U.S. income inequality fell in 2015 as median household income surged

Story: 2016 C.E.  |  Last updated: January 1, 2016

For the first time in years, the gap between America’s richest and poorest households showed signs of shrinking. New data from the U.S. Census Bureau, released in September 2016 C.E., showed that median household income jumped 5.2% in 2015 C.E. — the largest single-year gain on record — while the poverty rate dropped and a key measure of income inequality fell for the first time since 2007 C.E.

What the data showed

• Median household income: The Census Bureau reported a rise from roughly $53,700 to $56,500 in a single year — the strongest annual gain in the data’s history, with gains felt most sharply by lower- and middle-income households.
• U.S. poverty rate: The share of Americans living below the poverty line fell to 13.5%, down from 14.8% the previous year — a drop of 3.5 million people lifting out of poverty in one year.
• Gini coefficient: This standard measure of income inequality declined in 2015 C.E., reversing years of stagnation — though analysts cautioned that a single-year dip does not confirm a sustained trend.

Why 2015 C.E. stood out

The gains were broad but uneven. Wages grew fastest at the lower end of the income scale, partly because a tightening labor market was finally pushing up pay for workers in service industries, retail, and care work — sectors that had lagged for decades.

Black and Hispanic households saw some of the strongest percentage gains in median income that year. For communities that had been hit hardest by the 2008 C.E. financial crisis and its long aftermath, 2015 C.E. represented a partial — and overdue — recovery.

The role of policy is genuinely debated among economists. The economic expansion was well into its seventh year by 2015 C.E. Low unemployment rates were doing what economists have long argued they would: compressing wages upward from the bottom. But targeted interventions — including expansions of the Earned Income Tax Credit, the Affordable Care Act reducing health-cost burdens on lower-income families, and state-level minimum wage increases — also likely contributed.

The longer road to this moment

Income inequality in the United States had been widening for roughly four decades before 2015 C.E. The share of national income flowing to the top 1% grew dramatically from the 1970s onward, while wages for the median worker stagnated in real terms even as productivity rose.

The financial crisis of 2008 C.E. deepened existing inequalities. The recovery that followed was slow and initially concentrated among asset-holders — people with stocks, real estate, and investment portfolios — while workers without college degrees remained in a prolonged squeeze. By 2015 C.E., a sustained low unemployment rate was finally beginning to rebalance that dynamic.

It’s also worth placing this in a global frame. Across much of the developed world, income inequality had been growing since the 1980s. The United States remained one of the more unequal wealthy nations by any standard measure. One good year did not change that structural reality.

Lasting impact

The 2015 C.E. data became an important reference point in debates about what economic policy can and cannot do. It offered evidence that full employment — sustained low unemployment — is one of the most powerful tools available for raising incomes at the bottom, regardless of other policy levers.

The results also bolstered arguments for policies that reduce barriers to labor market participation, including access to affordable health care, childcare, and transportation. Researchers studying the period have pointed to it as a case study in how macroeconomic conditions interact with targeted policy to produce or suppress income gains for low-wage workers.

For data journalists and economists, the FiveThirtyEight analysis by Ben Casselman modeled how to read Census income data carefully — distinguishing between noise and signal, and resisting the temptation to call a single data point a trend. That interpretive discipline has influenced how economic data reporting is done.

Blindspots and limits

One strong year does not reverse four decades of widening inequality. The Census Bureau data itself showed the U.S. Gini coefficient remained among the highest in the wealthy world, and subsequent years brought renewed pressure on lower-income households from rising housing costs, healthcare expenses, and inflation.

The Census income measure also has well-documented limitations: it excludes capital gains, undercounts income at the very top, and misses wealth inequality entirely — a gap that widened even as income inequality briefly narrowed. The Economic Policy Institute and others have noted that wealth concentration among the top 1% continued to grow through this same period.

There is also a racial equity caveat. While Black and Hispanic households saw strong income gains in 2015 C.E., the absolute income gap between white households and households of color remained large. Percentage gains do not close structural gaps when starting points are far apart — a distinction that often gets lost in headline-level reporting on income data.

What a single year of data can teach us

The 2015 C.E. income data was genuinely good news — and it was fragile. What it demonstrated, above all, was that the conditions for shared prosperity can be created: sustained employment growth, targeted labor market supports, and policies that reduce the cost of basic needs can combine to lift incomes broadly.

The harder question — whether those conditions can be made durable — remains one of the central challenges of economic governance in the 21st century. Countries like Denmark, the Netherlands, and Canada have sustained lower levels of income inequality over decades, suggesting that the 2015 C.E. result was achievable — and that maintaining it requires sustained institutional commitment, not a single favorable year.

The story of income inequality in America is still being written. But 2015 C.E. offered a chapter worth studying: one where the arc, for a moment, bent toward a more equal distribution of the growth that workers had helped create.

Read more

For more on this story, see: FiveThirtyEight — Ben Casselman

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