page_title: Causes of income inequality in the United States
section_title: Globalization
hierarchical_section_title: Causes of income inequality in the United States / Market factors / Globalization
caption_attribution_description: English: The bar chart compares income shares of the top 1% in 13 developed countries for 1980 and 2000.
context_page_description: Causes of income inequality in the United States describes the reasons for the unequal distribution of income in the US and the factors that cause it to change over time. This topic is subject to extensive ongoing research, media attention, and political interest.
  Income inequality in the United States grew significantly beginning in the early 1970s, after several decades of stability. The US consistently exhibits higher rates of income inequality than most developed nations, arguably due to the nation's relatively less regulated markets.
  According to the Congressional Budget Office, "the precise reasons for the [recent] rapid growth in income at the top are not well understood", but "in all likelihood," an "interaction of multiple factors" was involved. Researchers have offered several potential rationales. Various rationales conflict or overlap. They include:
  globalization – Lesser-skilled American workers have been losing ground in the face of competition from workers in Asia and other emerging economies.
  skills – The rapid pace of progress in information technology has increased the relative demand for higher-skilled workers.
context_section_description: Globalization refers to the integration of economies in terms of trade, information, and jobs. Innovations in supply chain management enabled goods to be sourced in Asia and shipped to the United States less expensively than in the past. This integration of economies, particularly with the U.S. and Asia, had dramatic impacts on income inequality globally.
  Economist Branko Milanovic analyzed global income inequality, comparing 1988 and 2008. His analysis indicated that the global top 1% and the middle classes of the emerging economies (e.g., China, India, Indonesia, Brazil and Egypt) were the main winners of globalization during that time. The real (inflation adjusted) income of the global top 1% increased approximately 60%, while the middle classes of the emerging economies (those around the 50th percentile of the global income distribution in 1988) rose 70–80%. For example, in 2000, 5 million Chinese households earned between $11,500 and $43,000 in 2016 dollars. By 2015, 225 million did. On the other hand, those in the middle class of the developed world (those in the 75th to 90th percentile in 1988, such as the American middle class) experienced little real income gains. The richest 1% contains 60 million persons globally, including 30 million Americans (i.e., the top 12% of Americans by income were in the global top 1% in 2008), the most out of any country.
  While economists who have studied globalization agree imports have had an effect, the timing of import growth does not match the growth of income inequality. By 1995 imports of manufactured goods from low-wage countries totalled less than 3% of US gross domestic product.
  It wasn't until 2006 that the US imported more manufactured goods from low-wage (developing) countries than from high-wage (advanced) economies. Inequality increased during the 2000–2010 decade not because of stagnating wages for less-skilled workers, but because of accelerating incomes of the top 0.1%.  Author Timothy Noah estimates that "trade", increases in imports are responsible for just 10% of the "Great Divergence" in income distribution.
  Journalist James Surowiecki notes that in the last 50 years, companies and the sectors of the economy providing the most employment in the US – major retailers, restaurant chains, and supermarkets – are ones with lower profit margins and less pricing power than in the 1960s; while sectors with high profit margins and average salaries – like high technology – have relatively few employees.
  Some economists claim that it is WTO-led globalization and competition from developing countries, especially China, that has resulted in the recent decline in labor's share of income and increased unemployment in the U.S. And the Economic Policy Institute and the Center for Economic and Policy Research argue that some trade agreements such as the Trans-Pacific Partnership could result in further job losses and declining wages.
  One argument contrary to the globalization/technology hypothesis relates to variation across countries. Japan, Sweden and France did not experience significant increases in income inequality during the 1979–2010 period, although the U.S. did. The top 1% income group continued to receive less than 10% of the income share in these countries, while the U.S. share rose from 10% to over 20%. Economist Emmanuel Saez wrote in 2014: "Differences across countries rule out technical change/globalization as the sole explanation ... Policies play a key role in shaping inequality (tax and transfer policies, regulations, education)."
caption: The bar chart compares pre-tax income shares of the top 1% in 13 developed countries for 1980 and 2000. The degree of change varied significantly, indicating country-specific policy factors also impact inequality.
exif: {}