Crush Your Career Goals

Understanding Income Inequality and the Income Gap

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Table of Contents  
  1. Lobbying
  2. Labor
  3. Education
  4. This Won’t Last

Income inequality is defined as “the extent to which income is unevenly distributed among a population.”  What does that mean and how has it gotten so bad?

How bad is it?  A study released by Oxfam, just ahead of the World Economics Forum in Davos, Switzerland in January estimates that by 2016, next year, the top 1% will own more wealth than the other 99% of the population.  The top 1% will own more than 50% of the entire world’s wealth.

Well, you might think, a lot of the world lives in terrible poverty.  I’m in the US so I’m not doing too bad.  And that’s true.  But is doing better than a rag picker in a third world slum your mark of success?

Let’s look a bit closer to home.  In the good old USA, the top 0.01% earn $27 million a year.  The bottom 90% earn $31,000.  Ranking countries by the equality of income distribution, the US in the 30th percentile meaning that 70% of countries have wealth more equally distributed than we do.

To put it in perspective without percentages and percentiles, the income gap has not been this bad since the start of the Great Depression. One quarter of US workers make less than $10 an hour.

CEO compensation between 1978-2013 and adjusted for inflation rose 937% compared to the average worker’s increase of a lousy 10.2% for the same time period.

So what is causing this run away inequality?  Let’s do that old trick where we follow the money.


At the end of the 1970’s US politics turned away from the middle class and toward new, aggressive lobbyists and pressure groups acting on behalf of high income interests.  This netted big, big gains.  Private gains with socialized losses courtesy of government, ie, tax payer funded bail outs.

Capitalism for the poor and socialism for the rich.

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The financial industry pushed for deregulation of financial markets which made possible lucrative but risky investments.  Twenty percent of the 1,645 billionaires listed by Forbes Magazine have interests in the financial or insurance sectors.

These sectors spent $550 million dollars lobbying Washington and Brussels in 2013.  During the 2012 US election cycle, the financial sector spend $571 million on campaign contributions.  

The infamous Koch brothers recently announced they will spend $889 million buying politicians in the upcoming 2016 elections.  They are going to want a big return on that kind of investment and you can bet that you and likely anyone you know will not be benefiting much from their obscene expenditure.


All states are at will work states, meaning an employee can be fired with no reason and no notice.  Many states have certain exemptions but the burden of proof of a violation is often on the fired employee.  Boss having a bad day and decides you looked at him funny in a meeting?  You can be fired for that.

Labor unions give workers protection from stuff like this and much worse but unions are declining.  In 1983 20% of the US work force was part of a union, by 2014 that had dropped to 11%.  This is why companies like Walmart fight tooth and nail to keep their employees from unionizing.  Even going so far as to show a ludicrous propaganda video to new employees during training warning them of the “evils” of unions.  I suppose if anyone could recognize evil it’s those Waltons.

There was also just a general change in the relationship between employees and employers.  Once upon a time, loyal employees were rewarded with generous benefits and raises when the company was doing well.  You worked for the same company for thirty years and retired with a nice pension and gold watch.

And then there was a shift.  All that largess started going to CEO compensation and stock holders.  And the workers didn’t really push back.  So the companies started seeing what else they would lay down for.

They stopped giving raises, started taking away benefits like health care and sick leave.  Started laying people off.  And apparently deciding it was better to be feared then loved so they squeezed the job of three people out of one.

People were so afraid to be seen as unnecessary that they dared not even take the paltry vacation they were granted.  41% of Americans don’t use all of their allotted vacation days.  Too afraid to even take a sick day.  So don’t be pissed of when your colleague comes in with the flu and spreads it around, blame your boss.

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One of the solutions to income inequality is higher education.  Jobs that require a college degree pay on average, $30,000 a year more than those that don’t.  But there are a few problems with this.

The cost of college has sky rocketed.  It has increased 1,122% since 1978, making it twelve times more expensive than it was a single generation ago.  There is $1.2 trillion in outstanding student loan debt currently.  That amount is split over 38.8 million borrowers.

Part of the reason for the huge increase in the cost of college is the change Congress made to bankruptcy laws in 1998.  They exempted student debt from being discharged in a bankruptcy, so no matter what, with a few paltry exceptions, you can never get rid of student loan debt without paying it off.

Lenders, rejoicing in the fact that they would never be stuck holding the bag, opened their coffers and colleges raised tuition accordingly.  This cut off a vital path for those looking to lift themselves out of poverty.

This Won’t Last

This model is not sustainable.  This is not being jealous because your boss has a Ferrari and you take the subway.  This is anger because your boss can buy an election and you can’t.  That your boss can afford top notch health care when they get sick and you can’t even afford to take a day off no matter how sick you may be.

It is also not sustainable for those who are currently benefiting from it. Rich people need middle class people to continue to do certain things, buy houses and big televisions, new cars, spend a lot on Black Friday.  Well, we can’t.

That’s why they’re now trying to push through secret trade agreements like TTIP.  Because the American middle class is tapped out and now they want to spread their poisonous practices to other countries too, where there is still money to be made selling the consumer lifestyle Americans have had to turn away from.

We’re not all willing to eat cake and trickle down isn’t supposed to mean the 1% pissing on the rest of us. I don’t know what the breaking point will be but it’s coming and it’s going to be ugly for more than just the 99% for once.


Candice Elliott - Senior Editor Candice Elliott is a substantial contributor to Listen Money Matters. She has been a personal finance writer since 2013 and has written extensively on student loan debt, investing, and credit. She has successfully navigated these areas in her own life and knows how to help others do the same. Candice has answered thousands of questions from the LMM community and spent countless hours doing research for hundreds of personal finance articles. She happily calls New Orleans, Louisiana home-the most fun city in the world.

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