Causes of income inequality in the United States

Causes of income inequality in the United States describes why changes in the country's income distribution are occurring. This topic is subject to extensive ongoing research, media attention, and political interest, as it involves how the national income of the country is split among its people at various income levels.

Income inequality in the United States has grown significantly since the early 1970s, after several decades of stability, and has been the subject of study of many scholars and institutions. The U.S. consistently exhibits higher rates of income inequality than most developed nations, arguably due to the nation's relatively enhanced support of free market capitalism.

According to the CBO and others, "the precise reasons for the [recent] rapid growth in income at the top are not well understood", but "in all likelihood," an "interaction of multiple factors" was involved. "Researchers have offered several potential rationales." Some of these rationales conflict, some overlap. They include:

Paul Krugman put several of these factors into context in January 2015: "Competition from emerging-economy exports has surely been a factor depressing wages in wealthier nations, although probably not the dominant force. More important, soaring incomes at the top were achieved, in large part, by squeezing those below: by cutting wages, slashing benefits, crushing unions, and diverting a rising share of national resources to financial wheeling and dealing...Perhaps more important still, the wealthy exert a vastly disproportionate effect on policy. And elite priorities — obsessive concern with budget deficits, with the supposed need to slash social programs — have done a lot to deepen [wage stagnation and income inequality]."

Globalization refers to the integration of economies in terms of trade, information, and jobs. Innovations in supply chain management enabled goods to be sourced in Asia and shipped to the United States less expensively than in the past. This integration of economies, particularly with the U.S. and Asia, had dramatic impacts on income inequality globally.

Economist Branko Milanovic analyzed global income inequality, comparing 1988 and 2008. His analysis indicated that the global top 1% and the middle classes of the emerging economies (e.g., China, India, Indonesia, Brazil and Egypt) were the main winners of globalization during that time. The real (inflation adjusted) income of the global top 1% increased approximately 60%, while the middle classes of the emerging economies (those around the 50th percentile of the global income distribution in 1988) rose 70–80%. For example, in 2000, 5 million Chinese households earned between $11,500 and $43,000 in 2016 dollars. By 2015, 225 million did. On the other hand, those in the middle class of the developed world (those in the 75th to 90th percentile in 1988, such as the American middle class) experienced little real income gains. The richest 1% contains 60 million persons globally, including 30 million Americans (i.e., the top 12% of Americans by income were in the global top 1% in 2008).

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