The Current Distribution of Disposable Income

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Income distribution is a statistical measurement of how much people earn and what percentage of earners are in the lowest, highest and middle groups across the range of annual incomes. Disposable income refers to the earnings over which people have total control, excluding, for example, compulsory taxes.

Income inequality refers to the degree of difference in earnings among various segments of the population. The greater the difference between the highest and lowest earning segments, the more income inequality there is. Statistical information on income distribution in the United States comes from the Current Population Survey conducted every year by the U.S. Census Bureau, which records details about individuals’ employment and income.

To calculate income distribution, economists arrange household incomes from lowest to highest. They are then able to calculate what percentage of households fall into the lowest quintile (one-fifth) of the distribution, what percentage fall into the next quintile and so on. They also identify the percentage that represents the top five percent of incomes. Some estimates show that today, the highest earning one-tenth of the population receives 42 percent of all income earned in the United States.

According to Census Bureau data, in 2008 (the latest year for which full statistics are available), although average income fell by about 3.5 percent, income inequality did not change. In 2008, the lowest quintile of incomes ($20,712 or less) represented 3.4 percent of all income; the second quintile, 8.6 percent; the third quintile, 14.7 percent; and the fourth, 23.3 percent. The fifth quintile, representing incomes of $100,241 or more, represented 50 percent of all income.

Data collected from the Current Population Survey over several decades can also show long-term changes in income distribution. Economists describe two major trends in the distribution of income in the United States in the 20th century. First, a sharp decline in inequality of incomes took place around the time of World War II. A second major change occurred in the 1970s and, to a greater degree, the 1980s, as income inequality rose substantially. Today’s income distribution is similar to what it was in the 1920s.

These trends can also be described using dollar values. For example, families in the highest quintile of incomes in 1947 earned $8.60 for every dollar earned by families in the lowest quintile. This ratio fell over the next two decades until reaching its lowest point in 1969, when the highest earners received $7.25 for every dollar of the bottom quintile. The ratio started to rise after this point, reaching $11.36 to $1.00 in 2002.

Economists explain the rise in income inequality after the 1970s by several factors. First, earlier in the century most families had one main income earner, making for more uniformity in wages. After the 1970s, families increasingly fell into two newer categories. These categories are low-earning single-parent families and families with two parents, both of whom work, often at higher-paying jobs. New technologies have also created greater demand for highly educated and skilled workers, increasing the wage gap. Finally, the salaries of the highest paid executives rose substantially relative to those of the average worker in this period.

In addition to differences based on education and skills, income distribution also varies according to geographic region, gender and race.

Economists also look at income mobility, the ease with which individuals are able to move up or down in the hierarchy of incomes. If those in the lowest and highest quintiles of the income distribution always remain in those positions, unequal income distribution can be a serious economic and social problem. Periods of pronounced economic growth or recession may impact different groups of earners differently. Growth may not be shared equally and economic crises may further widen gaps between the wealthiest and poorest sectors.

Resource by A.Moore

I just moved to Michigan from South Carolina. This is my first winter here and so far it's freezing. I enjoy traveling, drawing, camping, writing, and doing community service in my spare time. I work for a education company and help them with their outreach to teachers and students. Hope everyone enjoys my articles.

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