Class Discussion: The 1% and the Income Gap

Lately, if you’ve been watching the news coverage of the Occupy Wall Street movement or listening to the political debate, there has been quite a bit of talk about the income gap between those in the top 1%  and the rest of the population.  What they’re really talking about is the increased dispersion of household income – those in the upper end earning more, and those at the bottom earning less.

In a free market system, this is not a problem that’s easy to solve.  But rather than solve it, let’s take a look at it and try to understand what’s been happening.  In October the  Congressional Budget Office (CBO), a nonpartisan group took a look at the increasing concentration of income in the United States.  The report, which was made at the request of one republican and one democrat, examined changes in the distribution of household income between 1979 and 2007 and is titled, “Trends in the Distribution of Household Income Between 1979 and 2007.”

An NPR blog “Planet Money” looked at these results in their recent blog, “Why Has Income Gone Up So Much For the Top 1 Percent?”  They concluded that in addition to an increase in investment and business profits, it was because their jobs pay more they they used to.  They refer to this as “labor income” and their blog goes on to examine possible reasons why “labor income” has increased so dramatically.

How well have the top 1% done on a relative basis?  The results presented in the CBO report summary state, “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,” and “for others in the 20 percent of the population with the highest income (those in the 81st through 99th percentiles), average real after-tax household income grew by 65 percent over that period, much faster than it did for the remaining 80 percent of the population, but not nearly as fast as for the top 1 percent.”

Planet Money also looked at the income gap worldwide in their blog, “The Gap Between Rich and Poor Is Increasing In Lots of Countries. Why?” and in that blog pointed out three possible answers.  Interesting to think about.  Try to come up with three possible answers of your own before you look at their blog.

Class Discussion:

  1. How do you feel about the inceasing income gap? Be prepared to discuss this in class.
  2. Looking at the CBO report, what drives growing earnings and income disparities? Be prepared to discuss this in class.
  3. How do you think you stack up income-wise relative to others across the globe?  Now go to the “Global Rich List” website and see how you rank.  Are you surprised?  Be prepared to discuss this in class.
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