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Income Inequality

Rising Inequality

Income inequality in the United States has been increasing for several decades.

The income gap between the top earners and everyone else has been growing for decades in the United States and shows signs of continued escalation. In 2014 the top 1% of US workers took home more than 20% of all US income, compared to just over 10% of all US income in the 1970s. While the top 1% of Americans made more, the bottom half of American workers made less over that time span. In the 1970s the bottom 50% of Americans made over 20% of the national income, a number reduced to 12% in 2014.

However, the rise in income inequality in the United States did not slow the growth of consumption, the purchase of goods and services by households, for many years. As the income, and therefore the consumption of the top 1% increased, middle- and lower-income households spent beyond their means to keep up with the consumption habits of the wealthy, a phenomenon called competitive consumption. Over decades of rising inequality and subsequent decline in the growth of disposable income, or income remaining after deduction of taxes and other mandatory expenses and addition of government transfers, which households can spend or save, households without the means to finance their increased consumption turned to debt, borrowing more than ever before. Debt is money owed by one party, the debtor, to a second party, the creditor. The pressure for increased spending and thus more debt created greater stress among middle- and lower-income households. Credit card debt has also been on the rise, increasing personal debt. Personal outstanding revolving credit rose to $1.02 trillion in 2017. Since the 1970s it has been steadily rising in the United States.

A rise in income inequality also negatively affects the supply side (total amount of a specific good or service that is available to consumers) of economic growth through its effects on education and the workforce. Children born into high- and low-income families have different educational opportunities; those born into high-income families are more likely to attend K–12 schools with more resources and teachers. Children born into high-income families are also more likely to attend college. This contributes to a cycle in which inequality rises. As industries advance and lower-skilled labor is moved abroad, there is a struggle to supply enough skilled workers for the new jobs.