Income Inequality May Be The New Normal, Study Finds

03/22/2013 01:01 pm ET
  • Bonnie Kavoussi Master's student in economics, the University of Michigan

If you're poor, you have a smaller chance of getting rich now than in the 1980s, a new study suggests.

The study, released Thursday by the Brookings Institution, found that the spike in U.S. income inequality between 1987 and 2009 was mostly due to long-lasting changes in household incomes. It also found that the earnings gap widened between American men as they got older.

"It's not that the rich will stay rich and the poor will stay poor, but that they are relatively less likely to switch positions than they were before," Bradley Heim, a co-author of the paper and an economics professor at Indiana University, wrote in an email to The Huffington Post on Friday.

Income inequality in the U.S. has skyrocketed over the past few decades, and this study suggests that this recent increase is not going away soon. The incomes of the top 1 percent of households by income spiked 241 percent between 1979 and 2007, while the incomes of the middle fifth grew just 19 percent, when adjusted for inflation, according to the Economic Policy Institute. The U.S. has more income inequality than most advanced countries.

Raising taxes on the rich, as President Barack Obama has done, may not help much on its own either. The Brookings study found that the federal tax system, which taxes the rich more than the poor, reduced income inequality only modestly during the time period studied.

The study's authors -- economists at the Federal Reserve, Treasury Department, Middle Tennessee State University and Indiana University -- analyzed U.S. tax returns from 33,859 tax filers by dividing income into two categories: transitory and permanent.

Getting furloughed -- that is, forced to take unpaid time off -- for a couple of days in a single year would constitute a transitory income change, while getting a pay raise would constitute a permanent income change, Heim said. The study found that most of the recent increase in income inequality is due to "permanent" income changes.

But the study is not implying that anyone is condemned to poverty if they're poor.

"When we try to decompose inequality into these two parts, we get widely varying answers on how much is due to the permanent component, ranging from 36% to 87%," Heim wrote to HuffPost. "To be able to say that the poor are likely to stay poor and the rich are likely to stay rich, we'd need consistent results that income inequality is primarily due to the permanent component, and we don't find that."

Earlier on HuffPost:

Top 10 States With The Worst Income Inequality

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