0

5

10

15

20

25

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992

Figure 1.

Change in Income Inequality

Percent change in Gini Index vs. 1968

Family index vs. 1968

Household index

vs. 1968

Year

A Brief Look at Postwar

U.S. Income Inequality

By Daniel H. Weinberg

C E N S U S B U R E A U P60-191

June 1996

Household Economic Studies

Population Reports

Current

Are the rich getting

richer and the poor

getting poorer? 

Historical Census Bureau

statistics on income can shed

some light on that debate. 

Although the Census Bureau

has been measuring incomes

for a half-century and a large

number of factors have been

identified as contributing to

changes in inequality, the

root causes are still not

entirely understood.

The Census Bureau has been

studying the distribution of income since the late 1940’s. The

first income inequality statistics

were published for families and

came from the annual demographic supplement to the

Current Population Survey

(CPS). The most commonly

used measure of income inequality, the Gini index (also

known as the index of income

concentration),1 indicated a decline in family income inequality

of 7.4 percent from 1947 to

1968. Since 1968, there has

been an increase in income inequality, reaching its 1947 level

in 1982 and increasing further

since then. The increase was

16.1 percent from 1968 to 1992

and 22.4 percent from 1968 to

1994 (see figure 1).2

1 The Gini index ranges from 0.0, when

every family (household) has the same

income, to 1.0, when one family (household) has all the income. It is, therefore,

one way to measure how far a given income distribution is from equality.

2 Part of the increase from 1992 to 1994 is

due to changes in survey methodology,

see footnote 3.

Living conditions of Americans

have changed considerably

since the late 1940’s. In particular, a smaller fraction of all

persons live in families (two or

more persons living together related by blood or marriage).

Therefore, starting in 1967, the

Census Bureau began reporting

on the income distribution of

households in addition to families. By coincidence, 1968 was

the year in which measured

postwar income was at its most

equal for families. The Gini

index for households indicates

that there has been growing

income inequality over the past

quarter-century. Inequality grew

slowly in the 1970’s and rapidly

during the early 1980’s. From

about 1987 through 1992, the

growth in measured inequality

seemed to taper off, reaching

11.9 percent above its 1968 level. This was followed by a large

apparent jump in 1993, partly

due to a change in survey methodology.3 The Gini index for

households in 1994 was 17.5

percent above its 1968 level.

3 Computer-assisted personal interviewing (CAPI) was introduced in January

1994 to the Current Population Survey.

As part of the March 1994 supplement,

households were permitted to report up to

$1 million in earnings, up from $300,000,

and parallel increases were made in the

reporting limits for selected other income

sources. Both of these changes affected

the data. Analysis of the 1993 statistics

suggests that the increase in the maximum amounts that could be reported accounts for about 1.8 percentage points or

about one-third of the 1992 to 1993 increase of 5.2 percentage points. The

contribution of the change to CAPI to the

increase in measured inequality cannot

be determined, but may bring the share of

survey methods-related changes in inequality to over one-half of the 5.2 percentage points. See Paul Ryscavage, “A

Surge in Growing Income Inequality?”.

Monthly Labor Review, August 1995.
0

20

40

60

1967 1972 1977 1982 1987 1992

Figure 2.

Shares of Household Income

Share of income (percent)

Middle 60%

Top income quintile

Bottom income quintile

Year

2 P60-191

Income inequality measures

such as the Gini index or shares

of aggregate income are particularly sensitive to changes in data

collection measures. A change

that may only affect a relatively

small number of cases (especially those in the upper end of

the income distribution) can

affect these measures, while

having virtually no effect on

median income. We are unable

to determine what fraction of

the measured increase in income inequality between 1992

and 1993 was due to changes in

survey administration between

those 2 years, though our

analysis suggests there was

nonetheless a real increase in

inequality between 1992

and 1993.4

Figure 2 illustrates the

increasing share of aggregate

household money income received by the highest income

quintile (households with incomes above $62,841 in

1994)5, 49.1 percent in 1994

and 46.9 percent in 1992, up

from 42.8 percent in 1968, and

the declining share for households in the middle 60 percent

and those in the bottom quintile

(incomes below $13,426).6 

During that same period, the

share received by households

in the top 5 percent of the

income distribution went from

16.6 percent in 1968 to

4 See U.S. Bureau of the Census, Income,

Poverty, and Valuation of Noncash Benefits:

1993, Current Population Reports P60-188,

Washington DC: U.S. Government Printing

Office, February 1995, and Ryscavage, op.

cit. for a discussion of the 1993 statistics.

