Are The Poor Getting Poorer In The United States?

By Victoria Simpson on July 22 2020 in Economics

Homeless individual begs in front of a restaurant in the Chelsea neighborhood of New York. Image credit: Rblfmr/Shutterstock.com
Homeless individual begs in front of a restaurant in the Chelsea neighborhood of New York. Image credit: Rblfmr/Shutterstock.com
  • The wealth gap is widening in the US, and it is causing poorer families to see their net worth drop.
  • The US has a Gini coefficient of about 41 right now, and as such, is the G7 nation with the highest level of income inequality in the world.
  • Experts say that when the income gap widens, the middle class can end up taking on debt they cannot pay off, and crime rates go up, both of which are bad for everyone.

The US is known as the land of opportunity. Unfortunately, however, the divide between rich and poor is increasing as time goes on. As a small percentage of Americans earn bigger and bigger salaries each year, some are staying still, and others are seeing the buying power of their wages actually go down. 

It is a sad fact that almost 12% of the entire US population now lives in poverty, amounting to about 38 million people. It is also true that between 2017 and 2018, the number of people living in dire straits went down across the country, but when a greater economic picture is taken into consideration, the view is not really so rosy. Inequality is real and it is a problem.

It is true in the US that as the rich are getting richer, the poor are getting poorer. 

Facts About Inequality In The US

Unidentified homeless people camping out and living on the streets in Downtown Denver. Image credit: Jim Lambert/Shutterstock.com

Out of all the G7 nations, the US has been found to have the highest level of income inequality in the world. Data gathered by the Organization for Economic Cooperation and Development found this was true using something called the Gini coefficient

Just how big is the gap between the rich and poor? Here are some details. Between 1989 and 2016 according to Pew Research Center, the wealth gap between the richest and poorest families in the country more than doubled. In 1989, the richest families in America had about 114 times the wealth of families that were just one tier above those in the worst poverty in the country. By 2016, these guys held 248 times as much wealth. 

Adding insult to this injury is the fact that from 2007, the year the Great Recession hit, until 2016, the wealth of the top 20% of wealthiest families in the country increased by 13%. Those living in the lower levels of wealth, however, saw their net worth drop by at least 20%. In fact, families in the second-lowest category of wealth actually saw their net worth drop by an astounding 39%. This is a huge gouge. 

It is true that the US median household income is now the highest it has ever been. This is a good thing, right? Well, sort of. In 29 states, however, and in Puerto Rico, the median household income is now lower than the national average. 

But Isn’t the Poverty Rate Decreasing?

Yes, the poverty rate is decreasing. If we look at the changes that are happening however, they are slight, compared to the growing wealth gap. According to the latest US Census, in 2018 there were 1.4 million fewer people living in poverty in the US compared with 2017. The poverty rate did not change for everyone living on low levels of income but it did go down for many. This included females, non-Hispanic Whites, native-born people, those living in cities, those in the Northeast, Midwest, and West, and those without a disability. People with some college education, those living in families, and those in households with a single mom all saw their rate of poverty go down. 

It is also true that the number of people working full-time all year-round did increase by several hundred thousand people. 

The Problem With Income Inequality

Image credit: Hyejin Kang/Shutterstock.com

Even if the poverty rate goes down, however, a widening income gap is troublesome. 

According to William M. Rodgers III, professor of public policy and chief economist at the Heldrich Center at Rutgers University speaking to NPR.org, a widening wealth gap contributes to fewer people working in jobs that are protected by organized labor unions. It also encourages tax policies that favor those in the higher income brackets, and businesses, instead of the working poor. 

According to Christopher Ingraham writing for the Washington Post, studies have shown that when people live with greater income inequality, their society’s economic growth is depressed. Wide income gaps are also just dangerous: they make more people into criminals, studies have shown.  When the wealth of others seems entirely unattainable and you continue to struggle to meet your daily needs, the allure to give up and join gangs and organized crime in order to make money, can increase in attraction for some people. 

Some income inequality can be good, of course. Ingraham states that it can spur growth. This happens in countries with a Gini coefficient below 27. The US has a Gini coefficient of about 41 right now, however. This is when we get into the dangerous zone. 

Recent statistics have shown that the number of Americans who see college as important fell from 70% in 2013 to just 51% in 2019. Studies also show that in order to ensure the US keeps pace with other countries on the global stage, more college graduates will be needed in the future, especially in areas such as artificial intelligence, which will matter for reasons of national security. But if college education becomes too expensive for middle-class Americans, this will be a problem. These individuals can end up taking on more debt than they can pay back. This is just one example of how a greater gap can end up bringing everybody down. 

If left unchecked, some experts believe that the top 1% of Americans may be controlling up to 25% of the country’s income by 2030

The Importance Of Education

 Studies show that those who go to college earn about 80% more than those people who only have a high school diploma. That is a huge gap. So, go study something. 

Between 2017 and 2018, people who did not have a highschool diploma were actually the only group in the US to see themselves diving even deeper into poverty. Get your highschool diploma and go to college. It is one of the best things you can do for yourself. 

What Else Can Be Done

Fight Poverty Not the Poor protest at Drake University outside of the Democratic Debate in Des Moines, Iowa. Image credit: Aspects and Angles/Shutterstock.com

Aside from what you can do as an individual, some say that government needs to put in place the right checks and balances to minimize inequality, and maximize wealth for all. No one is calling on a socialist society to be implemented in the US around the corner, but a smaller concentration of wealth at the top will clearly benefit all. Yes, the rich are getting richer, the poor, poorer. And this is something for everybody to worry about. 

More in Economics