Explaining Income Inequality

Mark Perry
updated | Author's Website

The chart above (click to enlarge) shows selected characteristics of U.S. household by income quintiles (and the top 5%) for 2009, using data from the Census Bureau (here). Here is a summary of some of the differences between low-income and high-income household in America:
1. On average, there are more income earners per household in highest-income households (2.05 earners for the top fifth) than earners in the lowest-income households (0.48 for the lowest fifth).
2. Married-couple families represent a much great share of the top income quintile households (79%) than lowest quintile households (18%).
3. More than 3 out of 4 households in the top fifth of households are in their prime earning years between 35-64 years old, compared to only 43% of households in the bottom fifth. The lowest quintile households are more than 1.5 times as likely to be younger (under 35 years) as the highest quintile households (23.4% to 14.8%), and more than three times as likely to be old (65 years and over) as the top fifth (33.3% vs. 9.9%).
4. Almost 4 times as many top quintile households are working full-time (78%) compared to the bottom quintile (20.8%), and more than five times as many households in the bottom quintile are not working (65%) as households in the top quintile (12.2%).
5. Households in the top qunitle are almost seven times more likely to have a college degree than bottom quintile households (72.8% vs. 10.8%). 
Bottom Line: The highest-income quintile has four times more people working per household than the lowest quintile (2.08 earners vs. 0.48), individuals in those households are far more likely to be well-educated, married and working full-time in their prime earning years.  In contrast, those individuals with low incomes are far more likely to be less-educated and working part-time, and either very young or very old living in single-parent households.  Given these significant differences in household characteristics, it’s not too surprising that there are huge differences in incomes among American households.  It’s also very likely that those individuals in the highest quintile were once in the lower quintiles before they acquired job experience and education, and they’ll likely be in a lower quintile again when they retire.  

HT: Diana Furchgott-Roth

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