The Income Distribution of China and the United States

In the year 2000, the average income of the top 1 percent in the United States was 88.5 times greater than the average income of the bottom 20%, signifying the largest rate of inequality since the Great Depression. This inequality rate continues to rise.Income inequality is a pressing issue that needs to addressed and solved. For many countries that are benefiting from economic growth, the profits go largely to the people at the top of the income hierarchy, whereas the income of the common workers hardly improves. Such is the case with China and the United States. Both countries have large economies that are among the top four in terms of GDP, and both countries expect to be an economic superpower of the 21st Century. However, all the stories of economic growth and prosperity form a gilded exterior that hides the unattractive truth inside. Both countries suffer from income inequality that severely deteriorates the lives of the middle and lower class workers. Both the United States and China suffer from income inequality for many reasons including immigration and migration, returns to skill, and a widening gap between the rural and urban dwellers.

The income distribution of a given society is the way in which income is dealt out by the economy. For example, if everyone earns the same exact amount of money, then there is perfect equality. Likewise, if one person earns all the money, then there is perfect inequality. Although income is ideally considered to be normally distributed, fitting the parameters of a normal curved distribution, certain countries, such as the United States and China, have a large skew towards the lower class. Researchers usually measure income distributions by dividing a population into segments, usually into quartiles or quintiles, and then measuring the amount of income each segment earns. A factor to consider when measuring an income distribution is income mobility: the ease at which workers can move up and down the income hierarchy. If the upper class always remains upper class and the lower class always remains lower class, then income inequality is a permanent and major problem. However, if mobility is present in which members of the different classes can move up and down the hierarchy, then income inequality isn’t as grave of a problem.

The income distribution in both China and the United States continues to be very unequal with a large increasing gap between the amount of income the poor and the rich earn. For example, in 2002, the richest 30 percent of the Californian society made about 40 percent of the total income, a 15 to 25 percent increase since the last decade. The case for all of America is even worse, as Michael Lynch shows in his article “Info Gap”: “This gripe is grounded in data from the U.S. Census Bureau’s annual report on income, the latest version of which was released in September. According to those data, the 20 percent of Americans with the lowest incomes earn a mere 3.6 percent of all wages paid, while the top twenty percent take home 49 percent of the loot”. Although it is expected that the richest 20 percent will earn the majority of the total income, the fact that they earn almost half of it is quite surprising. The Gini coefficient, a measure of income inequality in which the higher the number, the higher income inequality, of the United States remain at a poor 40.8, quite high compared to other developed countries of the world such as Japan and the nations of Europe, which have Gini coefficients from 24 to 30. This rate has been increasing ever since, with the gap between the wealthiest and poorest families growing 11 to 19 times since the past decade.