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How Much More Would You Earn If We Reined In Inequality?

What would incomes be for today’s working families today if the U.S. economic picture were the same as it was in 1979?

Harvard professor and former US Treasury secretary Larry Summers recently crunched the numbers for this idea in the Financial Times. Here are the results:

  • Families that fall in the lower 80% percent of the U.S. income distribution scale would on average make $11,000 more per year than they earn today.
  • Earners in in the top 1% would bring in about $750,000 less than they make today.

That got business analysts at Planet Money wondering: What would these figures look like in even greater detail? What would the earnings of poor, middle class and rich American look like if we restored today’s economy to 1979 levels of inequality?

Here’s what the thought-experiment concluded:

The middle class would benefit from the greatest increase if we went back to 1979 income distribution. That is, of course, just another indication that the middle class has suffered the biggest hit in its share of total income during the past few decades.

Similarly, if we restored to 1979 levels of inequality, the massive losses for the wealthiest 1% remind us of the staggering gains those top earners have enjoyed in the past 30+ years.

The calculation, of course, is a purely theoretical exercise. It brings together two very different spheres: an economy as big as today’s, but with an inequality profile from 1979. There are some economists who would simply argue that this couldn’t exist, since that massive economic growth has been driven by the same dynamics — globalization and technological change – that have also increased economic inequality.

The red portion of the graph below — representing hypothetical income loss for the top 1% in Larry Summer’s thought experiment — was cut off from it’s original representation, which required scrolling down five times the length displayed below. For the original image, visit the NPR Money Blog.

 

income inequality

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Emery Reddy