The Gini index of inequality did not change

significantly between 1993 and 1994.

5 All dollar amounts are in 1994 dollars and

all percentage increases are corrected for

inflation, as measured by the experimental

Consumer Price Index for Urban Consumers. (The experimental index uses the official methodology adopted in 1983 by the Bureau of Labor Statistics as applied to the

1968-1982 period; see U.S. Bureau of the

Census, op. cit., appendix A.)

6 The respective shares of the middle 60

percent and the bottom 20 percent were

53.0 and 4.2 percent in 1968, down to 49.3

and 3.8 percent in 1992 and 47.3 and 3.6

percent in 1994.

18.6 percent in 1992 and 21.2

percent in 1994.

Yet another way to look at the

change in inequality involves the

income at selected positions in

the income distribution. As figure 3 shows, in 1994 dollars the

household at the 95th percentile

in 1994 had $109,821 in income,

8.2 times that of the household

at the 20th percentile, whose income was $13,426 (the

comparable 1992 ratio was

7.9).7 In contrast, in 1968, 

the household at the 95th percentile had but 6.0 times the

income of the household at the

20th percentile.

A parallel way to look at this

change examines the average

(mean) household income in

each quintile (see figure 4). The

average income of households

in the top quintile grew from

$73,754 in 1968 to $96,240 in

1992 and $105,945 in 1994. In

percentage terms, this growth

was 30 percent from 1968 to

7 Not significantly different from the

1994 ratio.

1992 and 44 percent from 1968

to 1994. During the 1968 to

1994 period, the average income in the bottom quintile grew

by only 8 percent, from $7,202

to $7,762 (7 percent from 1968

to 1992).8 Consequently, the ratio of the average income of the

top 20 percent of households to

the average income of the bottom 20 percent went from 10.2

in 1968 to 12.5 in 1992 and 13.6

in 1994. 

Yet one more way to look at

the income distribution adjusts

for family size changes over the

period, by examining the change

in the ratio of family income to

its poverty threshold. Poverty

thresholds vary by family size

and composition, reflecting consumption efficiencies achieved

through economies of scale

(i.e., families of two or more persons can share certain goods

8 Not significantly different from the

1968 to 1994 percentage change.
0

50

100

150

200

1967 1972 1977 1982 1987 1992

Figure 3.

Upper Limits of Percentiles

Income (thousands of 1994 dollars)

95th

80th

50th

Year

20th

0

50

100

150

200

1967 1972 1977 1982 1987 1992

Figure 4.

Average Incomes

Income (thousands of 1994 dollars)

Top 5%

Top income quintile

Middle income quintile

Year

Bottom income quintile

P60-191 3

such as housing).9 A ratio

of 1.00 thus indicates that the

family has an income equal to

the poverty threshold for its size

and composition. The average

ratio in the bottom quintile in

1968 was 1.04, while the average in the top quintile was 6.13.

By 1994, these ratios were 0.92

and 9.22, respectively (and 0.89

and 8.39 in 1992), also indicating a widening income gap (see

figure 5). The ratio for the

middle quintile also rose, from

9 Poverty is defined only for families and

unrelated individuals, not for households.

2.80 in 1968 to 3.26 in both

1992 and 1994. 

In sum, when money income is examined, each

of these indicators shows

increasing income inequality over the 1968 to 1994

period. But, are there other

perspectives that change

this story?

