U. S. Income Distribution—a Chart to Contemplate

The chart above, courtesy of Census Bureau data, illustrates household income distribution in the United States based on the most recent information available. You can click on the chart for a larger version. I find this chart interesting for any number of reasons. Note that it illustrates in one compact form the distribution of income, median income, the five income quintiles, and the incomes of the top 10%, 5%, and 2% of income earners.

There are any number of observations I could make about this chart. I’ll limit myself to just four.

  • Why aren’t there more households to the left of the highest bar in the chart?
  • Why is the highest bar in the chart, representing 6% of households, the $15,000-$20,000 bar?
  • What’s with the two bars at the far right of the chart, the highest income earners?
  • How has the chart changed over time?

Last question first. The first time I saw a chart like this was a little over 40 years ago. I found it a bit shocking back then. It was actually pretty similar to this chart other than that the income numbers were all smaller. The biggest change I can recall is that those two bars at the far right are both higher than they used to be and, if I remember correctly, the several bars just to the left of them are lower.

Now, why aren’t there more households to the left of the highest bar? I think that’s an artifact. It’s been created by policies like the minimum wage and various policies that produce non-wage and non-taxable compensation, e.g. Medicaid. Below a certain level earning taxable income doesn’t make any sense since it lowers non-wage, non-taxable income. It also might be an artifact of reporting.

I think it’s pretty clear why the highest bar in the chart is where it is: essentially, that represents household with one wage earner, working full-time, earning minimum wage. They don’t comprise a vast number of household but there are enough of them to make it the highest bar. I also think that the several bars just to the right of that one largely consist of households with more than one wage earner, both earning minimum wage or, possibly, slightly above minimum wage.

That brings us to the real question. Why are those two bars at the far right of the chart so high? Beats me. I can’t think of any likely natural explanation. Note that the second bar from the right should actually be thought of as ten bars. Each of those bars would be quite a bit lower than that single bar but as depicted it neatlly illustrates a point I’ve made around here fairly often around here: you’ve got to think beyond the top 1% of income earners.

As I say although I can’t think of any likely natural explanations I can think of explanations. It isn’t intelligence. Intelligence isn’t distributed in the population that way and after you get beyond two standard deviations the correlation between income and intelligence just isn’t that close. The explanations I can come up with include inherited wealth and various other forms of rent-seeking. There are about 115 million households in the United States. 1% of that is 1.15 million households. 2% of that is 2.3 million households.

Remember that the tail on the right is actually very, very long. To my eye that still doesn’t explain why the second bar (actually ten bars combined) is as high as it is. Even if you divide it by ten it’s still too high as is the bar on the right which is actually many, many more bars.

There are roughly a half million physicians in the country. Nearly all of them are in those last two bars in the chart. My inference is that although they comprise a big chunk of those bars they don’t comprise all of them. Lawyers who graduated from the top 15 law schools comprise another chunk of those two bars as do middle and upper level managers of medium-sized and large companies and some top managers at small companies.

How much of what’s being illustrated by those two rightmost bars is the distortionary effect of our outsized financial sector?

26 comments… add one
  • PD Shaw

    It would be interesting to remake this chart with the reporting of healthcare compensation on this year’s W-2 for total compensation, if that were possible. Would that create a slight bimodal distribution?

    It seems to me that the two bars on the right are just limitations in the graph; they simply didn’t want to take it out in 5k units as the bars became imperceptible. I really hope there isn’t a “hump” somewhere past $200k that would tell us something interesting.

  • Would that create a slight bimodal distribution?

    I think it almost certainly would.

    As I wrote in the body of the post, I think that there’s no natural explanation for the second to the last bar, even divided among ten bars.

  • Icepick

    Why aren’t there more households to the left of the highest bar in the chart?

    A combination of EITC, SS and SSDI, at a guess.

  • It would be interesting to remake this chart with the reporting of healthcare compensation on this year’s W-2 for total compensation, if that were possible. Would that create a slight bimodal distribution?

    Heh, I was thinking the same thing as well.

  • Drew

    This issue has become one of fascination for me, because I think it is going to define politics over the next 20 years. (And I’m not optimistic, by the way.) I have no demonstrably proveable views or answers, like I do on the whole “Incentives” thread. Just observations and views that I hope might spur reasonable debate.

    It is undeniable that incomes for the very talented/sainted/rare/desirable blah, blah, blah have increased disproportionately. But could we slice and dice that somewhat?

