In the wake of the economic downturn, the adage that ‘the rich get richer and the poor get poorer’ and the general idea of the ‘haves and the have-nots’ have been highlighted for many people. In recent years, the notion of the ‘1%’ and the Occupy Wall Street movement suggest increasing public attention to economic inequality in the United States. The ‘Wealth Inequality in America’ viral video is another indication of concern with inequality, which can be accessed here or viewed below.
Despite the increasing public consciousness of economic inequality, the economic data suggest an even greater widening of household income (e.g., how much money a household earns in a year from employment, investments, etc.) and wealth (e.g., assets from home equity or retirement accounts less debts, such as mortgage) than many have realized.
In this article, economic data from the last 10 to 15 years tell a more specific story of ‘the haves and have-nots’ and surprising trends in income and wealth distribution, which contribute to achievement disparities between students from various socioeconomic groups.
Income is a common measure of economic resources that is well-understood. The ‘relative share’ of income reflects how evenly the proportion of income is distributed among all people in the United States. For instance, in a perfectly equal income distribution, the top 1% of income earners would take home 1% of the relative share—the proportion of total income earned—and the top 10% would take home 10% of the total income. By this example, if all income in the United States totaled $100, the top 1% would take home $1, the top 10% would earn $10, and so on. This example isn’t ideal or provided to argue for a perfectly equal income distribution – equalizing income is an economic idea that has been tried already, without much success – but by way of explanation.
Economic data indicate that slices of the income pie are not the same sizes in the United States. The top 1% of income earners receive a striking proportion (relative share) of all income in the United States. In 2003, the top 1% of income earners had 17.0% relative share of income, 21.3% relative share in 2006, and 17.2% relative share in 2009. One way of looking at these trends is that 1% of all people earned between 17-21% of all income—a disproportionate amount of income going to very few people (Wolff, 2012).
Wealth is another key economic indicator, and one that was particularly affected by the recent economic downturn. The Great Recession (officially dated from 2007 to 2009 although we still experience its aftereffects) led to near-unprecedented levels of wealth destruction in the United States. Between 2007 and 2011, over half of American families lost at least 25% of their wealth, and about one-quarter of all American families lost at least 75% of their wealth (Pfeffer, Danziger & Schoeni, 2013). Relative wealth losses from 2003 to 2011 were far greater for Americans on the lower rungs of the economic ladder than those on the upper rungs. The lowest one-fifth of the income distribution – who have greater need for wealth – lost 74% of their wealth over this eight year period, while the highest one-fifth of the income distribution – who presumably don’t need wealth to meet basic household needs – lost only 19% of their wealth during these same eight years (Pfeffer et al., 2013).
By contrast, the proportion of total wealth held by the top 1% of income earners (the 1% we hear so much about) held steady: 33.4% of the share of allwealth in the United States in 2001, 34.3% in 2004, 34.6% in 2007, and 35.4% in 2010 (Wolff, 2012). It is striking that only 1% of the population held over one-third of thetotal wealthof the country over this period of time. Even more striking is that the wealth of the 1% was stable and secure across the Great Recession, suggesting that this wealth of this group improved during this span of time, instead of decreasing, the general trend for other income groups.
What do all these numbers mean? On one hand, they tell a story of widening income and wealth inequality, particularly between the very upper rungs and the lower rungs of the societal economic ladder. They tell another story of wealth disparities. The differences between the wealth haves and have-nots have grown even larger in recent years, with the relative share of the most affluent more stable (or, increasing) during the Great Recession than those with less wealth.
Income and wealth clearly matter for school quality, school funding level, the economic stress parents may/may not endure, and the myriad other ways economic resources matter for school success. Therefore, the data explaining the story of the haves and have-nots also gives us some insights into why achievement disparities between socioeconomic groups are also widening (Reardon, 2011) – because the income and wealth disparities that serve as ‘inputs’ into achievement are widening, too.
This article was written with contribution from:
Diemer, M.A., Mistry, R., Wadsworth, M.E., López, I. & Reimers, F. (in press). Best practices in conceptualizing and measuring social class in psychological research. ASAP: Analyses of Social Issues and Public Policy.
Pfeffer, F. T., Danziger, S., & Schoeni, R. F. (2013). Wealth disparities before and after the Great Recession. National Poverty Center Working Paper (No. 13-05). Anne Arbor, MI: National Poverty Center.
Reardon, S. F. (2011). The widening academic-achievement gap between the rich and the poor: New evidence and possible explanations.In G.J. Duncan & R. M. Murnane (Eds.), Whither Opportunity? Rising Inequality, Schools, and Children’s Life Chances. New York: Russell Safe Foundation.
Wolff, E. N. (2012). The asset price meltdown and the wealth of the middle class. National Bureau of Economic Research Working Paper (No.18559). Cambridge, MA: National Bureau of Economic Research.