Since 1979, the Census

Bureau has examined several

experimental measures of

income. These measures add

the value of noncash benefits

(such as food stamps and

employer contributions to health

insurance) to, and subtract

taxes from, the official money

income measure. The Bureau’s

research in this area10 has

shown that the distribution of income is more equal under a

broadened definition of income

that takes account of the effects

of taxes and noncash benefits.

Further, government transfer

benefits play a much more

equalizing role on income than

do taxes. Nonetheless, while

the levels of inequality are lower,

this alternative perspective does

not change the picture of increasing income inequality over

the 1979 to 1994 period.11

Why are these changes in

inequality happening?12

The long-run increase in income inequality is related to

changes in the Nation’s labor

market and its household composition. The wage distribution

has become considerably

more unequal with more highly

skilled, trained, and educated

workers at the top experiencing

real wage gains and those at

the bottom real wage losses.

One factor is the shift in

employment from those goodsproducing industries that have

disproportionately provided

10 See U.S. Bureau of the Census, op. cit.,

and U.S. Bureau of the Census, Income,

Poverty, and the Valuation of Noncash Benefits: 1994, Current Population Reports

P60-189, April 1996.

11 For example, there was no significant difference between the percentage changes in

the Gini index measured using the official

income definition and a comprehensive measure including all income sources except imputed rent to owner-occupied dwellings.

12 This section is based on Paul Ryscavage

and Peter Henle, “Earnings Inequality Accelerates in the 1980’s,” Monthly Labor Review,

December 1990; Sheldon Danziger and Peter Gottschalk (eds.) Uneven Tides: Rising

Inequality in America, New York: Russell

Sage Foundation, 1993; Lynn A. Karoly and

Gary Burtless, “Demographic Change, Rising Earnings Inequality, and the Distribution

of Personal Well-Being, 1959-89,” Demography, v. 32, no. 3 (August 1995), 379-405;

U.S. Council of Economic Advisors, Economic Report of the President, Washington,

DC: U.S. Government Printing Office, February 1992, Chapter 4; and U.S. Council of

Economic Advisors, Economic Report of the

President, Washington, DC: U.S. Government Printing Office, February 1995,

Chapter 5.
4 P60-191

high-wage opportunities for

low-skilled workers, towards

services that disproportionately

employ college graduates, and

towards low-wage sectors such

as retail trade. But within-industry shifts in labor demand away

from less-educated workers are

perhaps a more important explanation of eroding wages than

the shift out of manufacturing.

Also cited as factors putting

downward pressure on the

wages of less-educated workers

are intensifying global competition and immigration, the decline

of the proportion of workers belonging to unions, the decline in

the real value of the minimum

wage, the increasing need for

computer skills, and the increasing use of temporary workers.

At the same time, long-run

changes in living arrangements

have taken place that tend to

exacerbate differences in

household incomes. For example, divorces and separations,

births out of wedlock, and the increasing age at first marriage

have led to a shift away from

married-couple households and

toward single-parent and nonfamily households, which typically

have lower incomes. Also, the

increasing tendency over the period for men with higher-thanaverage earnings to marry

women with higher-than-average earnings has contributed

to widening the gap between

high-income and low-income

households.

Accuracy of the Estimates

All statistics in the report

are from the Current Population

Survey and are subject to

sampling variability, as well as

survey design flaws, respondent

classification errors, and data

processing mistakes. The Census Bureau has taken steps to

minimize errors, and analytical

statements have been tested

and meet statistical standards.

However, because of methodological differences, use caution

when comparing these data with

data from other sources. 

Contacts:

Income Inequality —

Edward Welniak 

301-763-8576

Statistical Methods —

Tom Moore

301-457-4215

Historical tabulations on income

and poverty can be found on the

Census Bureau’s Internet site,

at http://www.census.gov.

0

2

4

6

8

10

1967 1972 1977 1982 1987 1992

Figure 5.

Ratio of Income to Poverty

Ratio

Top income quintile

Middle income quintile

Year

Bottom income quintile

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