    We have entertainment (music, movies, sports etc.) Historically the actual entertainers made jack squat. (I know, movie stars have always been movie stars, but there has been a sea change in entertainment comp structure) “Free agency” in sports, and of all things, Led Zeppelin in music changed all that. The money goes to the performers, although the top performers. I’m willing to make the value judgment that I think that is appropriate. What I’m not willing to do is say to The Average Joe that if they want to spend their hard earned money on stars they should be expecting tax subsidy from the wealthy or pity for not having money for groceries. Michael Jordan, P Diddy and Patrick Kane thank you for the ticket prices you pay, but don’t expect a care basket from them when you need a new car. Seems like a bit of a self inflicted wound.

    The Professions

    Law, finance, medicine, hired management. You all know my views on price discovery in medicine. steve would know better than I, but clearly the surgeons are very well compensated and in those upper tiers. But are primary care physicians? And are they not the bulk? And is the disparity between surgeons and internests warranted. My gut says no. But I’m no authority. In any event, its a “subsidized” industry based upon third party payers……….a system the Average Joe votes for. Self inflicted would #2.

    Law and finance? For the most part one and the same, for the top 15 law school grads paper the finance…………at $600-$1200 per hour. Is finance subsidized? You bet. To paraphrase “how do you like me now?!” Who’s subsidizing them now? Obama. Who voted for Obama? Law and finance………….and the Average Joe who rails against Big Law and Finance. Self inflicted wound #3.

    I know hired management in my segment of the market like the back of my hand. I will tell you that finding the right people is worth the weight in gold. Period. That’s a value judgment, but I will defend it to the death. Large corporate? Don’t know. But suspicious.

    Business Owners
    Anyone who wants to cure income disparity by penalizing business owners is a moron. They are the best of the best. (Business, not necessarily character) The biggest balls/risktakers. The street smart. The people willing to put it all on red. Deserving of the spoils. The people who make jobs for the Average Joe. Don’t make tax policy self inflicted wound #4.

    In summ, I think the returns to value creation capability have become primary in the last 30 years (pulling a lever every 15 seconds on an assembly line doesn’t cut it), even if some is subsidy/rent seeking facilitated. I can’t imagine that it will be any less in the future. Fixing it through tax based redistribution is foolish and just self defeating. Reducing it through less government subsidy and rent seeking seems to escape Democrats worldview.

    I’m not optimistic.

  • Andy

    The average recipient of Social Security gets about $15k a year in income from the program. Coincidence?

    In addition to what PD said, I would like to further break down the data to include the various types of income (wages, non-wage compensation, investment income, government benefits, etc.).

  • Eric Rall

    To my eye that still doesn’t explain why the second bar (actually ten bars combined) is as high as it is. Even if you divide it by ten it’s still too high

    Is it? Eyeballing the graph, the second bar is about 1.75%, and the last regular-width bar is about 0.25%. Ten bars the height of the last regular-width bar would add up to 2.5%.

    There’s probably also a blip up at $200k (making it higher than the 195 bar), same as for $100k and $150k, due to our taste for round numbers.

  • What’s with the two bars at the far right of the chart, the highest income earners?

    They’re aggregated columns ($200-$250) and ($250+) instead of income groups broken into $5,000 increments.

  • Drew

    I think we have analyzed the technicalities of the chart to death. Anyone have an answer to greater income inequality, or what to do about it?

    Is it just a natural and unaddressable artifact of the way our economy has evolved the last 50 years?

  • I think I’ve made my view clear. I don’t think it’s a “natural and unaddressable” feature of our economy. I think it’s an artifact of the web of subsidies we’ve put in place. It’s long past time to bring government out of the 1950s and start winding down the subsidies even as government’s consumer services are improved. We can rebuild it. We have the technology. We can make it better…faster…

    Recipients of subsidies will fight their loss to the death. Indeed, their lives do depend on it.

    The alternative will be catastrophic system failure and the outcome of that will be worse than if we wind the system down in a controlled fashion.

  • PD Shaw

    I think most of the differential here outside the top 1% is related to marriage. Look at this chart, showing how much the household incomes have diverged since 1950 on the basis of the marital situation. Its not simply that a two income household makes twice as much as a one income household — a married couple with one income will usually make more than a single person. Plus, the percentage of people married has declined over time, so the divergence has to be considered in light of the increasing percentage of those single.

