different than their parents’ and grandparents’ generations. Historical trends in immigration and fertility have contributed to growing racial/ethnic diversity among young adults and their children. Families are changing, with fewer married couples and more single-parent families and cohabiting unions. And the U.S. population is shifting away from parts of the Northeast and Midwest to new areas of job growth in the South and West.
These demographic trends are occurring against a backdrop of rising inequality in the United States. Since the Great Recession, public discourse has focused primarily on the earnings of chief executives in comparison with low-wage workers. But broader measures of income inequality also show a growing gap between those at the top and those at the bottom. The Gini Index, which measures inequality across households, recently registered its first significant year-to-year increase since 1993; and since 1967, household income inequality has increased by 20 percent.1
From a demographic perspective, these gaps matter because as groups at the bottom of the income distribution make up a growing share of the population, income inequality and poverty levels are projected to increase—even if the gaps between groups remain unchanged. If current trends continue, the U.S. income distribution will become increasingly “bimodal,” characterized by a shrinking middle class and a growing number of people at the top and bottom.
Why should we care if income inequality increases? Before the most recent recession, there was little public discussion about the gap between the rich and poor. While some argue that inequality creates economic and political instability, others point to the positive role of inequality in fostering innovation and economic growth. But the level of inequality in the United States may be reaching a tipping point.
High levels of inequality have been linked to a greater likelihood of economic boom and bust cycles, deeper recessions, and a slowdown in overall economic growth.2 Evidence from the current economic slowdown suggests that the United States is approaching, and may already have reached, a tipping point where inequality is limiting social mobility, consumer spending, educational attainment, and the ability of the United States to compete in the global economy.3 Unemployment peaked at 10 percent in October 2009 and still exceeds prerecession levels. Many discouraged workers have left the labor force, and young adults—especially those without college degrees—have a hard time finding secure, full-time work. Today, about 45 percent of adults are dissatisfied with “Americans’ opportunities to get ahead by working hard,” compared with just 22 percent in 2001.4
Rising poverty levels have reduced opportunities for millions of children compared with previous generations. Today, children who are born to families in the bottom fifth of the income distribution have a 36 percent chance of remaining stuck in that same income quintile when they reach adulthood. For African American children born in the bottom income quintile, the figure is 51 percent.5
In this Population Bulletin, we investigate the intersection between demography and inequality in the United States, with a focus on regional patterns and differences by age, race/ethnicity, gender, and family structure. We stress the importance of closing gaps in education to put the next generation of workers and their children on a path to succeed in the labor force and advance the U.S. economy.
References
1. U.S. Census Bureau, “Table H-4. Gini Ratios for Households, by Race and Hispanic Origin of Householder: 1967 to 2013,” accessed at www.census.gov/hhes/www/income/data/historical/inequality/, on Aug. 5, 2014.
2. Andrew G. Berg and Jonathan D. Ostry, “Inequality and Unsustainable Growth: Two Sides of the Same Coin?” accessed at www.imf.org/external/pubs/ft/sdn/2011/sdn1108.pdf, on Sept. 2, 2014.
3. Standard & Poor’s Financial Services LLC, “How Increasing Income Inequality Is Dampening U.S. Economic Growth, And Possible Ways To Change The Tide,” accessed at www.globalcreditportal.com, on Sept. 2, 2014.
4. Rebecca Riffkin, “In U.S., 67% Dissatisfied With Income, Wealth Distribution,” accessed at www.gallup.com/poll/166904/dissatisfied-income-wealth-distribution.aspx, on Aug. 5, 2014.
5. Richard Reeves, “Saving Horatio Alger: Equality, Opportunity, and the American Dream,” accessed at www.brookings.edu/research/essays/2014/saving-horatio-alger#, on Oct. 21, 2014.
Inequality can be measured in many different ways, based on differences in poverty and income, wealth and assets, consumption patterns, health, and other measures of well-being. Regardless of the measure, the data generally point to rising levels of inequality in the United States. However, the choice of measures can affect conclusions about the magnitude of the increase as well as the size of the gaps between different population groups.
In this report we focus primarily on income inequality, as measured through gaps in poverty and income in the U.S. Census Bureau’s Current Population Survey and American Community Survey. The most common measures of inequality are the Gini Index and the share of aggregate income received by different subgroups of the population, often broken down by income quintile. The Census Bureau’s Gini Index—a measure of income inequality across households—is useful because it provides a long, consistent time series. However, it is limited to pretax income and does not include noncash benefits, government transfers, and tax benefits or payments that can affect a household’s disposable income. Many researchers are looking at alternative measures of inequality that can provide a slightly different picture of disparities and change over time.
For example, inequality based on consumption patterns— spending on goods and services—is lower than inequality based on income and wealth, and while most measures of inequality showed an increase in disparities during the Great Recession, consumption inequality declined during that period.1 Levels and trends in inequality also vary depending on whether researchers have controlled for government taxes and transfers, household size, and—in the case of geographic comparisons—differences in the cost of living. Several different data sources have been used to measure trends in income inequality in the United States, including the Current Population Survey, Survey of Consumer Finance, Internal Revenue Service tax records, and the American Community Survey.2
NEXT: The Backdrop: Rising Inequality
POPULATION BULLETIN CHAPTERS
Introduction
The Backdrop: Rising Inequality
Where Poverty and Inequality Intersect
The Generational Divide
Persistent Racial/Ethnic Gaps
Women Making Progress, But Gaps Remain
Education: The Great Equalizer?
Looking Ahead
References
1. Jonathan D. Fisher, David S. Johnson, and Timothy M. Smeeding, “Measuring the Trends in Inequality of Individuals and Families: Income and Consumption,” American Economic Review, 103, no. 3 (2013): 184-88.
2. For a comprehensive review of measures of inequality, see David S. Johnson and Timothy M. Smeeding, “Inequality Measurement,” in International Encyclopedia of the Social and Behavioral Sciences, 2d ed., ed. James D. Wright (London: Elsevier, forthcoming).