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How much more (or less) would you make if we rolled back inequality?

January 22, 2015

What would incomes look like for U.S. families today if the income distribution were the same as it was in 1979?

Larry Summers recently made this really intriguing calculation in the FT.

His conclusions:

  • Families in the bottom 80 percent of the income distribution would be making $11,000 more per year, on average, than they're earning today.
  • Families in the top 1 percent would be making about $750,000 less than they're earning today.

That got us thinking: What would those numbers look like in greater detail? How would the incomes of the poor, the middle class and the rich look different if you had 1979 levels of inequality in today's economy?

Here's what we found:

The middle class would have the biggest gain if we returned to the 1979 income distribution. That's another way of saying the middle class has seen the biggest fall in share of total income over the past several decades.

Similarly, the huge losses to the top 1 percent of earners if we returned to 1979 levels of inequality are a reminder of the huge gains the top 1 percent has seen since then.

Of course, this is a purely theoretical exercise. It combines two different worlds: an economy as big as today's, but with 1979 levels of inequality. Some economists would argue that this could never exist, because economic growth has been been driven by forces, such as globalization and technological change, that have also driven up inequality.

One final note: As you may have noticed, our number for the change for the top 1 percent is a bit different from what Summers found. We calculated this number based on figures from the World Top Incomes Database and the Census Bureau.

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