A report on Great Recession and Income inequality in the United States

World map showing real GDP growth rates for 2009; countries in brown were in a recession.
Income before (green) and after (pink) taxes and Transfer payments for different income groups starting with the lowest quintile.
A bank run at a branch of the Northern Rock bank in Brighton, England, on September 14, 2007, amid speculation of problems, prior to its 2008 nationalisation.
Four charts that describe trends in income inequality in the United States. Top left: the share of pre-tax income earned by the top 1% (orange) versus the bottom 50% (blue). Top right: the share of after-tax income earned by the top 1% (orange) versus the bottom 50% (blue). Bottom left: the share of income earned by the top 5% (green), next 45% (blue), and the bottom 50% (yellow). Bottom right: the mean income of the top 5% (green), next 45% (blue), and bottom 50% (yellow) income groups.
U.S. residential and non-residential investment fell relative to GDP during the crisis
Share of U.S. pre-tax income earned by the top 1% (blue) and top 0.1% (red) of households 1913–2016.
U.S. households and financial businesses significantly increased borrowing (leverage) in the years leading up to the crisis
This CBO chart shows the cumulative increase in real household income by income quintile from 1979 to 2016, for income before taxes & transfers and after-tax income. It shows that even lower income quintiles still had sizable gains in income, although not as great as the top quintile.
US household debt relative to disposable income and GDP.
CBO data indicates that real (inflation-adjusted) household income increased significantly after-taxes and transfers from 1979 to 2016 across all income quintiles. However, the top 1% income fell from 2007 to 2016, due to both the Great Recession and tax hikes on upper incomes during the Obama Administration.
U.S. Changes in Household Debt as a percentage of GDP for 1989–2016. Homeowners paying down debt for 2009–2012 was a headwind to the recovery. Economist Carmen Reinhart explained that this behavior tends to slow recoveries from financial crises relative to typical recessions.
Share of U.S. income earned by top 1% households in 1979 (blue), 2007 (orange), and 2016 (green) (CBO data). The first date 1979 reflects the more egalitarian pre-1980 period, 2007 was the peak inequality of the post-1980 period, and the 2016 number reflects the Obama tax increases on the top 1% along with residual effects of the Great Recession.
Housing price appreciation in selected countries, 2002–2008
Illustrates the productivity gap (i.e., the annual growth rate in productivity minus annual growth rate in compensation) by industry from 1985 to 2015. Each dot is an industry; dots above the line have a productivity gap (i.e., productivity growth has exceeded compensation growth), those below the line do not.
Securitization markets were impaired during the crisis.
Real GDP per household has typically increased since the year 2000, while real median income per household was below 1999 levels until 2016, indicating a trend of greater income inequality (i.e., the average is more influenced by high income outliers than the median). The income considered in the two lines is different as well; the GDP figure includes all income (derived from labor and capital) while the median income figure includes only a subset of income (wages/salaries but not benefits).
Several major U.S. economic variables had recovered from the 2007–2009 Subprime mortgage crisis and Great Recession by the 2013–2014 time period.
Labor's share of GDP declined by 4.5 percentage points from 1970 to 2016, measured based on total compensation. The decline measured for wages and salaries was 7.9 points. These trends imply income due to capital (i.e., asset ownership, such as rent, dividends, and business profits) is increasing as a % of GDP.
U.S. Real GDP – Contributions to Percent Change by Component 2007–2009
While middle-class family incomes have stagnated as income shifts to the top, the costs of important goods and services continue rising, resulting in a "Middle class squeeze."
Public Debt to GDP Ratio for Selected European Countries – 2008 to 2011. Source Data: Eurostat
A 2011 study by Ostry and Berg of the factors affecting the duration of economic growth in developed and developing countries, found that income equality has a more beneficial impact on steady growth than trade openness, sound political institutions, or foreign investment.
Relationship between fiscal tightening (austerity) in Eurozone countries with their GDP growth rate, 2008–2012
The Great Gatsby curve showing intergenerational economic immobility on vertical axis and increasing inequality on the horizontal axis for a number of different countries.
Slovenian anarchist anti-fascist protest due to the great recession.
Political cartoon from the Progressive Era, when wealth concentration was similar to that of the present, shows how the concentration of wealth in a few hands leads to the extinguishing of individualism, initiative, ambition, untainted success, and independence.
Sydney's financial district at night. Throughout the Great Recession, the Australian economy remained resilient and stable.
Bartels studied the voting patterns of the US Senate and correlated it with the responsiveness to the opinions of different amounts of Income in the United States.
The anti-austerity movement in Spain, May 2011
This Gini Index map shows regional and county level variation in pre-tax income inequality Gini index. The 2010 Gini index value range from 20.7 for Loving County (Texas) to 64.5 to East Carroll Parish (Louisiana).
Federal Reserve Holdings of Treasury and Mortgage-Backed Securities
Income gini coefficient map according to the World Bank (2018). Higher Income Gini Index for a nation in this map implies more income inequality among its people.
Bank bailouts in the United Kingdom and in the United States in proportion to their GDPs.
The distributional impact of the Affordable Care Act (ACA or Obamacare) during 2014. The ACA raised taxes mainly on the top 1% to fund approximately $600 in benefits on average for the bottom 40% of families.
Average statutory tax rates for highest-income U.S. taxpayers, 1945–2009.
Based on CBO Estimates, under 2013 tax law the top 1% will be paying a higher effective tax rate, while other income groups will remain essentially unchanged.
CBO chart illustrating the percent reduction in income inequality due to Federal taxes and income transfers from 1979 to 2011.
CBO charts describing amount and distribution of top 10 tax expenditures (i.e., exemptions, deductions, and preferential rates)
U.S. family pre-tax income and net worth distribution for 2013 and 2016, from the Federal Reserve Survey of Consumer Finances.
U.S. median family income from 2001 to 2016 (real, measured in 2016 dollars), with comparative statistics, from the Fed Survey of Consumer Finances. The top decile and bottom quintile had real increases in income comparing 2001 and 2016, while the 20th to 80th percentiles has decreases. For all families, the median was $54,100 in 2001 and $52,700 in 2016, a slight decline. Note this differs from real median household income, which hit a record level in 2016.
CBO Chart, U.S. Holdings of Family Wealth 1989 to 2013. The top 10% of families held 76% of the wealth in 2013, while the bottom 50% of families held 1%. Inequality increased from 1989 to 2013.
Illustration from a 1916 advertisement for a vocational school in the back of a US magazine. Education has been seen as a key to higher income, and this advertisement appealed to Americans' belief in the possibility of self-betterment, as well as threatening the consequences of not achieving economic security in the great income inequality existing during the Industrial Revolution.

