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Listener Tom Scholten from Madison, Wisconsin, asks: 

Income inequality is a term often mentioned in recent years, but by what measure or criteria is it measured? 

While the U.S. economy outperforms other rich countries, it doesn’t feel that way for many Americans. Forty-two percent of Americans don’t have an emergency savings fund, while 40% can’t afford a $1,000 emergency expense, according to a January survey from U.S. News. 

When people discuss concepts like economic performance or economic growth, they’re discussing whether the size of the economic pie is expanding and how fast it’s expanding, said Sonal Pandya, an associate professor of politics at the University of Virginia. 

“But those concepts are distinct from equality, because they’re not telling you how that pie is getting distributed,” Pandya said. 

Measuring inequality and wealth in the U.S. can tell us who’s getting a slice and how much. 

“What defines a good society is that everybody, to the extent possible, can fulfill their potential,” said Steven Durlauf, director of the University of Chicago’s Stone Center for Research on Wealth Inequality and Mobility. 

Inequality inhibits that potential, Durlauf said. 

There are many ways to measure income inequality, including comparing people from different income percentiles and assessing how far away a country’s income distribution is from perfect equality. 

One common measurement is the 90/10 ratio. This looks at the income held by the top 10% divided by the income held by the bottom 10%, Pandya said.  “The larger that number is, the less equal the distribution of income,” she explained.  

Basically, you use this ratio if you want to ask “How much richer is the very, very top of the distribution, as opposed to the very bottom?” Pandya said.

The 90/10 ratio for households reached almost 12.4 in 2023, according to U.S. Census Bureau data. This means households in the top 10%, or 90th percentile, had incomes that were more than 12 times the incomes of households in the bottom 10%, or 10th percentile. In 1980, the ratio was about 9.1. 

Researchers can also use the 90/10 ratio to look at income inequality among different racial and ethnic groups. 

The college-wage premium is another statistic that can provide researchers with insight into inequality. That’s the percentage difference between the average wages of those with four-year degrees and those who have a high school diploma. “That would give you a sense of the way that the economy is pricing certain education skills,” Durlauf said. “The bigger that number is, by implication, the greater the inequality between folks that are educated with college degrees and those that are not.”

In 2000, the wages of those with at least a college degree were about 68% higher than the wages of high school graduates. This percentage peaked at almost 80% in the mid 2010s, then declined to 75% in 2022, according to the Federal Reserve Bank of San Francisco. 

Researchers also use a metric known as intergenerational income elasticity, which looks at the connection between parents’ income and their childrens’ income. One analysis on intergenerational mobility from 1980 to 2010 found that parental income in the U.S. has a greater influence on families at the highest and lowest levels of income. 

Then there’s the Gini index, which determines how unequally incomes are distributed within an economy by assigning it a value from 0 to 1 (or 0% to 100%). Zero represents perfect equality, while 1 or 100% represents perfect inequality. 

In 2019, the U.S. had a Gini coefficient over 40%. Inequality is higher in the U.S. compared to other rich nations, like Canada, France, Germany, the United Kingdom and Sweden. 

When people bring up income inequality, sometimes what they’re actually referring to is wealth inequality and the rise of billionaires, said Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies.

Wealth, or net worth, takes into account home ownership, savings and debt. 

There are now more than 800 billionaires in the U.S. who hold a combined wealth of $6.22 trillion. In 1982, there were only 13. 

Top executives are also becoming increasingly richer. CEO compensation rose 1,085% between 1978 and 2023 compared to a 24% increase in compensation for the typical worker, according to the Economic Policy Institute. In 2023, CEOs received 290 times as much compensation as a typical worker. In 1965, CEOs received only 21 times as much. 

Both income and wealth can tell us how we’re doing as a country and as a society, Collins said. 

To gain a better understanding of wealth inequality, you can look to the Federal Reserve’s Survey of Consumer Finances, which is released every three years, Collins said. This survey shows net worth across different characteristics, like income percentile, age and race/ethnicity.  

Over the past several decades, wealth has become extremely concentrated among a small group. In 1963, the wealthiest families had 36 times the wealth of families at the 50th percentile of the wealth distribution, according to an Urban Institute analysis using Fed data. In 2022, the wealthiest had 71 times the wealth of those in the middle. 

While the U.S. has the data, it’s not fixing the underlying drivers of inequality, Collins said. 

Collins said inequality has increased because the U.S. has failed to increase the minimum wage, cut taxes, and made the tax system less progressive, meaning it’s lowered the top income tax rates. The top income tax rate is currently 37%, a huge decline from 1980, when it stood at 70%.

Collins said global trade policies have also hurt U.S. workers. Critics of free trade deals say they allow corporations to outsource American jobs, which leads to lower wages. 

One of the reasons researchers look at the concentration of wealth among the very rich is because “economic inequality spills over into political inequality,” Durlauf said. 

Those who have the most wealth have the capability to exercise power over elections. During the 2024 election, billionaire families contributed 18% of all the money that was raised. 

The super wealthy are able to influence public policy to enrich themselves even further, Collins said. This creates what he calls an “inequality death loop.”  

“The more unequal we become, the harder it is to reverse,” Collins said.

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