Responding to Rising Inequality: Policy Brief

Introduction

Introduction 

ONE OF AMERICA’S DEFINING IDEALS is the idea that opportunity is available to all, regardless of where one starts on the economic ladder. 

The reality is that income inequality has grown dramatically since the 1970s and that increasing inequality has not been matched with growing economic mobility. Instead, the rungs on the ladder of economic advancement are being pulled further apart: in 1970, the upper-class household at the ninety-fifth percentile of income ($122,294 in 2012 constant dollars) had an income roughly three times that of the middle-class household at the fortieth percentile of income ($37,282 in 2012 constant dollars), but, by 2012, the household at the ninety-fifth percentile ($191,156) received nearly five times the income of the fortieth percentile household ($39,674).1

Increasing income inequality has contributed to rising levels of residential segregation by income in large metropolitan areas.2 As highincome families share fewer neighborhoods with middle- and low-income families, the U.S. is characterized by increasingly unequal social contexts that contribute to widening disparities in educational achievements by wealth and income.3 This growing divide presents fundamental obstacles to individuals’ efforts to realize their full potential and, in turn, the nation’s ability to make the most of the potential human capital of its residents.

Given the ways in which income inequality and segregation can harm the broader society by denying each individual a fair chance to achieve his or her potential, this rise in inequality and its effects on economic mobility are increasingly recognized as a defining issues for America’s future. The Declaration of Independence proclaimed a continuing commitment to the ideal of human equality. While this ideal has often been challenged, the most significant social movements and legislative initiatives have sought to vindicate the ideal of equality of opportunity and to live up to the promises of judgments based on the contents of one’s character—not on one’s race, gender, sexual orientation, religion, physical abilities or socioeconomic background.

This policy brief reviews recent scholarship from members of the Economic Disparities Research Cluster of the Haas Institute for a Fair and Inclusive Society at the University of California, Berkeley and offers important insights as well as policy-based solutions in order to meet the profound challenges of income and wealth inequality and growing poverty now facing American society. 

First, the brief assesses what is known about the dynamics of growing income inequality and its effect on the middle class. Income polarization is growing, and the middle class is shrinking. It also considers the effects of the recent recession, specifically the negative effects on already disadvantaged workers and the significant rise in the poverty rate. 

Second, the brief looks at how these changing income and labor market dynamics have pushed significant portions of the middleclass toward poverty and how stagnant or declining middle-class wages hold back economic growth. 

Third, the brief considers how these trends affect economic mobility for the next generation. The rungs on the ladder of economic mobility have moved further apart, but upward mobility has not kept pace. Economic mobility varies significantly across metropolitan regions—suggesting that city, state, and federal policies can have an impact. 

Finally, the brief presents several policy recommendations emerging from the recent research, including raising the minimum wage, enhancing the Earned Income Tax Credit, supporting asset building, extending investments in education, and addressing residential segregation.

 

  • 1. U.S. Census Bureau 2014a, Current Population Survey, Annual Social and Economic Supplements, Historical Income Table H-1. Available at: https://www.census.gov/hhes/www/income/data/historical/household/.
  • 2. Reardon, Sean and Kendra Bischoff. 2011. “Income Inequality and Income Segregation.” American Journal of Sociology. 116(4): 1092-1153; Reardon, Sean and Kendra Bischoff. 2011. Growth in the Residential Segregation of Families by Income, 1970-2009. US2010 Project Report. Providence, RI: Brown University
  • 3. Reardon, Sean. 2013. The Widening Income Achievement Gap. Educational Leadership 70(8): 10-16.