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The Shocking Rise Of Economic Inequality — And Why You Should Care About It

economic and income inequality

A new report by the Economic Policy Institute shows that CEO compensation at the largest corporations has ballooned by 937 percent since 1978, when adjusted for inflation. A typical worker’s compensation grew a measly 10.2 percent over the same period.

The average CEO compensation at the 350 publicly owned companies with the largest annual revenue in the U.S. last year was $15.2 million, according to the EPI, a left-leaning think tank. That’s a 21.7 percent rise since just 2010.

These massive increases are fattening CEOs’ wallets while those of average Americans look ever leaner. Of all income groups, it’s arguably minimum-wage earners who have suffered the most. The federal minimum wage has declined sharply since the 1960s when adjusted for inflation. If it had kept pace with increases in workplace productivity, the federal minimum wage would be $21.72 an hour — triple what it is today.

Meanwhile, median CEO pay among large public companies broke eight figures for the first time last year, according to a recent Associated Press/Equilar study.

In 2013, according to the EPI’s study, the average CEO-to-worker compensation ratio was nearly 296-to-1. That’s down from a high of 383-to-1 in the boom years of the 2000s, but up from 193-to-1 in the depths of the recession.

Screen Shot 2014-06-12 at 6.57.25 PM

Across some industries, that ratio is even more shocking. Fast-food CEOs make 1,000 times more than their average full-time workers, for instance.

Among the top 0.1 percent of wage earners — those bringing in more than 99.9 percent of the working population — CEO compensation still looks outrageous. According to the EPI, average CEO compensation in 2012 was 4.75 times greater than that of the average top 0.1 percent wage earner.

The EPI concluded its report by suggesting that because CEO compensation grew so much faster than that of other highly paid workers, “the market for skills was not responsible for the rapid growth of CEO compensation.” Accordingly, if CEOs took a pay cut, “there would be no loss of productivity or output.”

The Deep Divide

Over the past three decades, income inequality has grown dramatically. After remaining relatively constant for much of the post‐war era, the share of total income accrued by the wealthiest 10 percent of households jumped from 34.6 percent in 1980 to 48.2 percent in 2008.  Much of the spike was driven by the share of total income accrued by the richest 1 percent of households.

The average real after-tax household income of the top 1 percent rose 275 percent from 1979 to 2007. Meanwhile, income for the remainder of the top quintile (81st to 99th percentile) grew 65 percent. Income for the majority of the population in the middle of the scale (21st through 80th percentiles) grew just 37 percent for the same period. And the bottom quintile experienced the least growth income at just 18 percent.

IncomeDistribution_Economic Inequality

At the very top of the income distribution, the share of income accruing to the wealthiest 0.1 percent of households – those with incomes of at least $1.7 million in 2008 – has grown sharply as well.

In short, the evolution of income inequality in the United States is largely driven by the trends at the very top of the income distribution, as very wealthy households have continued to accrue an ever‐greater share of the nation’s total income. It is these trends that have made the U.S. one of the most unequal countries in the world. Income inequality in America, measured by the standard Gini coefficient, is substantially higher than that of almost any other developed nation, and even some developing countries such as Russia and India

Economic Inequality and Your Health

This type of inequality is more than just an economic problem. The public health consequences of economic inequality are well documented: low-income Americans are more likely to be uninsured or underinsured, have higher rates of chronic disease and poor health-related quality of life, and have a shorter life-expectancy than higher-income individuals. Increasing evidence from scientific studies conducted in countries around the world indicates that economic inequality is a significant determinant of health outcomes ranging from life expectancy and premature death to infant mortality and obesity. Even modest increases in income inequality are associated with more than double the cumulative risk of death over a 12-year period. The negative consequences of inequality extend to mental health, as well.

As you can see in the graph below, health and social problems grow worse as economic inequality increases (and, notably, the U.S. stands alone on both measures):

Income & economic_inequality_Public Health

American exceptionalism as its worst.

Socioeconomic disparities in health are worse in the United States than in any of our peer nations. These disparities are not limited to the poorest Americans: high levels of economic inequality affect the health of everyone, not just the poor. While the greatest disparities exist among the poorest Americans, socioeconomic disparities in health, disease, and mortality are present across the income gradient, as seen in the chart below:

Socioeconomic disparities in health exist across the income gradient, even among those in the top half.

Socioeconomic disparities in health exist across the income gradient, even among those in the top half.

Furthermore, an unequal distribution of wealth inevitably leads to an unhealthy population, which is reflected in patterns of health care costs: economic inequality is strongly associated with higher health care spending, particularly in the later years of life.

