The Gini index is one of the most common measurements of income inequality. It measures income inequality on a scale of 0 (everyone has the exact same amount of money) to 1 (one person has all of the nation’s wealth) using the Lorenz curve. There is an interesting trend that has been shown for decades in the Gini index. Industrialized nations (France: .327, Denmark: .247, United Kingdom: .36) have low values while non-Industrialized states (Bolivia: .601, Mexico: .461, Turkey: .436) have very high amounts of inequality. The theory being that with increases in GDP, the wealth makes its way around to the general population.
This seems fairly consistent across every nation with one, obvious exception. The United States (.408) is comparable to China (.469) in income inequality.
Some of the difference is in income tax levels. However, much of the difference is accounted for by two factors. First, many European countries tax capital gains at the same rate as normal income. The United States does not. The US tax rate for regular income (in the top bracket) is 35% while capital gains are taxed at only 15%. The wealthiest 1% make large portions of their income in stock options and other investments taxed under the considerably lower rate.
Second, other countries have a much higher rates of unionization than the United States. For example, in 1960, when the US had much lower income inequality, 30% of American workers were union members compared with 32% of Canadians. Today, American union membership is down to 13% while Canada’s has remained constant.
One of the chief debates in economic circles is whether or not the standard of living for the average American has increased at all. The value of the output of the average American worker (in 2006) has been estimated to be 150% of the average output in 1973. Median income (adjusted for inflation) has modestly increased. The number between 1973 and 2005 is estimated to be a 16% increase. While this seems significant, the average American is working two jobs often with less benefits to make that increase possible. Thus, the standard of living for the average American family may or may not have increased over the previous three decades.
Deceptively, many politicians push the idea that the standard of living of normal Americans has vastly increased over the previous three decades. They do this by using the average American salary which is strongly effected by abnormally high incomes. The relatively small number of Americans with extraordinarily high incomes thus push up the average income making it appear that average Americans are better off. The GNP has increased, but that increase has not been widely shared.
Ultimately, this is NOT a political point. It is a statement of fact: America is more unequal than any other industrialized nation. Do with that information what you will.
All statistics are from the CIA or US Census Bureau.
