Income Distribution Trends in the United States

This week we take a look at income distribution trends in the United States.

Before we start, we should make clear what an income percentile is: Percentiles divide the data into 100 equal groups.  

So for example if we say that a person is on the 75th income percentile (75th%), what it means is that if we gather 100 people from the general population inside a room, 75 of those will have a lower income than that person, while the other 25 of them will have a greater income. 

There has been much talk lately about income inequality and the top 1% but just how far has the working class been left behind by the current economic status quo?

According to research from RAND.org, if workers below the top 10% of the income distribution, had grown at the same rate as the overall economy since 1975, they would have collectively earned $2.5 trillion more in 2018, 67% higher than their actual 2018 earnings.

The income of workers at the 25th percentile in 1975 was $28,000 per year. The economic growth rate would have led to income for this group being $61,000 in 2018, but it actually rose to only $33,000. Thus, instead of rising at the economic growth rate of around 120%, these workers' incomes rose about 18%. 

Among the researchers' findings is that the only group of workers for which gains exceeded the economic growth rate was the group near the 99th percentile (top 1%) of the income distribution.

The actual income of workers at the 99th percentile, should have risen from $257,000 in 1975, to $560,000 by 2018 at the economic growth rate, but it actually rose to $761,000 (and was more than $1 million in 2007)

The average person within this top 1%, which includes around 2.5 million individuals in the United States, should have seen his or her income rise from an average of $289,000 to $630,000 between 1975 and 2018 at the economic growth rate. But, instead, these workers' actual average income in 2018 was $1,384,000, more than 300% of the economic growth rate.

Source: Price, Carter C. and Kathryn A. Edwards, A New Approach to Measuring Income Inequality Over Recent Decades. Santa Monica, CA: RAND Corporation, 2021.