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American Income Inequality and Wage Stagnation

American wages have remained largely stagnant since the late 1970s. Accounting for inflation, the average income earner has not improved in nearly five decades. Studies from the American Federation of Labor and Congress of Industrial Organization (AFL-CIO) and Pew Research Center have found that the real wage average increase went from 18 to 22 percent despite a 737 percent growth in the gross domestic product over the past 40 years. GDP has blown past wages. 


Economists have struggled to make sense of this trend and have discovered that those at the top of the American income bracket have seen increased wages while the middle and bottom income levels have seen stagnant wages. The top 0.01 percent of Americans are reported to take in 196 times more than the bottom 90 percent combined.


Income inequality has also been exacerbated by the COVID-19 pandemic and its detrimental effect on the U.S. job market. The elimination of low-wage jobs during the pandemic made the financial situation worse for the lowest earners and those entering the job market while deepening the growing income gap. 


Closing the income gap between the richest and poorest Americans would require an overhaul of current U.S. taxation policy. Many propose that corporations be taxed at a higher rate and that a wealth tax be placed on the top 0.01 percent of Americans who have a disproportionate amount of wealth. This is a tough sell to those who exist in the highest income bracket, as they may not have any incentive to redistribute their wealth. Further, as many on the political right argue, redistributive taxation may itself have negative economic effects. 


Alex Joplin was a Social Issues intern for ONC during the Fall 2021 semester. 


Sources:

Gould, Elise, and Melat Kassa. “Low-wage, low-hours workers were hit hardest in the COVID-19 recession: The State of Working America 2020 employment report.” Economic Policy Institute, 20 May 2021, https://www.epi.org/publication/swa-2020-employment-report/.

HOROWITZ, JULIANA MENASCE, et al. “Trends in U.S. income and wealth inequality.” Pew Research Center, 9 January 2020, https://www.pewresearch.org/social-trends/2020/01/09/trends-in-income-and-wealth-inequality/.

Stec, Connor. “The implications of American wage stagnation.” USC Economics Review, 28 March 2021, https://usceconreview.com/2021/03/28/the-implications-of-american-wage-stagnation/.

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