Why Income Disparity is So Drastic in America



Among the countries with highly developed economies, the United States is the most unequal in the entire world. The Central Intelligence Agency’s World Fact Book list confirms this statistical reality in their ranking of states according to their Gini coefficient, a measure of family income inequality. A country in which every family had the same income would have a coefficient of 0. One in which one family received all of the income and all others none would have a coefficient of 100. According to CIA data, the most unequal country in recent years is Namibia, with a coefficient of 70. The most equal is Sweden, which has a Gini coefficient of 23. The U.S. is 41 out of 136, with a coefficient of 45.

One troubling feature of inequality in the U.S. is that it is getting worse. According to the U.S. Census Bureau, the percentage of income taken home by the wealthiest quintile in 2010 was 50.2%. The percentage of total earnings received by the poorest quintile was 3.3%. In 1967 the top quintile got a hold of just 43.6% of all earnings and the poorest quintile managed to get 4%.

Why does the U.S. excel at promoting inequality? One way to answer that question is to consider what makes the U.S. different than the Nordic social democracies. Several features are characteristic of such systems: a higher top income tax rate, greater equality of opportunity in education, and a much higher percent of workers covered by union contracts.

Recent debates about taxation in the U.S. have focused on whether to raise the rate to 30%. Comparatively, the top tax rate in Sweden is 56.6%, and the money earned by taxing high earners is put to good purposes there. Only 5.3% of the Swedish population is impoverished, compared to about 15% in the U.S.

Although the Swedish educational system has been decentralized in recent years all students still attend a school financed entirely by federal funding. As every U.S. parent knows, the funding levels and quality of schools in most states differ dramatically from school district to school district to the general disadvantage of children living in poor neighborhoods. This is because nearly half of the funding for schools in most districts comes from local property taxes. Savage inequalities in schooling, as Jonathan Kozol has called them, serve to radically constrain the opportunities for children whose parents are poor.

While union membership has been steadily falling in the U.S. for decades, the opposite trend has occurred in Sweden, which has seen nearly a 30% increase in membership since 1970. With just over 20% of the workforce organized, union membership in Sweden is not especially high in the developed world, but it is about twice that of the U.S.; unions in the U.S. have hemorrhaged members since 1983, when rates of membership were about what they now are in Sweden. But in Sweden upwards of 89% of workers are covered by union contracts regardless of whether they are union members, so although membership is not especially high, the strength of unions is considerable. The major advantage of this for Swedish employees is a much stronger position when bargaining for wages, benefits, and work conditions.

There is one more feature of established social democratic countries worth mentioning. This is their stability. The egalitarian project enjoys a remarkable degree of moral support, even among conservatives. When the current center-right Swedish Prime Minister, Fredrik Reinfeldt, was campaigning in 2010, he is reported to have said that "functioning societies are based on clear and good welfare ambitions that are open to all. In unequal societies too many people are held back; they just don’t get a chance."  This statement suggests that equal opportunities are owed to each member of society, regardless of their social position at birth. Anyone committed to such an ideal would be deeply disturbed by the harsh realities of U.S. inequality.