Income inequality in the United States grew from 2005 to 2012 in more than two-thirds of metropolitan areas.

- Great Recession

It fell to 11.3% in 2009 due in part to the impact on investment income from the Great Recession, then increased thereafter, to 14.9% by 2012 as the economy recovered.

- Income inequality in the United States
World map showing real GDP growth rates for 2009; countries in brown were in a recession.

3 related topics with Alpha

Overall
Median US household income through 2019

Household income in the United States

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Economic standard that can be applied to one household, or aggregated across a large group such as a county, city, or the whole country.

Economic standard that can be applied to one household, or aggregated across a large group such as a county, city, or the whole country.

Median US household income through 2019
U.S. real median household income reached $63,688 in January 2019, an increase of $171 or 0.3% over one month (December 2018).
Median household income and taxes
U.S. economic growth is not translating into higher median family incomes. Real GDP per household has typically increased since the year 2000, while real median income per household was below 1999 levels until 2016, indicating a trend of greater income inequality.
Total compensation's share of GDP has declined by 4.5 percentage points from 1970 to 2016. This implies that the share attributed to capital increased in that period.
U.S. real wages (i.e. production) for ordinary (i.e. non-supervisory) workers remain slightly below their 1970s peak.
Median household income, by county, as of 2017.
This graph shows the income since 1970 of different racial and ethnic groups in the United States (in 2014 dollars).
Median annual household income in accordance with the householder's educational attainment. The data only includes households with a householder over the age of twenty-five.
U.S. family pre-tax income and net worth distribution for 2013 and 2016, from the Federal Reserve Survey of Consumer Finances.
Map of states by median household income in 2019.
Percentage of persons and households in each of the income groups shown.
The percent of households with six figure incomes and individuals with incomes in the top 10%, exceeding $77,500.

The distribution of U.S. household income has become more unequal since around 1980, with the income share received by the top 1% trending upward from around 10% or less over the 1953–1981 period to over 20% by 2007.

After falling somewhat due to the Great Recession in 2008 and 2009, inequality rose again during the economic recovery, a typical pattern historically.

Krugman in 2008

Paul Krugman

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American economist and public intellectual, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for The New York Times.

American economist and public intellectual, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for The New York Times.

Krugman in 2008
Paul Krugman, Roger Tsien, Martin Chalfie, Osamu Shimomura, Makoto Kobayashi and Toshihide Masukawa, Nobel Prize Laureates 2008, at a press conference at the Swedish Academy of Science in Stockholm.
Krugman giving a lecture at the German National Library in Frankfurt in 2008.
Graph illustrating Krugman's 'core-periphery' model. The horizontal axis represents costs of trade, while the vertical axis represents the share of either region in manufacturing. Solid lines denote stable equilibria, dashed lines denote unstable equilibria.
President George W. Bush poses for a photo with Nobel Prize winners Monday, Nov. 24, 2008, in the Oval Office. Joining President Bush from left are, Dr. Paul Krugman, Economics Prize Laureate; Dr. Martin Chalfie, Chemistry Prize Laureate; and Dr. Roger Tsien, Chemistry Prize Laureate.
Krugman at the 2010 Brooklyn Book Festival.

