Income Inequality in America: Two Nations Divided

Introduction: Two Nations in America

This paper analyzes income levels in the United States, focusing on how two distinct nations effectively exist within its borders: those with income levels in the top 20% and those with income levels in the bottom 20%. As the disparity between rich and poor grows in America, so does inequality, threatening the very fabric of our national life. Income disparity does not allow those living in poverty to climb out and join the middle class; instead, it keeps the greatest wealth, power, and privilege concentrated in the hands of a select few.

Until this disparity begins to reverse, there will always be two distinct nations in America — the very rich and the very poor. Drawing on U.S. Census data and three additional sources, this paper establishes, discusses, and evaluates the income disparity between the wealthiest and poorest Americans, incorporating perspectives from economists and policy experts.

U.S. Census Data and the Income Divide

The 2002 United States Census income data summarizes the country's income distribution in a wide variety of formats and breakdowns, including the top and bottom percentages of wage earners. According to Carmen DeNavas-Walt, Robert W. Cleveland, and Bruce H. Webster, Jr., authors of "Income in the United States: 2002," published in September 2003, the bottom 20% of America's income earners fall far below the poverty line, with 3.2% of wage earners earning less than $5,000 per year (DeNavas-Walt et al. 23). This income inequality continues to play an important role in the economy and the fabric of the nation. Those living in poverty face greater difficulty removing themselves from their circumstances, and when the economy worsens, these earners are often the hardest hit. For example, many low- and under-skilled workers lose their jobs during economic downturns, and many more lose their jobs as companies outsource their workforces overseas.

In 2002, 27.1% of wages earned in the United States came from the lowest three income quintiles, while 49.6% of wages were earned in the highest quintile; the wealthiest 21.7% of the nation captured the top 5% of income. Those lowest three quintiles encompass incomes below $25,000 per year, illustrating just how poverty-stricken a full quarter of the population truly is (DeNavas-Walt et al. 23). U.S. Census data may be the most valuable tool for determining income inequities between America's rich and poor, because it breaks the data into sectors and uses the Gini formula (discussed in the fourth section below) as one of the determinants of economic inequality.

World Trade, Outsourcing, and the Widening Gap

The next source examines America's income inequality through the eyes of an economist concerned with the growing disparity between rich and poor and what is driving it. In "Worsening American Income Inequality: Is World Trade to Blame?" published by the Brookings Institution in 1996, Gary Burtless refutes the idea that world trade alone is responsible and examines other factors that contribute to a widening gap between the top and bottom 20% of wage earners. He notes, "In a competitive and efficient labor market, pay premiums for skill and education should eventually rise and fall together across industries, whatever the reason for the change in pay premiums" (Burtless). However, this equalization between skill level and education has not been occurring, and many believe that foreign trade, outsourcing, and their effects on the economy are among the reasons pay premiums are neither equalizing nor trickling down to the lowest wage earners.

Many other economic and social factors also figure into America's poverty problem. Burtless continues, "Economic deregulation, new patterns of immigration into the United States, declining minimum wages, and the dwindling influence of labor unions have also contributed to the job woes of unskilled and semi-skilled workers" (Burtless). Poverty in America thus follows a whirlpool effect: the persistent problems with the economy and the unskilled workforce create a vortex that is nearly impossible to navigate for those at the lowest income levels. Poverty is worsening, and with it, the inequality between the very rich and the very poor.

Conclusion: A Persistent and Growing Divide

While world trade continues to grow and companies continue to outsource, the fate of America's poor seems to continue unabated, with no relief in sight. There is no doubt that the wealthy in America enjoy some of the best and most extravagant lifestyles in the world — and they appear to keep getting wealthier, even as their share of income declined marginally in 2002. The sources examined here make clear that wealthy Americans enjoy opportunities that the poorest Americans may never hope to realize. The poor keep striving to join the middle class, but wealth continues to accumulate at the top, leaving those at the bottom struggling to survive, let alone climb out of poverty.

References

Author not available. "Income and Wealth Inequality in the United States." Americans for Democratic Action. 2002.

Blank, Rebecca M. "Selecting among Anti-Poverty Policies: Can an Economist Be Both Critical and Caring?" Review of Social Economy 61.4 (2003): 447+.

Burtless, Gary. "Worsening American Income Inequality: Is World Trade to Blame?" Brookings Review Spring 1996: 26+.

DeNavas-Walt, Carmen, Robert W. Cleveland, and Bruce H. Webster, Jr. "Income in the United States: 2002." Census.gov. Sept. 2003.

Piketty, Thomas, and Emmanuel Saez. "Income Inequality in the United States, 1913–1998." Yale University. 2001.

Thompson, J.J. "A Tool for Measuring Income Inequality." Nieman Reports Spring 1997: 42+.