Income Inequality Explained: 5 Numbers That Matter

Everyone feels it, but few people see it in numbers. Income inequality explained in plain data comes down to five figures. Together they show a country where total income keeps growing while a shrinking share reaches the people doing most of the work.

Number 1: What share of income does each fifth of households get?

The Census Bureau sorts all U.S. households into five equal groups by income and measures what each fifth takes home. The result is not close.

The top fifth takes more than the other four combined in the middle and bottom. The bottom fifth, which includes full-time workers earning the federal minimum wage of $7.25 an hour (unchanged since 2009, U.S. Dept. of Labor), gets a sliver.

Number 2: What does the Gini index say?

The Gini index compresses the whole distribution into one number between 0 and 1. Zero means everyone has the same income. One means a single household has it all. The Census Bureau's Gini for U.S. households was roughly 0.48 to 0.49 in recent years, up from about 0.40 in 1967. How that compares with other rich countries is in the Gini coefficient, US versus the world.

Number 3: How much does the top 1% take?

Survey data under-count the very top, so researchers use tax records. The World Inequality Database, built from IRS data by economists including Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, puts the top 1% share of pre-tax national income at about 20%, roughly double what it was in the late 1970s. We unpack that figure in what share the top 1% actually takes.

Number 4: How far has pay for the top pulled away from the typical worker?

The Economic Policy Institute estimates that the CEO-to-typical-worker pay ratio at large firms runs roughly 290 to 340 to 1, compared with about 20 to 1 in 1965. Executives are paid more, and typical workers' pay growth has trailed the output they produce, a gap covered in CEO-to-worker pay ratio and in wage stagnation.

Number 5: What does inequality do to wealth?

Income inequality compounds into wealth inequality, because those with surplus income can invest it and everyone else spends it on rent and bills. The Federal Reserve's Distributional Financial Accounts show the top 1% of households holding roughly 30% of net worth and the bottom half holding only about 2% to 3%.

The bottom half earns a modest share of income and owns almost nothing, so one bad month, a medical bill, or a rent increase can erase them. That fragility is why roughly 60% of Americans say they live paycheck to paycheck in recent LendingClub and Bankrate surveys (survey-based).

Is income inequality getting better or worse?

Over the long run, worse. From the end of World War II through the 1970s, incomes grew at similar rates across the distribution. Since then, growth has concentrated at the top. Pandemic-era wage gains helped low-wage workers for a time, and some of that compression faded as inflation and housing costs rose.

Economists disagree about causes. The candidates include globalization, automation, the decline of unions, tax policy, and the rising return on capital relative to labor. They agree on the direction.

What does this mean for you?

It means your sense that costs rose faster than pay is not imagined. Home prices run about 5 times median household income, against roughly 2 to 3 times in the 1980s (NAR; U.S. Census), and median household income is about $80,000 (U.S. Census, 2023). When income at the top grows faster than income in the middle, the price of scarce goods like housing follows the top, not the middle.

For the wider picture, start with our guide to income inequality in America and the broader story in the American dream is broken.

Why does it matter if the rich get richer?

Because the money does not stay in a separate economy. When incomes at the top rise much faster than incomes in the middle, the prices of scarce things follow the top. A bidding war for a limited supply of homes in a good school district is won by the households with the most income, and everyone else is priced out of the neighborhood and, eventually, the market.

Inequality also affects mobility. Research by Raj Chetty and colleagues at Opportunity Insights finds that the share of children who earn more than their parents has fallen from about 90% for those born in 1940 to roughly 50% for those born in the 1980s. Rising inequality and slower growth in the middle explain much of that decline. A child's odds of beating a parent's income are now close to a coin flip, which is a hard thing to square with a country built on the opposite promise.

The cost shows up in the household budget too. Housing, healthcare, childcare, and college all rose faster than typical wages, so a median income of about $80,000 buys less security than it did a generation ago.

How do you read inequality data without being misled?

Check three things before you trust a chart. First, whether the figure is before or after taxes and transfers, since the same country can look very different on each. Second, whether it measures income or wealth, which tell separate stories. Third, whether it includes the top: survey data under-count high earners, while tax-record data catch them. A claim that inequality is flat usually leans on a measure that leaves out one of these. A claim that it is exploding usually leans on wealth, not income. The honest picture combines them, and every version shows a top that pulled away.

Inequality at this scale is not the product of individual effort or luck. It is the product of rules: a wage floor that stopped moving in 2009, tax and market structures that reward capital over labor, and housing and healthcare systems that capture raises before they reach a paycheck. Rules are written by people, which means they can be rewritten.