    BTW/ a family physician makes btw/ $130k and $200k, so he or she usually wouldn’t be in the top 1% unless there was additional marital income. My impression is that with more female doctors, its much more likely that doctors marry doctors.

  • PD Shaw

    Of course, I don’t have an answer for it. It seems like this is the natural result of women’s lib, not just in terms of greater economic/employment opportunities, but also because women are far more likely to consider the economics of a partnership than men and they are influencing the outcomes. Its just that a certain percentage of women are benefiting from these changes.

  • PD Shaw

    That final sentence would better read: Not all women have benefited from these changes.

  • Drew

    You know I couldn’t agree more with what you wrote at 9:33, Dave.

    But I’m at a loss as to how to make it happen. I don’t know if you – or anyone here – shares my utter disgust with the media, but in my view it is 80% -90% in the tank for the left and an excuse making machine for them. Its a hard headwind to buck. And it will go to the wall to carry the water against an alternative, small government voice, choosing to go for the sob stories (you ain’t seen nuthin’ yet on the sequester) vs a sober view that yes, we can still provide for the poor and disabled, and deal with various necessary communal social functions through government and still bring government into the current century. Oh, hell, let’s at least get them to 1980. Its a start.

    I think people underestimate the propaganda power of the cacophony of media. Short attention spans; having to deal with the kids; watching football… Just listen to man in the street interviews. But somehow, some way, we need to get rid of the patrician/rent seeking ways of government. Finances are at or near a breaking point.

  • Icepick

    The alternative will be catastrophic system failure and the outcome of that will be worse than if we wind the system down in a controlled fashion.

    Fuck the revolution, bring on the Apocalypse.

  • MJA

    There’s a perfectly natural explanation for the 2nd bar from the right. And probably both. The 2nd bar from the right represents 10 income blocks. The total looks to be abt 1.75% of households, which is an avge of 0.175% households per block, less than the 3rd bar from the right, which looks to be at about 0.25%. I’m sure the same logic would apply to the last bar from the right as well. This chart is, after all, essentially a Bell curve.

  • participant-observer-observed

    The bump at the far right is probably from the dual citizen/green carder 1%s from other countries and their kids in US universities.

  • This is a really interesting chart. Do you know of a source which gives a breakdown of the two right hand bars, obviously not in $10,000 increments: millions would do!

  • Cynthia Page

    There is something missing from this evaluation of income, and that is expenditures per dollar income. The reason this would make a difference is that those at the levels of income lower than the top 2% spend an inordinate amount of their income on things that benefit corporations, while those at the top spend far less, proportionally, on the same things.

    What that means is people at the top tend to stockpile money, as in shares of corporations held over long periods of time, and accruing monetary benefits far above their needs, while those at the bottom have no expendable income because their expenditures go directly to corporations that stockpile money to distribute in dividends to those at the top.

    You have 307.5 million people paying bills, education costs, luxury items, and necessities for their income level. And you have 12.5 million receiving benefit from what the lower incomes spend, either in direct pay, capital gains, or dividends.

    The expendable income at the top tends to be either saved or invested in high return stocks and bonds, or sequestered off-shore. They take money from the poor, because they have to live, eat, procreate, and breathe, and give it to those who have too much already.

    There is nowhere the top 2% could possibly spend it all. So they buy things that benefit the rich (luxury items, like five or six mansion estates around the world, or yachts and Lamborghinis, produced by rich companies meant to benefit rich people) while sucking the life out of those at the bottom by over charging for necessities like food, transportation, housing, and other unavoidable costs, like cable or satellite TV, over-priced phones, entertainment that keeps them from protesting against those who are rich, and medical costs that are ridiculously over-priced.

    The entire system is set up to suck most people dry while raining money on a few at the top. In such a system, there is no other reason why the distribution of income continues to get worse.

