Last updated: December 29, 2014



What does the shocking wealth gap in US cities mean and why does it matter?

An Occupy protester marches in 2011 to protest against rising inequality and major bank b

An Occupy protester marches in 2011 to protest against rising inequality and major bank bail outs. Source: News Limited


It's “the defining challenge of our time,” says President Barack Obama, who spotlighted the issue in his State of the Union address last month.

A recent study from the Brookings Institute found the wealth gap in America’s main cities is growing. Those with the highest inequality include:

• Atlanta, Georgia

• San Francisco, California

• Miami, Florida

• Boston, Massachusetts

• Washington, DC

• New York, New York

• Oakland, California

• Chicago, Illinois

• Los Angeles, California

• Baltimore, Maryland

So why has the issue suddenly galvanised attention? Here are questions and answers about the wealth gap — what it is and why it matters.


A. Yes. What's new is the widening gap between the wealthiest and everyone else. Three decades ago, Americans' income tended to grow at roughly similar rates, no matter how much you made. But since roughly 1980, income has grown most for the top earners. For the poorest 20 per cent of families, it's dropped. Incomes for the highest-earning 1 per cent of Americans soared 31 per cent from 2009 through 2012, after adjusting for inflation, according to data compiled by Emmanuel Saez, an economist at University of California, Berkeley. For the rest of us, it inched up an average of 0.4 per cent. In 17 of 22 developed countries, income disparity widened in the past two decades, according to the Organization for Economic Cooperation and Development.

Addressing income inequality was a major theme of President Obama’s State of the Union ad

Addressing income inequality was a major theme of President Obama’s State of the Union address. Source: AFP

Q. So who are the top 1 per cent in income?

A. They're bankers, lawyers, hedge fund managers, founders of successful companies, entertainers, senior managers and others. One trend: Corporate executives, doctors, and farmers made up smaller shares of the top 1 per cent in 2005 than in 1979. By contrast, the proportion of the wealthiest who work in the financial and real estate industries has doubled. The top 1 per cent earned at least $394,000 in 2012. Through most of the post-World War II era, the top 1 per cent earned about 10 per cent of all income. By 2007, that figure had jumped to 23.5 per cent, the most since 1928. As of 2012, it was 22.5 per cent.

Q. How has the middle class fared?

A. Not well. Median household income peaked in 1999 at $56,080, adjusted for inflation. It fell to $51,017 by 2012. The percentage of American households with income within 50 per cent of the median — one way of measuring the middle class — fell from 50 per cent in 1970 to 42 per cent in 2010.




New York is home to 96 of America’s 515 billionaires.

New York is home to 96 of America’s 515 billionaires. Source: AFP


A. The evidence is mixed. Countries that have more equal income distributions, such as Sweden and other Scandinavian countries, tend to enjoy more social mobility. But a study released last month found that the United States isn't any less mobile than it was in the 1970s. A child born in the poorest 20 per cent of families in 1986 had a 9 per cent chance of reaching the top 20 per cent as an adult, the study found — roughly the same odds as in 1971.


Q. So why has income inequality worsened?



The rise of tech giants like Apple and Google has led to protests in San Francisco. Above

The rise of tech giants like Apple and Google has led to protests in San Francisco. Above, activists target a Google bus. Source: Supplied

Q. Does wealth distribution follow a similar pattern?

A. It's even more pronounced. A Pew Research Center study found that the wealthiest 7 per cent of households grew 28 per cent richer from 2009 through 2011. For the bottom 93 per cent, collective wealth fell 4 per cent. That's largely because wealthy households own far more stocks and other financial assets than others. By contrast, whatever wealth middle-class Americans have is mainly in their home equity.

Since the Great Recession ended, stockmarket averages have soared, setting records in 2013. Home values, though, remain far below their peaks reached in 2006. That divergence has benefited the richest and left others struggling.

Q. Where do the 1 per cent live?


Q. Is anything being done to narrow the wealth gap?


Billionaires Bill Gates and Warren Buffet are both committed philanthropists.

Billionaires Bill Gates and Warren Buffet are both committed philanthropists. Source: AP

Q. Is everyone concerned about the wealth gap?

A. Some conservative economists question much of the data. They note, for example, that Saez's figures don't include government benefits, such as Social Security or food stamps, or employer payments for health insurance, that benefit the less-than-rich. Yet the Congressional Budget Office did include government benefits and the effect of taxes in its own study and still found a sizeable gap: For the top 1 per cent, income jumped 275 per cent, adjusted for inflation, from 1979 to 2007. For the middle 60 per cent of Americans, it grew less than 40 per cent.


A. Most ideas break down along political lines. Liberal economists tend to support a higher minimum wage, greater access to preschool and college education and more spending on roads, bridges and other infrastructure to help generate good-paying jobs. Most favour higher taxes on the wealthy to pay for such programs.


In a speech last month, Florida Republican Sen. Marco Rubio acknowledged the enormous pay disparity between a fast food company's cashier and its CEO.
