The historically slow pace of recovery in the labor market from the 2007-2009 recession appears to be partly responsible for the renewed interest among some members of the public policy community in the long-term trend of growing inequality in the distribution of income. In other words, the benefits of economic growth (e.g., higher national income) began accruing unequally across U.S. households long before the late 2000s. Inequality is the label commonly applied to income distributions in which a group's share of total income is larger (smaller) than its share of the population (e.g., the top 20% of U.S. households accounted for slightly more than 50% of aggregate household income in 2011, as shown in Table 1 .) Economic theory provides little basis for preferring any particular degree of equality in the distribution of income. In theory, what matters with respect to labor income is that the distribution results from markets that operate efficiently; that is, markets in which the final demand for goods and services and the relative productivity of the firms producing those goods and services determine the demand for labor and the earnings of jobs in each sector of the economy. Theoretical arguments for a more equal distribution of income than that which results from market forces are based on a number of propositions, including the diminishing marginal utility of income. This refers to the idea that each additional dollar of income yields less and less satisfaction (utility) than the first. For example, one additional dollar of income adds less to the utility of someone earning $100,000 than to the satisfaction of someone earning $20,000. If this proposition is correct, it should be possible to increase the overall economic well-being of society by transferring money from those with high incomes to those with low incomes because the loss in utility will be less for high-income individuals than the gain for low-income individuals. However, the costs commonly associated with income redistribution (e.g., slower economic growth) may offset some and possibly all of any net gain in well-being. With varying perceptions about a trade-off between economic growth and income equality, members of the U.S. public policy community have long debated how best to improve the economic well-being of the population. This disagreement appears to underlie longstanding congressional deliberations about several policy issues, such as the progressivity of income tax rates, tax treatment of capital gains and inheritance, provision of social insurance (e.g., Social Security) as well as social welfare benefits (e.g., food stamps), and raising the federal minimum wage. It also has extended to consideration of initiatives (e.g., grants for early childhood education and college tuition tax expenditures) that arguably promote equality in the opportunity to move up the income ladder, which an increasingly unequal distribution of income may suggest a lack of and which may itself curb the potential productive capacity of the economy. This report presents recent analysis of the distribution of income and the extent of income mobility in the United States over time and in comparison with other advanced economies. It begins with a discussion of data issues related to measuring income and its distribution. The empirical literature on the development of and explanations for income inequality in the United States are next addressed. The report then compares the U.S. income distribution with the distributions of other industrialized countries and presents explanations for cross-country differences in measures of income dispersion. To the degree that a more equal distribution of income arises from policy decisions rather than market forces, the willingness of a country to incur any economic costs related to attaining greater equality may reflect varying national beliefs about the opportunity to ascend the income ladder. For that reason, the report closes with an examination of income mobility in the United States and other developed nations. Two common sources of income data are the Annual Social and Economic supplement to the Current Population Survey (CPS) and federal income tax returns submitted to the Internal Revenue Service (IRS). The U.S. Census Bureau, which conducts the CPS, calculates "money income." It is the nation's official measure of income. Money income includes wages and salaries, interest, dividends, rent, payments from pensions and retirement savings accounts, and nonmeans-tested cash income (e.g., Social Security, unemployment compensation, and veterans' payments). Calculated on a pre-tax basis, money income does not include the value of noncash government benefits (e.g., food stamps and housing subsidies) and capital gains. "Market income" is the measure of income derived from federal tax data made available by the IRS. Perhaps most prominent among the researchers who use tax data to study the distribution of income are Saez and Piketty. They define pre-tax market income to include all income reported on individual tax returns including wages and salaries, business and farm income, and capital income (e.g., dividends, interest, and rents). The primary differences between money and market income thus defined is that market income excludes cash government benefits and includes realized capital gains. With respect to the distribution of overall economic well-being, measures based on the concepts of money and market income fall short and may be misleading. Consider the case of two families who in every way are equal in terms of wealth and income. Neither owns their home, and they both have substantial savings in interest-earning assets. Suppose one family uses a portion of its savings to buy a home. No one would argue that the family is now worse off, but income measures indicate that to be the case because the family's interest income would have fallen. In fact, the family that buys its home is earning an implicit income in the use of the house just as it would earn rental income if the house were leased to others. Another weakness in existing income measures as a reflection of overall economic well-being is that they do not account for the implicit income of homemakers. Consider two married-couple households with the same income and both spouses receive wages from their employers. If in one of the households a spouse quits to stay at home and care for their children that household will experience a drop in measured income. Because the unpaid work done at home is not without value, the measured difference in the incomes of the two households will overstate the difference in their living standards. The time period in which income is measured may also affect comparisons in well-being across households. Over the course of the business cycle unemployment rises and falls, affecting labor income. Some households tend to be more adversely affected than others by recessions, so the stage of the business cycle has an influence on relative income. Similarly, income generally varies substantially over the course of an individual's lifetime. New entrants to the labor force typically have lower incomes than those who have been working for some time, and income tends to decrease upon retirement. Because of these life-cycle changes in income, the age mix of the population also influences the relative incomes of households. Another difficulty in comparing income across households is deciding on the relevant population. In the case of labor income, the distribution of income among working-age individuals (e.g., 25-64-year olds) may be of most interest. When it comes to overall well-being, it may be more appropriate to consider the distribution of income across households. Because most households can be presumed to pool resources and because some costs of living are fixed, a four-person household may not need twice as much income as a married-couple household for each person to enjoy roughly the same living standard. The ability to achieve economies of scale thus further complicates using the distribution of income across households or tax filing units as a basis for judging economic well-being. The Census Bureau annually publishes a variety of measures that describe the distribution of money income. One measure divides total money income into quintiles (fifths), with households ordered from lowest to highest income and then divided into five groups of equal size. The income within each group is summed, and its share (percentage) of total household income is calculated. If aggregate income was equally divided across households with income, each quintile would account for 20% of total money income. To the extent that each quintile falls short of or exceeds its proportionate (20%) share, it indicates the degree of inequality in the income distribution. As shown in the last row of Table 1 , the bottom fifth of households in 2011 accounted for much less than the one-fifth of total income it would have gotten if the distribution were perfectly equal. The top 20%, in contrast, accounted for more than twice what it would have gotten in an equal distribution. The top 5%, which is within the top fifth, accounted for more than four times the share it would have had in a perfectly equal distribution. The data thus indicate that income was quite unequally distributed across U.S. households in 2011, and that this has been the case for quite some time. Households at various points in the distribution also have fared differently from each other over the past few decades. Between 1968 and 2011, the income share of the three middle quintiles fell from 53.2% to 45.7% (see Table 1 ). Although there is no official definition of the middle class, the middle 60% of households is sometimes regarded as such. As for the bottom 20% of households, its income share has stagnated at less than 4.0% since about 1990. In contrast, the income shares of the top fifth and the top 5% of households generally have risen from year to year. The top 20%'s share grew from 42.6% in 1968 to 51.1% in 2011, and the top 5%'s share grew from 16.3% to 22.3%. Another indicator of the degree of inequality is the Gini coefficient. It is a single number that can range between zero (a perfectly equal distribution) and one (a perfectly unequal distribution).