Journal of Economic Perspectives—Volume 11, Number 2—Spring 1997—Pages 21-40

Inequality, Income Growth, and Mobility: The Basic Facts Peter Gottschalk

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uring the 1950s and 1960s, mean wages in the United States grew rapidly, and the dispersion around this growing mean changed very litde. Starting in the 1970s and continuing into the 1980s and 1990s, these patterns were reversed: mean wages grew slowly, and inequality increased rapidly. These changes in labor markets were reflected in changes in the distribution of family income.' The mean of the distribution of family income did increase after 1973, in spite of the near constancy of mean real wages, as family members increased the number of hours they worked. However, the increase in inequality of wages was mirrored by an increase in the dispersion of family income. A large descriptive literature has documented the rise in inequality, while a smaller behavioral literature has sought to delineate the causes of this rise.^ These changes in the distribution of family income a£Fected rates of poverty directly. During the 1950s and 1960s, temporary increases in poverty during recessions were more than offset by declines in poverty during economic expansions. As long as the poor gained along with everyone elsefi-omthe secular growth in the mean, one could be confident that poverty rates would ratchet down. This is exactly what happened as poverty rates fell from 22.4 percent in 1959 to 11.1 percent in 1973. ' Changes in the distribution of family income reflected other changes as well, including demographic shifts and changes in the distribution of other sources of incomes such as transfer income and earnings of spouses. ^ For a review of this literature, see Levy and Mumane (1992) and Gottschalk and Smeeding (1997). For a discussion of patterns of inequality before the 1950s, the interested reader might begin with Golden and Margo (1992). As one indicator of the profession's current interest in distributional issues, there were 16 invited sessions on inequality at the annual meetings of the American Economic Association between 1991 and 1995. In contrast, there had been only seven sessions on distributional issues between 1975 and 1979, and almost all of these had focused on gender and race differences in average incomes. None had focused on the growth in overall inequality. • Peter Gottschalk is Professor of Economics, Boston College, Boston, Massachusetts.

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Journal of Economic Perspectives

But these patterns in meanfemilyincome, poverty and inequality came to an end in the 1970s. Figure 1 plots real mean per capita income, the ofiicial poverty rate and the ratio of the income of the household at the 80th percentile to the income at the 20th percentile, which is a commonly used measure of inequality. Percentile ratios are often used as the overall measure of inequality, partly because they are not influenced by the problem that at the very top of the income distribution, most surveys report income higher than a certain amount as being "top