Looking Ahead


Addressing economic inequality is the only way to effectively reduce disparities in health, health care, disease, and mortality.

One of the goals of Healthy People 2020 is to reduce health disparities of all kinds, including socioeconomic disparities,  and the Affordable Care Act includes several provisions aimed at tracking and reducing health disparities as well as increasing accessibility and affordability of health care. Over the years, efforts to eliminate disparities and achieve health equity have focused primarily on diseases or illnesses and on health care services. However, the absence of disease does not automatically equate to good health.

Within and across countries, individuals at the highest levels of socioeconomic status experience the best health outcomes, indicating that the major opportunity for improving the health of the population in the U.S. and other countries lies in improving health outcomes of those living at the lower end of the socioeconomic spectrum. This requires a long-term commitment and sustained funding to better understand the biological mechanisms and societal pathways through which disparities emerge and are maintained. Reducing the cost and increasing the accessibility of health care will improve health outcomes among lower-income individuals, but access to health care is not enough to eliminate the pervasive health disparities that impact low-income Americans. Building awareness of the negative impact of socioeconomic disparities in health is another crucial step to reducing health disparities. According to the American Public Health Association (APHA):

“Most Americans are not aware of the direct impact of health disparities on all citizens, not just a few select groups. In economic terms, all Americans pay for disparities through higher taxes, greater healthcare costs, and increased insurance premiums.”

The APHA also cites the need for a coordinated national strategy aimed at reducing health disparities:

“Currently, many public health professionals work to reduce disparities either through research, clinical practice or public policy. Yet, in most cases, these programs operate independently for only a brief period of time. Reducing health disparities requires a long-term coordinated approach to research and intervention at the community level. Developing this strategy will require leadership and commitment from multiple sectors including government, private industry, academics and local community groups.”

Public health initiatives can have a significant impact, but addressing the fundamental cause of socioeconomic disparities in health – that is, economic inequality – is the only way to develop a long-term plan to reduce health disparities. There are many ways to achieve this — for example, a more progressive tax code (PDF) could be used to create more social utility—the economic concept of declining marginal utility. Basically, this would place a higher tax burden on those who can afford it — like the CEO’s whose incomes are several hundred times that of the average worker — while reducing the burden on middle- and lower-income Americans.

income-inequality_Minimum wage

Increasing the minimum wage would benefit more than 23 million workers and raise 6 million out of poverty.

Increasing the minimum wage is another way to reduce economic inequality. While conservatives often claim that raising the minimum wage would hurt the labor market, that’s not what the evidence shows. In fact, numerous studies demonstrate that increasing the wage during periods of high unemployment doesn’t have a negative impact on job growth, and states that raised their wages even had job growth slightly above the national average. In fact, increasing the minimum wage can have positive effects on businesses such as increasing demand for goods and services, encouraging employees to work harder, and reducing turnover and the costs of hiring and training new workers.

Raising the wage wouldn’t just help the economy, though — it would be a significant improvement for millions of people. A $10.10 an hour wage would lift nearly 6 million workers out of poverty. The current wage of $7.25 an hour is not enough to keep a parent who works full time, year round above the federal poverty line.

A wage above $10 an hour would also bring it in line with where it would be if it had kept up with various factors. It would be more than $10 an hour if i had kept up with inflation, $10.65 if it had kept up with the raise in average wages for all workers, and a whopping $18.30 if it had kept up with gains in worker productivity. And as the EPI report this week shows, the minimum wage would be $21.72 an hour if it had kept pace with the growth in the earnings of the top one percent.

Final Thoughts

There are a lot of forces driving the historic rates of economic inequality and poverty in the U.S., including the ongoing high unemployment rate, the shredding of the social safety net, the declining power of workers and labor unions, the rising influence of market forces on social values and allocation of resources, decreased spending on the infrastructure of society, and diversion of financial and human resources to military purposes and away from programs and services that support people.

Much needs to be done.

We, as a nation, need to assure conditions in which poor people can be healthy, by promoting equal access to affordable high-quality medical care and preventive services; by addressing the societal conditions that keep poor people poor, such as by assuring that jobs provide a living wage – rather than a wage that amounts to a poverty wage; by providing access to high quality education, appropriate job training, and employment opportunities; and by providing adequate housing.

We also need to address racism, sexism, ageism, and other forms of discrimination. We need to protect the rights of everyone in society, especially those who are most vulnerable. And we need to make sure that poor people have a say in the decisions that affect them and their families and communities.



“We’re the richest economy in the history of the world. For the majority of Americans not to get the benefits of this extraordinarily prosperous economy, you know, there’s something fundamentally wrong.” -Former Labor Secretary Robert Reich


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