The three decades following the Second World War saw a period of economic growth that was shared across the income distribution, but inequality in taxable income has increased substantially over the last four decades.
This work seeks to quantify the scale of income gap created by rising inequality compared to a counterfactual in which growth was shared more broadly. We introduce a time-period agnostic and income-level agnostic measure of inequality that relates income growth to economic growth. This new metric can be applied over long stretches of time, applied to subgroups of interest, and easily calculated. We document the cumulative effect of four decades of income growth below the growth of per capita gross national income and estimate that aggregate income for the population below the 90th percentile over this time period would have been $2.5 trillion (67 percent) higher in 2018 had income growth since 1975 remained as equitable as it was in the first two post-War decades. From 1975 to 2018, the difference between the aggregate taxable income for those below the 90th percentile and the equitable growth counterfactual totals $47 trillion. We further explore trends in inequality by applying this metric within and across business cycles from 1975 to 2018 and also by demographic group.
This research was funded by the Fair Work Center and conducted by RAND Education and Labor. This working paper is under review with a scholarly journal; although most RAND working papers are not subject to formal peer-review, this work has in fact completed RAND’s full research quality assurance and peer-review process.
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