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Economic inequality costs the average working person $42,000 annually

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Economic inequality is one of those hazy concepts that can mean lots of different things to people. But take note, members of Congress here’s a number that all of your constituents will understand: $42,000. That’s how much more money the typical full-time, prime-age working person would make if we wiped away the economic inequality of the past four decades. Instead of $50,000 a year, they would take home $92,000. Or put another way, that $42,000 is the money stolen from the average working person and delivered to the wealthiest 1 percent by policies enacted by previous Congresses. Policies to give a big chunk of that back are on the ballot this November.

A groundbreaking new study from the RAND Corporation calculates how much more money people in our country would earn if economic growth in the United States from 1975-2018 had been shared equally instead of dramatically shifted to those with the highest incomes. The total amount of money shifted from 90 percent of wage earners to the highest 10 percent was $47 trillion from 1975 through 2018. It was $2.5 trillion in 2018 alone. Is it any wonder that so many Americans, regardless of their race, gender, education level, or where they live, feel like it’s a struggle to provide financial stability to their families?

How much of a raise would people get if that $47 trillion had been distributed evenly along with the nation’s economic growth? The average lower-income full-time worker (25th percentile), who now takes home $33,000, would be paid $61,000 in 2018 dollars (that’s applicable for all these numbers). Not only would the typical middle-income worker get a boost from $50,000 to $92,000, but an upper-middle-class working person’s (75th percentile) income would go from $81,000 to $126,000. Yes, the 1 percent who have grabbed the most would take the homeless. The average income of the top 1 percent is now $1.4 million. It would drop to $630,000 if they had not reaped a windfall from economic growth tilted drastically to those with the highest incomes. But most of that is in the very richest — the top 0.1 percent.

When we look at income trends by race and gender, the numbers highlight both the progress and continued disparities in the economy. The data also explains the frustration felt by many non-College White men about their stagnant incomes and points us toward the real culprit.  

In 1975, women were paid a lot less than men, so it’s no surprise that their incomes grew at a much faster pace than men, almost keeping up with the growth of the economy. But that doesn’t mean they caught up with men. And disparities in income by race remain. Black men still make less than White men and more than Black women. Black women who work full-time still earn less than white women. 

Still, the biggest losers from policies that shifted economic growth to the richest were low- and middle-income white men. The income for a median-income white man is only 12 percent of what he would have earned with equitable growth. But the reason isn’t that women or Blacks got more (for Black men it was only 16 percent), even if that’s who working-and middle-class White men are too often told to blame. It was because the most highly paid — overwhelmingly White and male — used their political and economic power to rig the system, so they got richer at the expense of everyone else. 

The RAND data helps bust another myth — that the solution to economic inequality is for more people to get a higher education. More education does help a little bit; the median college-educated earner had income growth 26 percent of what it would have been if economic growth were shared equally, compared to their high school counterpart — which went down by 2 percent. Both are just a fraction of what they would have if their incomes had grown with the economy. Which points once again to the only real solutions: policies that change the fundamental way that economic growth is shared in our nation. 

The huge shift from a Post World War II economy where growth was shared equally across income groups was not inevitable. It was driven by deliberate decisions made in the halls of Congress, the Executive branch and the Supreme Court. Congress dismantled the New Deal financial era regulations, slashed taxes on the highest incomes and eviscerated corporate income taxes — with the latest steps taken in 2017. And it utterly failed to modernize labor standards for the 21st Century economy and workforce: updating labor laws for the gig economy, keeping the value of minimum wage and overtime laws where they have been historical, guaranteeing paid sick days and paid leave for a workforce that includes women. 

These policies not only stripped most Americans of their fair share of the economic pie, but they have also actually reduced the size of the pie. As Nick Hanauer and David Rolf point out in a  review of the RAND study published in Time, “A 2014 report from the OECD estimated that rising income inequality knocked as much 9 points off U.S. GDP growth over the previous two decades — a deficit that has surely grown over the past six years as inequality continued to climb. That’s about $2 trillion worth of GDP that’s being frittered away, year after year, through policy choices that intentionally constrain the earning power of American workers.”

Restoring that earning power will require a new agenda: taxing financial wealth and profitable corporations, updating and raising labor standards, reining in monopolies to protect working people and small businesses, advancing social programs like affordable child care, higher education and health care. It will take these changes and many more to restore $2.5 trillion a year to 90 percent of working Americans. 

The good news is that Vice President Biden has proposed significant steps forward in every one of these issues. If he is elected with a Democratic Congress, the historical question is will they stand up to the army of lobbyists for the wealthy and corporations and deliver. If they do, they’ll be creating an America of growing, more equitable prosperity for the 21st Century. 

Richard Kirsch is the director of Our Story – The Hub for American Narratives. He is a consultant with the Fair Work Center, which commissioned the RAND study reviewed in this column. 

Tags Economic growth Economic inequality Economic inequality in the United States Economy of the United States Income in the United States Income inequality in the United States Wealth inequality in the United States

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