Has inequality declined over the course of the recession and the recovery?

The fall and rise of inequality over the Great Recession

by Aparna Mathur

"A more meaningful and, long-term, response to alleviating poverty and income inequality requires investments in human capital and training, encouraging workforce participation, and stemming the decline in traditional, stable family structures, which is highly correlated with poverty and adverse economic outcomes across generations."

Has inequality declined over the course of the recession and the recovery? In a recent paper, Stephen Rose of the George Washington Institute of Public Policy contends that the answer is yes. He claims that the top 1 percent have faced the largest losses in income over the Great Recession, which should result in declines in inequality. In contrast, recently updated data and analysis by Emmanuel Saez suggests that the top 1 percent has captured 91 percent of income growth over 2009-2012. In other words, Saez concludes that most of the gains from the recovery have gone solely to the top 1 percent. This might lead one to conclude that inequality has risen over the course of the recession. So what is really going on with inequality?

In this article, I evaluate trends in income inequality since the start of the recession using recently updated data from the Congressional Budget Office (CBO) and from Emmanuel Saez’s database, which is based on tax filing statistics from the Internal Revenue Service. I supplement this analysis with data from the Consumer Expenditure Survey to study consumption inequality as well. I find that income and consumption inequality declined over the period 2007-2011, however inequality has followed a U-shaped pattern, declining initially and then rising but not yet back at 2007 levels.


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