by Pavlina R. Tcherneva (originally published at New Economic Perspectives)
Inequality Update: Who Gains When Income Grows?
Growth in the US increasingly brings income inequality. A striking deterioration in this trend has occurred since the 80s, when economic recoveries delivered the vast majority of income growth to the wealthiest US households. This note updates my original inequality chart (reproduced below) with the latest data. For earlier discussions, see e.g., here, here, and here.
The chart illustrates that with every postwar expansion, as the economy grew, the bottom 90% of households received a smaller and smaller share of that growth. Even though their share was falling, the majority of families still captured the majority of the income growth until the 70s. Starting in the 80s, the trend reverses sharply: as the economy recovers from recessions, the lion’s share of income growth goes to the wealthiest 10% of families. Notably, the entire 2001-2007 recovery produced almost no income growth for the bottom 90% of households and, in the first years of recovery since the 2008 Great Financial Crisis, their incomes kept falling during the expansion, delivering all benefits from growth to the wealthiest 10%. A similar trend is observed when one considers the bottom 99% and top 1% percent of households (for details, as well as complete business cycle data, see here).