Krugman has since drawn parallels between Japan's 'lost decade' and the late 2000s recession, arguing that expansionary fiscal policy is necessary as the major industrialized economies are mired in a liquidity trap.

In The Age of Diminished Expectations (1990), he wrote in particular about the increasing US income inequality in the "New Economy" of the 1990s.

Official portrait, 2012

Barack Obama

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American politician who served as the 44th president of the United States from 2009 to 2017.

American politician who served as the 44th president of the United States from 2009 to 2017.

Official portrait, 2012
Stanley Armour Dunham, Ann Dunham, Maya Soetoro and Barack Obama, (L to R) mid-1970s in Honolulu
Barack Obama's school record in St. Francis of Assisi Catholic Elementary School. Obama was enrolled as "Barry Soetoro" (no. 1), and was wrongly recorded as an Indonesian citizen (no. 3) and a Muslim (no. 4).
Obama poses in the Green Room of the White House with wife Michelle and daughters Sasha and Malia, 2009
Obama playing in a pickup game on the White House basketball court, 2009
The Obamas worship at African Methodist Episcopal Church in Washington, D.C., January 2013
State Senator Obama and others celebrate the naming of a street in Chicago after ShoreBank co-founder Milton Davis in 1998
Results of the 2004 U.S. Senate race in Illinois; Obama won the counties in blue.
Official portrait of Obama as a member of the United States Senate
Obama and U.S. Senator Richard Lugar (R-IN) visit a Russian facility for dismantling mobile missiles (August 2005)
Obama on stage with wife and daughters just before announcing presidential candidacy in Springfield, Illinois, February 10, 2007
2008 electoral vote results. Obama won 365–173.
2012 electoral vote results. Obama won 332–206.
Obama takes the oath of office administered by Chief Justice John G. Roberts Jr. at the Capitol, January 20, 2009
Obama delivers a speech at joint session of Congress with Vice President Joe Biden and House Speaker Nancy Pelosi on February 24, 2009.
Obama visits an Aurora shooting victim at University of Colorado Hospital, 2012.
The White House was illuminated in rainbow colors on the evening of the Supreme Court same-sex marriage ruling, June 26, 2015.
Deficit and debt increases, 2001–2016
US employment statistics (unemployment rate and monthly changes in net employment) during Obama's tenure as U.S. president
Obama at a 2010 briefing on the BP oil spill at the Coast Guard Station Venice in Venice, Louisiana
Obama signs the Patient Protection and Affordable Care Act at the White House, March 23, 2010.
Maximum Out-of-Pocket Premium as Percentage of Family Income and federal poverty level, under Patient Protection and Affordable Care Act, starting in 2014 (Source: CRS)
Percentage of Individuals in the United States without Health Insurance, 1963–2015 (Source: JAMA)
June 4, 2009 − after his speech A New Beginning at Cairo University, U.S. President Obama participates in a roundtable interview in 2009 with among others Jamal Khashoggi, Bambang Harymurti and Nahum Barnea.
Obama with Indian Prime Minister Narendra Modi at Hyderabad House in New Delhi, January 2015.
Obama meets with Italian Prime Minister Matteo Renzi at the White House, October 2016.
Meeting with UK Prime Minister David Cameron during the 2010 G20 Toronto summit
Obama after a trilateral meeting with Afghan President Hamid Karzai (left) and Pakistani President Asif Ali Zardari (right), White House Cabinet Room, May 2009
Obama meeting with Israeli President Shimon Peres in the Oval Office, May 2009
President Obama meets with Russian President Vladimir Putin to discuss Syria and ISIS, September 29, 2015.
Obama and members of the national security team receive an update on Operation Neptune's Spear in the White House Situation Room, May 1, 2011. See also: Situation Room
Obama talks with Benjamin Netanyahu, March 2013.
President Obama meeting with Cuban President Raúl Castro in Panama, April 2015
Obama meets Russian President Vladimir Putin in September 2015.
Presidential approval ratings
G8 leaders watching the 2012 UEFA Champions League Final
Obama with his then-new successor Donald Trump and his later successor Joe Biden, at the former's inauguration on January 20, 2017
Obama playing golf with the President of Argentina Mauricio Macri, October 2017
Obama and his wife Michelle at the inauguration of Joe Biden
Job growth during the presidency of Obama compared to other presidents, as measured as a cumulative percentage change from month after inauguration to end of his term
First official portrait of Barack Obama as President of the United States, 2009
Obama meets with Canadian Prime Minister Stephen Harper in Ottawa, February 19, 2009.
Obama and Donald Trump, January 20, 2017

On February 17, 2009, Obama signed the American Recovery and Reinvestment Act of 2009, a $787billion (equivalent to $ billion in ) economic stimulus package aimed at helping the economy recover from the deepening worldwide recession.

In December 2013, Obama declared that growing income inequality is a "defining challenge of our time" and called on Congress to bolster the safety net and raise wages.