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The Rich Gets Richer and The Poor Get a Little Bit Richer

The rich get richer and the poor get poorer seems to be the proverb of
the times, but just exactly how much richer did the rich get in the past
30 years?

According to a newly released report on real (inflation-adjusted) average
household income in the United States by the non-partisan Congressional
Budget Office, the answer is almost three times as rich:

For the 1 percent of the population with the highest income, average
real after-tax household income grew by 275 percent between 1979 and
2007 (see Summary Figure 1).

The Top One-percenters also have the lionshare of the growth of total
market income:

As a result of that uneven growth, the share of total market income
received by the top 1 percent of the population more than doubled between
1979 and 2007, growing from about 10 percent to more than 20 percent.
Without that growth at the top of the distribution, income inequality
still would have increased, but not by nearly as much. The precise reasons
for the rapid growth in income at the top are not well understood, though
researchers have offered several potential rationales, including technical
innovations that have changed the labor market for superstars (such
as actors, athletes, and musicians), changes in the governance and structure
of executive compensation, increases in firms’ size and complexity,
and the increasing scale of financial-sector activities.

But is bemoaning the good fortunes of the super-rich the right thing
to do? After all, the second part of the proverb "the poor get poorer"
is actually incorrect: for the bottom 20% of the population, the average
real after-tax household income increased by 18% over the past three decades.
It seems like the poor also got a little bit richer.

Perhaps we should change the proverb to "the rich get richer and
the poor get a little bit richer"?

Source: Trends
in the Distribution of Household Income Between 1979 and 2007
by the Congressional Budget Office – via The
New York Times

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October 26th, 2011

Stranger to the World


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