Income inequality has been on the rise for decades in several nations, including the United Kingdom, China and India, but it has been most pronounced in the United States, economists say.
In 1975, for example, the top 0.1 percent of earners garnered about 2.5 percent of the nation’s income, including capital gains, according to data collected by University of California economist Emmanuel Saez. By 2008, that share had quadrupled and stood at 10.4 percent.
The phenomenon is even more pronounced at even higher levels of income. The share of the income commanded by the top 0.01 percent rose from 0.85 percent to 5.03 percent over that period. For the 15,000 families in that group, average income now stands at $27 million.
In world rankings of income inequality, the United States now falls among some of the world’s less-developed economies.
According to the CIA’s World Factbook, which uses the so-called “Gini coefficient,” a common economic indicator of inequality, the United States ranks as far more unequal than the European Union and the United Kingdom. The United States is in the company of developing countries — just behind Cameroon and Ivory Coast and just ahead of Uganda and Jamaica.
Democratic leaders, whose constituents have expressed more alarm over the divide, have used the phenomenon to justify their policies, such as universal health care.
“A nation cannot prosper long when it favors only the prosperous,” President Obama said in his inaugural address.
Breakdown of earners
But exactly what the government ought to do about the income gap hasn’t been clear, because economists have been divided over what is causing it to grow.
They weren’t even sure, for example, who was making all that money. Sure, people like Bill Gates and LeBron James made lots. But it wasn’t at all clear who the other roughly 140,000 earners were in the top 0.1 percent — that is, people earning about $1.7 million a year, including capital gains.
Then, late last year, economists Bakija, Cole and Heim completed their massive analysis of income tax returns.
Little noticed outside academic circles, their research focused on the top 0.1 percent of earners. From those tax returns, they could glean a taxpayer’s occupation, which is self-reported. Using the employer’s tax identification number, the researchers found the industry they were employed in.
After executives, managers and financial professionals, the next largest groups in the top 0.1 percent of earners was lawyers with 6.2 percent and real estate professionals at 4.7 percent. Media and sports figures, who are often assumed to represent a large portion of very high-income earners, collectively made up only 3 percent.