  • The Congressional Budget Office released a report for 2011, Trends in the Distribution of Income, 2011. It shows that the average household income, after transfers such as Social Security etc., but before taxes, the average household income was $93,900. Adjust that for inflation to 2015 and it’s $99,000. How many households are near 20% of the average? The answer is not enough. Or what percentage are below average? The answer is too many. Inequality. Nice graph, thanks. check my blog, http://benL8.blogspot.com

  • draph

    Cynthia makes a good point; but in some ways that implied evil system is still self correcting, unless the super rich are OK with everyone “sucked dry” in the end except themselves. To keep the money raining in, the bottom 99% still need enough income to keep buying for their needs and wants in sufficient quantities for the “owners” to maintain or continue growing their wealth. Worse case scenario is the top folks do suck everyone dry; but to maintain their standard of living, they still need infrastructure, technology, services, and the mundane necessities of life they can’t create for themselves (ie who’s going to make their toothpaste for them after they collapse the world economy through wealth hoarding). So, the rich people become the “government” and give all the little people a living stipend sufficient to keep the social structure intact and prevent a violent revolutionary run on their estates. They may even have to buy the military….and, in that end, isn’t that what socialism is, anyway – an elite government class of people deciding how to distribute wealth and take care of the citizens they rule after they take care of themselves? At that point, what difference does it make whether pro-socialistic government or pro-capitalistic government got us there? This is why our two party system needs to get back of respecting both points of view and finding compromise that works – it takes good leadership with a long term vision rather than short- sighted wealthy business owners (who could destroy the economic and social fabric with their greed) or short-sighted socialists (who could destroy the economic and social fabric by punishing entrepreneurship and *honest* business competition with unrealistic “fairness” ideology). Let’s hope there are still enough sensible people on both sides. I still tend to fall on the side of capitalism with careful controls on greed, unfair, anti-competitive business practices, and maltreatment of working level blue and white collar workers, since in all of world history, there has never been a benevolent monarchy or socialist/communist government that successfully and continuously improved the standard of living for its citizens (only headed them toward equal destitution).

    To prevent stockpiling of wealth, which I agree could be harmful to world economics over the long, long term, it seems it would make some sense to force estates to forfeit all but a certain maximum amount of personal wealth upon the deaths of owner and spouse, and not allow billions to be handed down to their descendants who never lifted a finger or contributed anything to society to earn it (I call it blue blood welfare – what creates “royalty” in capitalistic societies). However, even the Clintons have learned how to protect personal wealth by creating “charitable foundations”. This allows super rich to “donate” their money (tax break) to foundations (tax abated) they and their descendants can run for a foundation paid wage that still provides enough to allow for all the spoils of the rich. It’s also more politically correct: “It’s not my private jet, it’s the foundation’s.” There is some benefit – some of the stockpile still has to be used for charitable things to keep the foundation looking legitimate….

  • Kevin

    Want to do something fun?

    Switch the x and the y axis…

  • Jeremy Singer

    This graph gets really hazy at the top.

    All incomes >= 250,000 is 3%.

    I’d like to see the structure of just that 3%. I am betting that it is really amazing.

  • R. Wise

    The Census graph above includes almost no federal means-tested welfare benefits. Almost all welfare program benefits are excluded from Census data. If converted to cash and leveled among low income people, the value of all federal means-tested entitlement programs would amount to $11,000 per PERSON, which would clearly shift many of the bars on the left side of the graph well to the right. There are also some state and local programs that would further shift households to the right. There are very few, if any, households whose actual income (including welfare) is below $15,000, and relatively few below $30,000. The graph misleads the reader on actual household income because it excludes government transfers. The Census data does say this, but it is always in a very remote place in a huge volume of information and data, where most readers will miss it.

  • Michael L Danielson

    “Anyone who wants to cure income disparity by penalizing business owners is a moron. They are the best of the best. (Business, not necessarily character) The biggest balls/risktakers. The street smart. The people willing to put it all on red. Deserving of the spoils. The people who make jobs for the Average Joe. Don’t make tax policy self inflicted wound #4.”

    No. Absolutely in no way is this true. Business owners don’t make jobs for the Average Joe. Consumer demand makes jobs for the Average Joe. Business owners take risks on whether or not the jobs they’re trying to create are actually jobs that consumer demand has room for, but there is no amount of entrepreneurial savvy that will enable a job to be created unless there is sufficient demand to pay for that job to exist.

    Business owners are people willing to take risks. That does not make them smart, or wise, or effective, or even necessarily good for the economy. There are as many businesses that are horrible for the economy as there are businesses that are great for the economy.
    (Any business that moves large amounts of cash out of the hands of the spending class and into the motionless on- or off-shore accounts of those wealthy enough to not spend it immediately is BAD for the economy.) There is certainly no reason whatsoever that we should avoid “penalizing” business owners by asking them to pay taxes. Business taxes have been higher than they are now for decades, and business owners managed to survive just fine on 30x their employee’s average wage instead of 280x like they do today.

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