Increasing inequality and financial burdens on low- and middle-income families are hindering our economic growth and stability. Below we review signs of increased income inequality and look at how this inequality impedes a highly productive population, entrepreneurs, and a stable economic environment in which they can flourish. (All data from "The American Middle Class, Income Inequality, and the Strength of Our Economy" by Heather Boushey and Adam Hersh)
Income inequality on the rise
35 percent: Percentage median family incomes rose between 1979 and 2007, the last year before the Great Recession
278 percent: Percentage incomes rose for the 99th percentile of income earners during that time
50 percent: Percentage of national income earned by the middle three household income quintiles in 1979
43 percent: Percentage of national income earned by the same group in 2007
Income levels influence education
A strong middle class promotes a well-educated population, a key component of a productive economy. But growing inequality and rising college costs are preventing many promising students from pursuing higher education, resulting in a squandering of potential.
For instance, students from low- and middle-income families are less likely to complete college than their more wealthy counterparts, as illustrated in the chart below:
- A top-scoring, low-income student is about as likely as a low-scoring, high-income student to complete college.
- A top-scoring, middle-income student is about as likely as a middle-scoring, high-income student to complete college.
- A high-scoring, low-income student is less than half as likely as a high-scoring, high-income student to complete college.
Even high-scoring students from middle- and low-income families are less likely to pursue a college degree because of limited access to education or to economic opportunity.
70 percent: Percentage of high-scoring students from low-income families who do not pursue a college degree
50 percent: Percentage of high-scoring students from middle-income families who do not pursue a college degree
25 percent: Percentage of high-scoring students from high-income families who do not pursue a college degree
Low- and moderate-income families are also less likely to have access to high-quality child care and early learning opportunities compared to higher-income families.
14 percent: The percentage of a low-income family’s income spent on child care each year per child for children under age six, or about $2,300
6 percent–9 percent: The percentage of a middle-income family’s income spent on child care each year per child for children under age six, or about $3,500
3 percent–7 percent: The percentage of an upper-income family’s income spent on child care each year per child for children under age six, or about $4,800
40 percent: The percentage of three-year-old children from low- and moderate-income families enrolled in pre-kindergarten class
80 percent: The percentage of three-year-old children from the top quintile enrolled in pre-K
Inequality holds back entrepreneurs
A strong middle class also allows families to access resources such as credit and an education that can sustain entrepreneurs and reduce the risk of starting a business. But income inequality limits access to education and credit, deterring entrepreneurship.
Two-thirds: Approximate proportion of entrepreneurs who have at least some college education
One-half: Approximate proportion of overall workforce that has a college education
One in five: Proportion of Americans facing credit restraints, the largest of which are their current levels of income, wealth, and age
What does this mean?
These figures are a sample of the evidence on how income inequality can hold back the U.S. economy by reducing access to education and economic opportunity. Tackling income inequality can strengthen the middle class, helping pave the way for economic growth by promoting the development of human capital and fostering the next generation of entrepreneurs.